The Supreme Court of India, in a significant ruling delivered on May 8, 2026, set aside the order of the High Court and held that a person cannot claim ownership over property purchased in a benami transaction merely on the basis of a Will executed by the ostensible owner, observing that such testamentary arrangements cannot be used to defeat the statutory bar under the Prohibition of Benami Property Transactions Act, 1988 (hereinafter, “the Act”). The Court further held that properties purchased with funds provided by another person under a commercial contract do not qualify as a transaction arising out of a fiduciary relationship so as to seek an exemption under the Act, thereby rendering such properties liable for attachment and confiscation. The judgment was authored by Justice R. Mahadevan, with the Bench also comprising Justice J.B. Pardiwala.
The dispute arose over suit properties purchased in the name of one K. Raghunath, who remained the ostensible owner, with the funds utilised for the purchase having been invested by the respondent-plaintiff. The respondent-plaintiff claimed ownership over these properties by virtue of a registered Will dated April 20, 2018, allegedly executed by Raghunath in his favour. The plaintiff’s case was that although the properties stood in the name of the late K. Raghunath, they were in fact purchased using his funds because statutory restrictions under the Karnataka Land Reforms Act prevented him from purchasing agricultural land in his own name. The appellants-defendants, on the other hand, claimed possession and title by succession, asserting that the deceased, being the father of some defendants and the husband of the first appellant, had bequeathed the property to the appellant No. 1.
The respondent-plaintiff had filed a suit seeking declaration of title and permanent injunction, which was contested by the appellants-defendants by filing an application under Order VII Rule 11 of the Code of Civil Procedure for rejection of the plaint on the ground of it being barred by the Benami Act, primarily contending that since the suit property was a benami property, the plaintiff could not claim title and ownership over the same. The plaintiff, in response, argued that the deceased was holding the property in a fiduciary relationship with him as part of an employer-employee relationship, thereby qualifying for exemption under the Act, and that the suit was founded on a Will and not on the alleged benami transaction. The Trial Court allowed the application under Order VII Rule 11, prompting the plaintiff to file a Regular First Appeal before the High Court, which overturned the Trial Court’s decision. The appellants-defendants then approached the Supreme Court against the High Court’s order.
The central issue before the Supreme Court was whether the deceased K. Raghunath was holding the suit property as part of a fiduciary relationship with the respondent-plaintiff so as to attract the exemption available under the Act. The Court held that the relationship between the deceased and the respondent-plaintiff could not be categorised as one of fiduciary duty, observing that “fiduciary duty arises where one person is bound to protect the interests of another and must not derive personal gain from that position of trust.” The Court noted that since the alleged transfer of funds by the respondent to the deceased was pursuant to a Memorandum of Understanding contractually entered into between the parties for commercial purposes, the respondent could not seek an exemption under the Act on the ground of a fiduciary relationship.
The Court categorically held that “an employer-employee relationship does not, by itself, fall within the recognized categories of fiduciary relationship for the purpose of exemption under the Benami legislation.” It further observed that “the law does not ordinarily recognize a fiduciary relationship between a company and its employee, or between a director and an employee of the company, in the sense sought to be projected here. Rather, the recognized fiduciary duty is that of a director towards the company since a director is bound to act in the interests of the company.” Placing reliance on Sangramsinh P. Gaekwad and others v. Shantadevi P. Gaekwad (Dead) through LRs and others [(2005) 11 SCC 314], the Court rejected the contention that any fiduciary relationship existed between the respondent-plaintiff and K. Raghunath so as to exempt the transaction from the rigour of the Benami law, noting that the “alleged transfer of funds for purchase of property was based on contractual arrangements embodied in the MOUs.”
The Court also rejected the argument that the suit was merely based on a Will and therefore outside the purview of the Benami Act. The Court held that the testamentary document could not be viewed in isolation from the foundational pleadings regarding the original transaction, and that the alleged Will was being used as a device to claim beneficial ownership over properties admittedly standing in another’s name. The Court further held that since the property was found to have been acquired under a benami transaction and the appellants-defendants had failed to prove that the suit properties were acquired from the independent funds of the deceased, the claim of the appellants-defendants over the suit properties was also declined. The Court observed that “the purchase of the properties by K. Raghunath is not protected by any of the exceptions contained in Sections 3 or 4 of the Benami Act, either before or after amendment, and the object of the MOUs relied upon is illegal and void. Equally, the appellants/defendants, claiming as legal heirs, are not entitled to derive any advantage therefrom, having failed to establish that the suit properties were acquired from the independent funds of the deceased.”
While upholding the rejection of the plaint, the Court also ordered the confiscation of the suit properties under the Benami Act, holding that “the suit schedule properties are consequently liable to confiscation under Section 27 of the Act. Since the bar under Sections 45 and 65 does not operate against the High Court or this Court, it is unnecessary to relegate the parties to the Adjudicating Authority once a competent judicial determination declaring the transaction benami has attained finality. In such circumstances, confiscation may follow as a consequence of that declaration.” The Court directed the Central Government to appoint an Administrator and take over the suit properties under the Benami Act within eight weeks, observing that the transaction had been judicially determined to be benami. The Court further clarified that since the finding declaring the transaction as benami had attained finality, no Court would entertain any future claim over the properties arising out of or founded upon the benami arrangement. The appeal was accordingly disposed of.
Case Details:
Manjula and Others v. D.A. Srinivas | Supreme Court of India | Justice J.B. Pardiwala and Justice R. Mahadevan | Decided on May 8, 2026 | 2026 INSC 465
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