1. I cannot agree with the learned Subordinate Judge that issue 1 ought not to have been raised and does not call for decision. The written statement is no doubt not very clear, but when it is remembered that K. Bapayya was defendant 1 s nephew and para. 3 of the written statement refers to the indebtedness of the defendants', family as having necessitated the first benami transfer, and to the plaintiff being defendant 1's brother-in-law, there can be no doubt that the plea intended to be raised was that these were nominal transfers for the benefit of the defendants. The later allegations in the written statement as to possession having continued with the defendants are directed to the same end. That neither party was under any misapprehension as to the effect or meaning of the allegations in the written statement is shown by the fact that issue 1 is clear enough. We may well presume that the issue was framed in the manner contemplated by law, after the Court has ascertained from the parties their respective contentions.
2. When the learned Subordinate Judge started with this view as to the propriety of raising issue 1, it will not be fair to treat a few observations made by him in that connexion as amounting to a finding on the issue. I do not wish to say more at this stage and merely propose to request the lower appellate Court to submit a finding on issue 1 on the evidence on record. Finding to be submitted by 30th July 1934. Seven days are allowed for objections. Mr. Satyanarayana Row contends that the plea raised by issue 1 is not open to the defendants. Even the determination of this question will in some measure depend on the evidence and I therefore content myself with saying that it will be open to the lower appellate Court to consider this aspect of the question as well.
3. In compliance with the above order, the Subordinate Judge of Guntur submitted the following.
4. Finding : I am directed by the High Court to submit a finding on the following issue: Whether the sale deed in favour of the plaintiff was executed benami for the benefit of defendants 1 and 2.
5. I am therefore clearly of opinion that on the authorities referred to by me above, it is not open for these defendants to set up the plea of benami.
6. This is an appeal by defendant 2, defendant 1 (his father) having died during the pendency of the suit in the trial Court. The plaintiff claimed the suit house and site as a purchaser thereof, under Ex. 5 dated 8th October 1920, from one Ramanayya. The plaint alleged that the plaintiff's tenants were won over by the defendants and the cause of action was stated to have arisen on 15th March 1924 when the defendants unjustly entered upon the suit property and denied the plaintiff's right thereto. It ought to be mentioned that the plaintiff was the brother of defendant 1's wife who died some months after the date of Ex. 5. The plaintiff could not produce the original of the sale deed in his favour or of the sale deed in favour of his vendor, who in turn had a sale deed from the defendants : vide Ex. 4, dated 12th May 1908. Both the original documents have been produced by the defendants.
7. Issue 1 in the case raised the question whether the sale deed in favour of the plaintiff was executed benami for the benefit of defendants 1 and 2. The Courts below were of opinion that this issue did not arise on the pleadings. But in para. 8 of the lower appellate Court's judgment, that Court made some observations upon this point. I was not prepared to accept the stray remarks in that paragraph as amounting to a finding given on issue 1, when the Court started with the observation that the issue did not merit any consideration. I accordingly called for a finding upon that question and the lower appellate Court, after full discussion of the evidence and the probabilities of the case, has now returned a finding that both the sales under Exs. 4 and 5 were benami transactions and that Ex. 5 was executed for the benefit of defendants 1 and 2. I fully agree with that finding and accept it.
8. With reference to a contention raised on behalf of the plaintiff in the course of argument both here and in the Courts below - though not made an issue in the case - it has been found that Ex. 4 was executed with the object of defeating a creditor of the defendants, by name Pichayya, who had obtained an instalment decree in O.S. No. 26/05 for a large sum of money against the defendants and that on the strength of Ex. 4 the transferee defeated Pichayya's attempt to attach the properties now in question. As is only natural the claim proceedings were practically conducted by defendant 1 himself, though in the vendee's name. A sum of money to meet one instalment of the decree would appear to have been paid into Court by defendant 1 through the vendee and the same was drawn by the decree-holder in part satisfaction. The claim order (dated 13th October.1914) said:
The title having passed by the registered sale deed to the petitioner, it is for the attaching creditor to avoid it in a regular suit.
