Introduction
This judgment of the Hon’ble Madras High Court in P. Krishna Bhatta & Ors. v. Mundila Ganapathi Bhatta & Ors. centres on the legal framework governing benami transactions and the application of the now-repealed Section 66 of the Code of Civil Procedure. In this case, Hon’ble Madras High Court ruled that, according to legal terminology, an individual acting on behalf of another cannot be referred to as an agent.
For illustration, a worker in someone else’s shop or factory, a worker providing his/her service to his master, or someone tilling another person’s field would all be regarded as their agent. The most challenging issue that comes up while handling benami transactions is figuring out which ones are real and which ones are not. In case of benami transaction, the procedures that will accompany a genuine transfer of property are, in fact, routinely followed to create a veneer of reality.1
A contract of agency is essentially just a fiduciary relationship between two parties in which one, known as the principal, enters into a contract with another, known as the agent, granting him the authority to act on his behalf and establishing legal connections between the principal & any third party, either explicitly or implicitly. This definition of a contract of agency can be found in Chapter 10 (Section 182-238) of the Indian Contract Act of 1872.2
The author, in this case analysis shall try to explain the facts, issues and reasoning of the Madras High Court in this abovementioned case.
Issues Before The Court
- In this instance, three properties are at dispute: two land plots in Kedila village used for arecanut and paddy farming, and a coffee estate.
The court was asked to decide:
| Sr. No. | Legal Issue |
|---|---|
| 1 | Whether Section 66 of the CPC applied to all transfers involving the disputed property, for which Ganapathi Bhatta possesses two sale certificates, and whether the purchaser was the properties’ apparent and benamidar owner. |
| 2 | Whether Ganapathi Bhatta purchased properties as being an agent of Bheemaya? |
| 3 | Whether the term “person” in Section 66 of the CPC, can be made to cover a joint Hindu family? |
Rules Applied By The Court
Section 66 – Protection of Certified Purchasers
- A person cannot be sued for acting on their own behalf or on behalf of someone they represent if they are claiming title under a transaction that the court has validated.
- Additionally, if a person claiming title under a purchase that the court has certified brings a suit, the defendant may not enter a plea stating that the purchase was made on their behalf or on behalf of someone they represent.
Section 182 – Definitions of “Agent” and “Principal”
A person hired to perform any work or to represent another in discussions with third parties is known as an agent. The person doing the act or being so represented is the principle.
Section 188 – Authority Provided To An Agent
When an agent is given permission to carry out an act, they are also permitted to pursue any necessary legal action. An agent having the authorization to carry out a business may pursue any legal action necessary for the purpose of doing business, or usually completed during such activity.
Benami Transaction – Core Attribute
The non-operational aspect of a benami transaction is its main characteristic. The benamidar completely vanishes for the title when a transaction is deemed to be benami.
Analysis
Under Section 2(A) of the Benami Transactions (Prohibition) Act, 19886, benami transactions were first declared illegal in India. Since this case is of year 1955, the same was covered under section 66 (now repealed) of C.P.C. “Transaction in which property is transferred to one person in exchange for consideration paid or provided by another person”7 (definition of benami transactions). Benami transactions are prohibited by law in order to discourage people from using them for unethical purposes like money laundering, tax evasion, and asset diversion, which aims to give the impression of insolvency and undermine creditors’ rightful claims.8
Agency Definition
As per Cambridge dictionary of law, Agency is a business that represents one group of people when dealing with another group.9 Likewise, an agent is not personally liable for any of his behaviour, unless there is a contract to the contrary. An agent represents the principal with loyalty and the utmost care, this entails each and every work assigned to him. Guidance and unambiguous communication are essential when agent finds any obstacles. It is the duty of an agent not to engage in personal business, concealing earnings, and assigning their delegated duties to others.
Court’s Reasoning on Distinguishing Benami & Genuine Transactions
The reasoning applied by Justice Ramaswami J of the Madras High Court to distinguish a Benami transaction from genuine one is as follows:
- This reasoning distinguished from the one applied in previous cases, which makes it understandable that every person who acts for another is not an agent.
- He can only work as an agent when he represents the other in commercial negotiations.
- The agent represents when the other and third parties create, amend, or terminate a contract.
- An agent’s representative character and derivative power are what set them apart.
In this instance, ownership of the property was determined to be with Ganpathi Bhatta. But not every person who represents another is considered an agent by the court.
| Role | Considered Agent? | Reason |
|---|---|---|
| Person working in factory/mine/shop/field | No | Not representing other in dealing with third parties |
| Domestic servant | No | Serves master directly, not in commercial relations |
| Public carrier/warehouseman/innkeeper performer | No | Helps fulfil duties but not representing principal as agent |
He is not operating on behalf of another in his interactions with third parties, hence in none of these roles does he qualify as “agent” in the sense described above.10
Judgements Cited
Additionally, the court cited the judgements of ‘Durgadas De v. Bagalananda De. In a joint Hindu family, the contract of purchase, ipso facto transfers the possession of the property to the family. However, in an attempt to overcome this stance, the petitioners claimed that the definition of “person” in section sixty six, C.P.C. could not be expanneled to include joint families in court’s reasoning.
In this instance, the joint family itself bought the property and not Bheemaya, who did so against the will of the joint family and the Committee, which was mentioned in the Calcutta ruling, itself bought the property. The subject of C.P.C. Section 66 is this entity or individual. Based on the joint family of Bheemaya’s pleas, the court held that Section 66, C.P.C. will serve as a restriction to the recovery of two purchases which is under the sale documents, even though this has become theoretical in light of our prior determinations.
Conclusion
A benamidar holds assets or property on behalf of the beneficial owner, but does not have a direct stake in the property; this is known as a benami transaction. This is a summary of the arguments made by the court and the main goals of an agency contract, which are to establish a legal relationship between the principal and any other party or to contract any business that may be conducted between the principal and an agent.
An agent often has no personal liability for the agreements he signs on behalf of his principal. An agent, in most circumstances, cannot directly enforce agreements made on behalf of his principal, they cannot be held personally liable for such agreements since the agent’s role is limited to that of a conduit between the principal of the agent and any other party, unless there’s agreement to the contrary.
Hon’ble Madras High Court has applied a distinct reasoning in this case, as per which, an agency exists only when one party represents the other in commercial discussions, i.e., when the other party creates, modifies, or terminates an agreement with any other party and since possession is transferred to the joint family of Ganpathi, he is not considered to be an agent of Bheemaya in eyes of law and hence he was not liable for the transactions, whether Benami transactions or Genuine ones, made by him.
