transfer of property act genuine transaction sham transaction

Supreme Court: In a case wherein, an appeal was filed against the judgment of Calcutta High Court (‘High Court’), the Division Bench of Fazl Ali* and Vivian Bose, JJ., opined that the fact that properties were in danger of being sold in execution or price paid was less price than the market value could not convert a genuine transaction into a sham one, and accordingly, set aside the judgment of the High Court and directed the Trial Court’s decree to be restored.


In 1930, Respondent 1 filed a suit against Respondent 2, the father of the appellant, for recovery of the amount on the basis of a promissory note executed by Respondent 2 in Respondent 1’s favour. The said suit was decreed and thereafter, an appeal was filed, which was subsequently dismissed. Further, Respondent 1 filed an execution petition in respect of the principle and interest decreed and in the course of the execution proceeding, seven items of property that belonged to Respondent 2 were attached.

Subsequently, on 13-5-1940, Respondent 2 executed a kobala in appellant’s favour for a sum of Rs. 12,000, in respect of the properties, which were the subject of attachment in the execution proceedings. Thus, a sum of Rs. 10,159-12-3 was paid in the Court and since, that sum was the due amount of Respondent 1 under the execution decree, the execution decree was satisfied, and execution case was struck off. Later, the costs in the original suit were taxed, and a copy of the Taxing Officer’s order was sent to the District Judge, Howrah for execution, and a fresh execution case was started during which the same seven properties which had been attached before were attached again.

The appellant filed a claim under Order 21 Rule 58 of the Civil Procedure Code, 1908 (‘CPC’) and stated that the properties which had been attached belonged to him and not to Respondent 2. Subsequently, the claim was allowed. Thereafter, Respondent 1 filed a suit, wherein he stated that the properties which were the subject of the suit were still owned and possessed by Respondent 2, and that the conveyance executed by Respondent 2 in Respondent 1’s favour was without consideration, and it had been brought into existence with a view to defeat the claim of Respondent 1.

The Subordinate Judge who tried the suit, dismissed it on 25-3-1948, holding inter alia, that the kobala was a genuine transaction and the purchase had been made by the appellant out of his own money and not out of the money of his father, Respondent 2, and that the disputed properties had been in the appellant’s possession since the execution of the kobala. Thereafter, Respondent 1 filed an appeal to the High Court, which set aside the judgment and decree of the Trial Court and declared kobala as a sham transaction. Accordingly, an appeal was filed in the Supreme Court.

Analysis, Law, and Decision

The Supreme Court stated that the courts had laid down certain tests for determining the genuineness of a transfer, which take into consideration the following two factors:

  1. the source of the purchase money; and

  2. possession of the property.

The Supreme Court opined that these tests were rightly considered by the Trial Court and the claim case Court in arriving at their conclusion. The Supreme Court further opined that if it was found that the money which was paid to Respondent 2 as consideration for the kobala was the appellant’s own money and that the appellant had been in possession of the vended properties since the purchase, the appellant must succeed.

On consideration of the question regarding the source of money, the Supreme Court noted that the money, which was paid towards the consideration, came from an insurance company.

Further, on considering Respondent 1’s contention that the appellant was a benamidar of Respondent 2 and it should be presumed that Respondent 2 had been paying the insurance premia since the appellant had no means of his own to do so, the Supreme Court opined that the contention was not supported by any evidence and it would be dangerous to extend the benami doctrine to life insurance policies and to state that a person who was prima facie entitled to receive money from a Life Insurance Company and had received it, was not the owner of the money.

Furthermore, regarding the Respondent 1’s contention that the properties comprised in the kobala were worth much more than it had been shown, the Supreme Court opined that the Subordinate Judge had pointed out that Respondent 2 owned only a share in most of these properties and the appellant had purchased the other co-sharer’s share. The Supreme Court further opined that as a co-sharer, the appellant would have been genuinely interested in acquiring the remaining share in these properties. Thus, it is understandable that in the transaction between Respondent 2 and the appellant , Respondent 2 was persuaded to part with his share in the properties for an amount smaller than what he would have charged from an outsider.

The Supreme Court further opined that the fact that the properties were in danger of being sold in execution or the price paid was less than the market price could not convert a genuine transaction into a sham one.

The Supreme Court opined that the High Court had not referred to the evidence of possession at all and had decided the case without applying their mind to that evidence. It was contended that if the kobala was meant to serve as a cloak to conceal the real state of things, the documentary evidence must necessarily be such as would fit in with that scheme. But the appellant’s case rested on documentary and oral evidence, and not a word had been said by the High Court about the evidence of the witnesses who had been believed by the Subordinate Judge. In the circumstances, the Supreme Court opined that it had no hesitation in accepting the finding of the Trial Court which had the advantage of seeing the witnesses and hearing their evidence.

Accordingly, the Supreme Court set aside the judgment and decree of the High Court and directed the Trial Court’s decree to be restored.

[Sanat Kumar Chakravarty v. Krishnadhan Mazumdar, (1952) 1 SCC 127, decided on 29-1-1952]

Note: Transfer of Property Act, 1882

Section 52 of Transfer of Property Act, 1882 specifies the doctrine of lis pendens and prohibits or restrict any transfer, alienation, or disposition of the immovable till the suit is pending or until the judgment is passed by the Court of competent jurisdiction. Section 53 of Transfer of Property Act, 1882 deals with fraudulent transfer and applies to such transfer which is done to defraud its creditor in a manner that they are defeated or delayed. Further, Section 54 of the Transfer of Property Act, 1882, deals with the sale of immovable property. The two basic elements that constitute a sale under Section 54 are (a) Transfer of ownership; (b) Money consideration.

*Judgment authored by – Justice Fazl Ali

Advocates who appeared in this case :

For the Appellant: Apurbadhan Mukherjee, Senior Advocate (Dwijindra Nath Mukherjee, Advocate with him);

For the Respondents: Panchanan Ghose, Senior Advocate (S.N. Mukherjee, Advocate with him).

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One comment

  • Thanks for retrieving this very important judgement which, if reported, would certainly have had very wide impact on the concepts of “benami transaction” and “unaccounted income” for purposes of income tax assessments of the parties to the subject transaction. In fact, it would have very wide implications on the administration of the Income Tax Act as it stood then and also in drafting the Income Tax Act, 1961 and the relevant provisions contained therein dealing with unaccounted/unexplained investment and the resulting concealment of income.
    As one groomed in the tax regime post 1961, I wish our generation of officers and also the assessees had the benefit of this decision.

    I am sure, you would continue to delve into the archives of the mass of unreported judgements of the Supreme Court of those bygone years.

    Thanks again for this excellent research work.

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