9. No such suit was filed, and the evidence does not establish whether any and what further payments were made to Pichayya. Defendant 2 as D.W. 1 has given inconsistent answers as to whether that decree has been satisfied or not. The vendee under Ex. 4 made the transfer to the plaintiff under Ex. 5 because, it is said, he was ill and, before his death, desired to give back the property to or for the benefit of the defendants. The story of the plaintiff that he paid consideration for the transfer and that the sale deed which was in his possession was stolen by defendants 1 and 2 has been disbelieved. It may fairly be taken that defendant 1 was not free from financial difficulties even in 1920 and accordingly got Ex. 5 executed in the name of his brother-in-law, the plaintiff. It is very doubtful if plaintiff was present at the time or even knew of it till some years afterwards. The death of his sister, i.e., defendant 1's wife, some months after Ex. 5, naturally put an end to the relationship of confidence and goodwill between the plaintiff and defendant 1. It is however significant that even in 1922 the tenant admittedly in possession executed a registered rent deed only in favour of defendant 1 (see Ex. 6). It is only in 1924 that the plaintiff got a rent deed (Ex. B) executed in his favour by the said tenant and also got the union registry transferred to his own name in the manner stated in para. 6 of the finding order. This led to disputes between the parties and hence the statement in the plaint that the cause of action for the suit arose in March 1924.
10. Defendant 2 has been cross examined at length about the object and the effect of the benami sales. It does not appear from his evidence whether the sale-deed in plaintiff's name, i.e., Ex. 5, was in fact used to defeat any creditor. The discussion in the judgments of the Courts below is practically confined to the effect of Ex. 4, but as it seemed to me necessary also to see how Ex. 5 has been used, I have examined the evidence bearing upon that question. It is stated that Pichayya never attempted to execute his decree rafter 1914. The only other creditor's proceeding referred to in the course of the evidence is that of the decree-holder in S.C. No. 1241 of 1920. This took place during the pendency of this suit in the trial Court and in view of the defendant's plea in the suit, i.e., that the property belonged to themselves, I doubt if it will be proper to use what happened pendente lite as proof that any creditor was deceived. Further the evidence of D.W. 1 and the counter Ex. G filed by him in the Small Cause proceeding show that the Small Cause decree-holder only attached certain moveables and did not attempt to proceed against the properties now in question. The statement in Ex. G that defendant 1 had no property and none of his property passed to defendant 2 may no doubt be used as pieces of evidence on the question of title but they do not serve to establish that Ex. 5 has in fact been used to defraud any creditor. Ex. G, which is dated 13th February 1928, must be read with the defendant's explanation in the witness-box that he made that statement because in this suit, which was then pending, the plaintiff was claiming the property as his own.
11. It has been contended for the plaintiff and held by the Courts below that it is not open to the defendants to set up the plea of benami because that will be allowing them to benefit by their own fraud after it has been carried out. The latest decision of a Division Bench of this Court bearing on that point is Kotayya v. Mahalakshmamma 1933 Mad. 457, where the learned Judges point out that though the Calcutta, Allahabad and Lahore High Courts have taken a different view, the course of decisions in this High Court since Kamayya v. Mamayya 1918 Mad. 865 has been that even as against a transferee who has himself been a party to a scheme of fraud intended to defeat the creditors of the transferor, the latter should not be permitted to defeat the transferee's legal title by pleading the fraudulent scheme. According to the Madras cases which followed Sidlingappa v. Hirasa (1907) 31 Bom. 405 it made no difference for this purpose whether the transferor sued as plaintiff or merely attempted to defend his possession. I do not propose for the purpose of this case to question this line of authorities; but as Kotayya v. Mahalakshmamma 1933 Mad. 457 rests largely on the principles of stare decisis I do not in the circumstances feel called upon to extend its effect any further than the decisions have so far gone.
12. I must however take leave to point out that the considerations emphasised in the judgment of Jackson, J., in Kotayya v. Mahalakshmamma 1933 Mad. 457, are really matters for the legislature and not for the Court, However much one may regret the prevalence of benami transactions and attempts to defeat creditors, I am unable to agree that they are anything peculiar to India, To take a few instances at random, Taylor v. Bowers (1876) 1 Q.B.D. 291 and Symes v. Hughes (1870) 9 Eg. 475 approved of and followed by the Judicial Committee in Petheperumal Chetty v. Muniyandi Chetty (1908) 35 Cal. 551 must suffice to show that human nature is much the same everywhere and their Lordships ridicule the apparent anxiety of the transferee in such cases 'to effect great moral ends' by insisting that the transferor should not be allowed to plead his own fraud. It must also be remembered that while the decisions in India tended to discourage benami transactions, by holding that a benami transferee could not sue in ejectment, it is their Lordships of the Judicial Committee again who in Gur Narayan v. Sheolal Singh 1918 P.C. 140, affirmed his right of suit. They point to its analogue in the English system and add that 'there is nothing inherently wrong in it' and 'so long as a benami transaction does not contravene the provisions of the law the Courts are bound to give it effect.' If such transactions are to be condemned, that must be done plainly and directly by the legislature; on the other hand, Courts will only be helping frauds instead of suppressing frauds if by their attitude, they enable the benami transferee to retain the property for himself.
