Delhi High Court Holds Benami Bar Is Mixed Question of Law and Fact; Suit Referred Back for Trial

A bench of Justice Vivek Chaudhary and Justice Renu Bhatnagar heard an appeal under Section 96 CPC challenging the Single Judge’s dismissal of a suit as barred by the Benami Transactions (Prohibition) Act, 1988; the core issue was whether the transaction was a benami or whether it fell within the statutory exception for fiduciary relationships under Section 4(3)(b).

The Court allowed the appeal and set aside the Impugned Order dated 30.07.2015, holding that the question of applicability of Section 4(3)(b) was a mixed question of law and fact that could not be finally decided on the basis of plaint averments alone. The Court observed that the learned Single Judge had effectively exercised jurisdiction akin to Order VII Rule 11 CPC and had "short‑circuited the adjudicatory process" by dismissing the suit at the threshold after issues had been framed and trial had commenced. The Court, in its reasoning, observed: “In view of the aforesaid, the issue as to the applicability of the exception carved out under Section 4(3)(b) of the Benami Act is, therefore, a mixed question of law and fact. Once issues had been framed and the suit had proceeded to trial, the learned Single Judge erred in short‑circuiting the adjudicatory process by dismissing the suit on the ground of maintainability, particularly when the onus to prove the bar under the Benami Act had been placed on the Respondent and the parties were in process of leading the evidence.” The Court further noted that "the mere use of the expression 'benami' in the plaint could not, by itself, extinguish the statutory exception under Section 4(3)(b)," and distinguished the earlier decision in J.M. Kohli as factually and legally different.

Background

The appellant, a resident of the United States, filed CS (OS) No. 478 of 2004 seeking declaration, eviction, damages, rendition of accounts and injunctions in respect of property at 33 Uday Park, New Delhi. He pleaded that he had provided the entire consideration for purchase and construction but, on account of his residence abroad, the property was acquired in the name of his father who held it for and on behalf of the appellant in a fiduciary capacity. After the father’s death and disputes with the appellant’s younger brother (the respondent), the appellant revoked a power of attorney and filed the suit in 2004. The respondent raised a preliminary objection that the suit was barred by the Benami Act.

Issues were framed, including Issue No.1 on whether the suit was barred under the Benami Act, and the trial proceeded. During trial the appellant sought to place additional documents on record and to amend witness lists; those applications were dismissed by the Joint Registrar and Chamber Appeals were pending. While hearing the Chamber Appeals the Single Judge treated Issue No.1 as a pure legal issue and dismissed the suit on maintainability under Section 4(1) of the Benami Act, concluding from the plaint that the transaction was benami and did not fall within the Section 4(3)(b) exception. The Single Judge relied on J.M. Kohli v. Madan Mohan Sahni and held that allowing a claim of fiduciary capacity would defeat the object of the Benami Act; the Single Judge had remarked that the issue was "a completely legal issue" and that the suit might not be continued under Order 7 Rule 11 or Order 12 Rule 6 CPC.

On appeal, the High Court reviewed authorities including Marcel Martins and CBSE v. Aditya Bandopadhyay, emphasising that the question whether a fiduciary relationship existed required evaluation of the factual matrix. The Court concluded that the trial could not be foreclosed on the basis of plaint averments where foundational facts of fiduciary relationship were specifically pleaded and the onus to prove benami bar lay on the respondent. The Court set aside the Impugned Order, allowed the appeal and directed the parties to appear before the learned Single Judge on 25.02.2026. The appeal and pending applications were disposed of accordingly.

Case Details: Case No.: RFA(OS) 89/2015 Case Title: AMAR N GUGNANI v. NARESH KUMAR GUGNANI (SINCE DECEASED THR LRS) SUNITA GUGNANI & ORS. Appearances: For the Petitioner(s): Mr. Manish Kumar, Mr. Rehan Bhasin & Ms. Aparajita Jha, Advs. For the Respondent(s): Mr. Pravir Kumar Jain & Mr. Arjav Jain, Advs.