IMPORTANT POINT
The properties of a notified person do not vest in the Custodian. He is not a receiver, only when the notified person had a subsisting right in the property, the custodian can approach the special court for an appropriate direction in relation thereto.

Headnote:(i) Special Courts (Trial of Offences Relating to Transactions in Securities) Act, 1992-Sections 2(c), 3 and 4-Benami Transactions Act-Sections 3(1), 4, 5 and 7-Canbank Mutual Fund (CANCIGO) Scheme 1988-Canbank Mutual Fund framed a scheme known as CANCIGO Scheme-It was an open ended investment scheme on an assured return of 12.5 p.a. payable half yearly, the lock in period wherefor was one year-Stipulation made that transfers are not permitted-Respondent 2 was a registered stock broker-Respondent 3, a nationalised bank and respondent 4, a company owned by the bank at request of respondent 2 applied for CANCIGO units-Payments of application money made out of monies lying in bank account of respondent No. 2-Certificates received by respondents 3 and 4 were handed over to respondent 2-Interest accruing from CANCIGO was also credited to account of respondent 2-A sum of Rs. 25,01,67,129/- was due and payable by respondent 2 to appellant-Respondent 2 offered CANCIGOs to appellant-Offer accepted in discharge of his liabilities to appellant-Subsequently, respondent 2 was declared to be a notified person under the Securities Act-Custodian made an application CANCIGOs to be handed over to him-Whether respondent 2 had any transferable interest in respect of the securities in question-(No)-Respondent 2 did not hold any personal interest which would come within the purview of Section 6(d) of the Act.
       Held : The parties to the transactions cannot enter into any benami transaction so as to get any property transferred in their names for consideration, i.e., paid by a third party. A presumption, thus, arises that the parties never intended that the transaction would be a benami one. By reason of the said transaction, a cestui qui trust was created, inasmuch as the Respondent Nos. 3 and 4 applied for allotment of CANCIGOs on behalf of the Respondent No.2 and not on their own behalf. The trust was created for a purpose, namely, the benefit arising therefrom would be appropriated by the Respondent No.2. The principle of cestui qui trust is a synonym of a beneficiary. The said principle is not confined to the ingredients of Sections 82 of the Indian Trusts Act. It also covers cases falling under Section 88 thereof. Thus if it be held that the properties were acquired by the Respondents Nos. 3 and 4 in their own names in breach of their obligations while acting as an agent of the Respondent No.2, the case would be covered under Section 88 of the Indian Trusts Act. Section 88 of the Trusts Act has not been repealed by Section 7 of the Benami Transaction Act. In such a case the Benami Transactions Act would not operate. A beneficial interest indisputably can be transferred. For the said purpose, the only legal requirement will be essence of a trust. The right of a beneficiary to transfer his interest being absolute, the transferee derived rights, title and interest therein. Furthermore, the legal effect of a document cannot be taken away even if the property is chosen to conceal by a device the legal relation. (Paras 51 to 53)
       The allotment of CANCIGOS is not a transfer as thereby Canbank Mutual Fund had allowed the shares not as owner thereof. The Benami Transactions Act applies when there is a transaction in which the property is transferred. If allotment of CANCIGOS is not a transfer of property, the Act would not apply. (Para 56)
       Even assuming that the Benami Transactions Act as also the bar on transfer imposed by Canbank Mutual Fund (CBMF) would apply, the properties would remain vested in Respondent Nos. 3 and 4 and Respondent No.2 would have no interest therein which would attract the provisions of Sub-section (3) of Section 3 of the Act . (Para 58)
       A nationalized bank cannot hold somebody else s property in its name. We do not know as to under what circumstances it applied for allotment of CANCIGOs in its name on behalf of the Respondent No.2. We have also not been informed at the Bar as to whether there exists such a practice or the same is otherwise permissible. We in these matters, however, are not concerned with an ethical question. We are also not concerned with the misconduct of any officer of the Bank, criminal or otherwise, in this behalf. This Court is only concerned with the validity of the transactions. We have noticed hereinbefore that in a case of this nature a beneficial interest is created within the meaning of the provisions of Section 88 of the Indian Trusts Act in view of the fact that the Respondent Nos. 3 and 4 have applied the money of the Respondent No.2 for allotment of CANCIGO in their own names and applied for allotment of the certificates on behalf of the Respondent No.2 and not on their own behalves. It is, therefore, not a case where the transaction was benami in nature. It does not appear also to be a case where the parties entered into a transaction with a view to contravene any law. It is also not a case where any amount belonging to a bank has been utilized by a customer. The Respondent Nos. 3 and 4 have not claimed any right, title and interest in CANCIGOS. In view of the aforementioned circumstances, provisions of the Benami Transactions Act would have no any application whatsoever. (Para 65)
       The Appellant, in our opinion, had also the requisite locus to maintain its application before the Special Court with a view to show that it having an interest in the CANCIGOs, the same is beyond the purview of purported automatic attachment under Section 3(3) of the Act and consequently neither the custodian derived any right to deal therewith nor the special court could issue any direction in relation thereto. In any event having regard to the provision contained in Section 9A of the Act, all claims relating to the properties which are claimed to have been statutorily attached must be adjudicated by the Special Court only. The claim petition of the Appellant was, thus, maintainable. (Para 86)
       Furthermore, in a case of this nature, the Respondent No.2 did not hold any personal interest which would come within the purview of Section 6(d) of the Act. An interest in the CANCIGOS was not created in the Respondent No.2 for enjoyment in his personal capacity. Section 6(d) of the Transfer of Property Act would apply when a transfer is in violation of such stipulation which would defeat the object thereof. The learned Single Judge, therefore, committed an error in invoking Section 6(d) of the Transfer of Property Act. (Para 89)
       (ii) Benami Transactions Act-Sections 2, 3, 4 & 5-Applicability of the Act-Rule of strict construction-A nationalized bank cannot hold somebody else s property in its name-Act applies when there is a transaction in which the property is transferred. (Paras 59 to 65)