13. With due respect, I must also state that the view expressed by Coutts-Trotter in more than one judgment of his, of Nadupi v. Subbaraya Chetty 1926 Mad. 1196 and Kamayya v. Mamayya 1918 Mad. 865 : goes much further than the Privy Council decision. In the case before their Lordships the execution of the benami conveyance compelled the creditor to take proceedings against the transferee. Their Lordships nevertheless say that as these proceedings proved successful, the creditor was not ultimately defrauded and that therefore the fraud had not been carried out so as to disentitle the transferor to recover the property from the transferee, treating him as a benamidar. This would seem to justify the view of Sundaram Chettiar, J., Subbiroya Naicker v. Venkatesa Naicker 1934 Mad. 252, that the mere fact of the creditor having been delayed in obtaining satisfaction will not preclude the transferor from pleading the benami character of the transaction as against his transferee : see also Bai Devamani v. Ravishankar Ogadbhai 1929 Bom. 147. Much less will the 'mere intention to effect an illegal object, when the assignment was executed' per Lord Romilly in Symes v. Hughes (1870) 9 Eg. 475 , preclude the true owner from asserting his rights.
14. The question for consideration in the present case is how the decision in Kotayya v. Mahalakshmamma 1933 Mad. 457 is to be applied consistently with the principle of the decision of the Judicial Committee in Petheperumal Chetty v. Muniyandi Chetty (1908) 35 Cal. 551. It is here that the importance of !the circumstances comes in, that it has not been shown that Ex. 5, the transfer in plaintiff's name, has been actually used to effect a fraud on any creditor of the defendants. In accordance with the authorities I shall assume that as against the original transferee, under Ex. 4, the defendants are debarred from asserting, in a Court of law, their own title or the benami character of the transaction, because the fraud contemplated at the time of the execution of Ex. 4 has been carried out. But this would not compel that transferee,, to claim the property for himself or preclude him from voluntarily giving back the property to his transferors. Where however he makes the transfer to a third person, three types of cases may arise and they must be kept distinct. (1) If the second transferee is a bona fide purchaser for value, he will, for that very reason, acquire an absolute title and need not invoke the aid of the principle now under consideration : see per Mellish, L.J., in Taylor v. Bowers (1876) 1 Q.B.D. 291 (2) If he is not a bona fide purchaser, but the object of the transaction was to transfer the beneficial interest to him, he may claim to stand in the shoes of his transferor, i.e. the first transferee and rely to the, same extent as the latter can, on the rule that precludes the original transferor from asserting his own title. It is on this footing that the decisions in Sidlingappa v. Hirasa (1907) 31 Bom. 405 and Kotayya v. Mahalakshmamma 1933 Mad. 457 have proceeded. In Taylor v. Bowers (1876) 1 Q.B.D. 291 and Symes v. Hughes (1870) 9 Eg. 475 there was not enough to create an estoppel even as against the original transferee and the second transferee was held to be in no better position. (3) A third conceivable case stands on a wholly different footing. The original transferee may merely re-transfer the property to a nominee or friend of himself or the original transferor with the avowed object or understanding that the new transferee should hold the property for the benefit of the original transferor. In such a case the new transferee cannot, it seems to me, claim to stand in the shoes of the first transferee. It often happens in this country that a benami transferee is not even aware that a transfer has been made or taken in his name. In such cases he cannot be regarded as a party to any contract or transfer and it is doubtful if even the legal estate can be regarded as vested in him : see Kuthaperumal Rajali v. Secy. of State (1907) 30 Mad. 245. But assuming that he is in some sense a 'legal' owner, he certainly cannot claim the beneficial interest, because the avowed object of the transaction was only to make him a trustee for the original owner. In this class of cases, the Court is no longer concerned with the effect of the first transfer, be-cause that transferee has chosen to give back the property to the transferor. It may be assumed that the object of taking the re-transfer in the name of another instead of directly in the original owner's name is to continue the scheme of defrauding creditors.
15. In the present case Mr. Satyanarayana Row suggests, that the object must have been to retain the benefit of the claim order (Ex. C) against Pichayya. But once it is realized that the former transfer is out of the way and the new transferee has himself undertaken a trust for the benefit of the original owner, the new trustee cannot seek to shut the mouth of the owner unless the new transaction has gone beyond the stage of fraudulent intention and has in turn been actually used to effectuate the contemplated fraud. For these reasons, I am of opinion that Kotayya v. Mahalakshmamma 1933 Mad. 457, and the authorities there reviewed do not entitle the plaintiff in this case to contend that defendants are precluded from pleading the benami character of the transfer to the plaintiff under Ex. 5.
16. The other question argued in the second appeal is a point of limitation. The defendants contended that notwithstanding the execution of Exs. 4 and 5, they had all along continued in possession of the suit property. Having regard to the frame of the suit, it must be held to be governed by Article 142, Lim. Act, but in view of the evidence in the case, it would seem to make no difference whether Article 142 or Article 144 applied. The learned Subordinate Judge who heard the appeal dealt with this question in paras. 9 and 10 of his judgment, but his reasoning is vitiated by so many mistakes that it is impossible for me to accept his conclusion. It makes considerable difference in the approach of the evidence on the question of possession, whether Exs. 4 and 5 are taken to be real transactions or only benami transactions. The main basis of the conclusion of the learned Subordinate Judge is the statement in Ex. C-1, the claim petition of 1914, that the claim petitioner was entitled to and was in enjoyment of the suit property on the date of the claim petition.
17. In view of defendant 2's evidence that it was defendant 1 that got this petition put in and conducted that proceeding, the learned Subordinate Judge treats that as an admission of the transferee's enjoyment by defendant 1 and he adds that the present suit is within 12; years from that date. Ex. C-1 is signed; only by the claim petitioner and not by defendant 1. It cannot therefore operate as an acknowledgment within the meaning of Section 19, Lim. Act. It is difficult to understand what the learned Judge means by describing it as an 'admission.' At the worst it can only be regarded as a statement made by the transferee to the knowledge of defendant 1. If on the other hand it is looked upon as a statement which it then suited defendant 1 to put into the transferee's mouth, there is even less justification for treating it as an 'admission.'' The learned Subordinate Judge attributes a very curious effect to the order on the claim petition. As stated already it expressly proceeded on the footing, that there being a registered sale deed? in the claimant's favour, the decree-holder must have it set aside by a regular suit. The learned Subordinate Judge-would read into it an implied adjudication that the claimant was in possession; and by an extension of the doctrine of disability arising from fraud, he. would hold that the defendants could not be permitted to go behind what defendant 1 then got the Court to believe,, namely, that he was neither entitled to,, nor in possession of the property.
18. With reference to plaintiff's possession, it is stated in the printed copy of the judgment that from 1914 onward the taxes were paid by the plaintiff. This is evidently a mistake for 1924. Ibis however clear that the learned Judge did not realize that the attempt of the plaintiff to get the union registry transferred to his name, his taking the rent-deed Ex. B and his payment of union tax all begin in 1924, and that was the time when admittedly disputes arose between the plaintiff and the defendants in respect of the suit property. The learned Subordinate Judge makes-no reference whatever to the bearing of this aspect of the matter when relying, upon the tax receipts as evidence of possession.
19. In dealing with the question of benami character on which I called for a finding, the new Subordinate Judge has discussed the question of possession also and has come to the conclusion that; possession has all along remained with defendants 1 and 2. I have considered whether I should call for a fiddling again on the question of possession in reference to the plea of limitation; but to avoid further delay, I have preferred to deal with the matter myself under Section 103, Civil P.C. I f have the more readily done so because a bare perusal of the deposition of the plaintiff was sufficient to show that his evidence was wholly untrustworthy. I have examined the other evidence in the case and come to the conclusion that the defendants have all along continued in possession. I accordingly hold that the suit is also barred by limitation. I am not aware of any rule which precludes the defendants from proving the fact of their possession and relying upon a plea of limitation. On both the grounds therefore the second appeal must be allowed and the suit dismissed with costs throughout.