JUDGMENT

S.B. Sinha, J.-

BACKGROUND FACTS :

Andhra Bank (Respondent No.3) is a nationalized bank. Andhra Bank Financial Services Limited (Respondent No.4) is a company wholly owned by Andhra Bank. Canbank Mutual Fund (CBMF) is a subsidiary company of Canara Bank, another nationalized bank. The Appellant herein is also a subsidiary of Canara Bank. In or about 1989, Canbank Mutual Fund floated an open ended investment scheme known as CANCIGO on an assured return of 12.5 p.a. payable half yearly; the lock in period wherefor was one year. A stipulation was also made to the effect that transfers are not permitted. Hiten P. Dalal (Respondent No.2) was a registered stock broker. Respondent No.3 at his request applied for CANCIGO units of face value of Rs. 11 crores. Similarly, Respondent No.4 also at the request of Respondent No. 2 applied for CANCIGO units of face value of Rs. 22 crores. Indisputably, the payment of application money for purchase of said CANCIGO units was to be made, out of the monies lying in the bank account of Respondent No.2. The Respondent Nos. 3 and 4 complied with said request of Respondent No.2. The CANCIGO certificates received by the Respondent Nos. 3 and 4 were handed over to the Respondent No.2. The interest accruing from the CANCIGO received by the Respondent Nos. 3 and 4 was also credited to the account of Respondent No.2. The said Respondents did not claim any right, title or interest therein. There had been diverse dealings by and between the Appellant herein and the said Respondent No.2 in respect of the purchase and sale of shares and securities of various companies. A sum of Rs. 25,01,67,129/- was due and payable by the Respondent No.2 to the Appellant herein in respect of the said transactions as on 6th February, 1992. Respondent No.2 offered the aforementioned CANCIGOs to the Appellant herein as a beneficiary thereof. The said offer of the Respondent No.2 was accepted in discharge of his aforementioned liabilities to the Appellant. The Appellant on 6th February, 1992 paid the balance amount of consideration of the said CANCIGOs, viz., a sum of Rs. 7,98,32,871/- by a cheque dated 11th February, 1992 drawn in favour of the Respondent No.3 but the same was to be credited in the account of Respondent No.2.

2. In or about May, 1992 serious irregularities in security transactions were discovered whereupon the Reserve Bank of India constituted a Committee known as Jankiraman Committee to look into the real nature of the transactions and to ascertain the true facts. Investment in CANCIGO by Respondent No.3 found place in the report of the said Committee wherein it was contended that it had made an application dated 28th August, 1991 for investment in CANCIGOs on behalf of Respondent No.2 for 11 crores. Pending investigation, the Appellant was advised not to part with the two sets of CANCIGO certificates without the consent of the Reserve Bank of India.

3. The President of India promulgated an ordinance known as "The Special Courts (Trial of Offences Relating to Transactions in Securities) Ordinance, 1992". It was repealed and replaced by `The Special Courts (Trial of Offences Relating to Transactions in Securities) Act, 1992 ("the Act"), the Statement of Objects and Reasons wherefor are as under:-

"(1) In the course of the investigations by the Reserve Bank of India, large scale irregularities and malpractices were noticed in transactions in both the Government and other securities, indulged in by some brokers in collusion with the employees of various banks and financial institutions. The said irregularities and malpractices led to the diversion of funds from banks and financial institutions to the individual accounts of certain brokers.

(2) To deal with the situation and in particular to ensure speedy recovery of the huge amount involved, to punish the guilty and restore confidence in and maintain the basic integrity and credibility of the banks and financial institutions the Special Court (Trial of Offe

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2004 Supreme(SC) 1019

IMPORTANT POINTThe properties of a notified person do not vest in the Custodian. He is not a receiver, only when the notified person had a subsisting right in the property, the custodian can approach the special court for an appropriate direction in relation thereto.

Cases Referred (13)

IMPORTANT POINT
The properties of a notified person do not vest in the Custodian. He is not a receiver, only when the notified person had a subsisting right in the property, the custodian can approach the special court for an appropriate direction in relation thereto.