An incorrect reading: The Delhi High Court's misapplication of the Benami Act

The Delhi High Court recently pronounced a problematic, though well-intentioned, judgment in a matrimonial dispute.

As usual, the headlines got it wrong. My client, a wife, was thrilled and called me about it.

"Yes," I said, "it is developing well along the lines of the Madras judgment." This seemed a good trend toward developing the concept of marital property. The Madras judgment held that a wife's domestic and caregiving contributions are equal in value to the husband's monetary earnings toward family assets. It ruled that properties acquired during marriage, even if in one spouse's name, are the result of joint effort and belong equally to both. The Court thus recognised the homemaker's work as an equal and valuable contribution to property acquisition.

However, I found that the Delhi judgment was not along the lines of the Madras judgment and though the outcome was progressive, the reasoning was erroneous, rendering it unreliable as precedent on this aspect. It is per incuriam because of a wrong reading of the statute and also because the Madras judgment, a useful precedent, was not brought to its attention.

The Delhi judgment is common to four appeals against orders of the family court in a series of applications. Two appeals are by the wife (W) and two by the husband (H). One appeal was by H against the dismissal of his divorce petition on the basis that cruelty was not made out and that his conduct demonstrated that he was taking advantage of his own wrong. His other appeal was against an order of interim maintenance granted to W under Section 24 of the Hindu Marriage Act (HMA).

Of the appeals by W, one sought to enhance the interim maintenance awarded to her. The other was against an order of the family court directing her to sign a 'No Objection Certificate' to allow H to withdraw a sum of ₹1.9 crore from the joint bank account relating to the property whose EMIs had been entirely paid by him. This last appeal was what was deemed newsworthy - which it would be, but for the error in law that underpins the judgment.

The judgment is based on a wrong reading of the Prohibition of Benami (Transactions) Act. It misses that what was in the body of the Act has now been shifted to the definition clause and in these rushed times, was not read at all. Before the 2016 Amendment, the 1988 Act vis a vis properties held in the names of wives and daughters was as under:

"3.(2) Nothing in sub-section (1) shall apply to -- (a) the purchase of property by any person in the name of his wife or unmarried daughter and it shall be presumed, unless the contrary is proved, that the said property had been purchased for the benefit of the wife or the unmarried daughter."

With the 2016 amendment, the presumption was removed and the remaining text was moved to the definition section, which now reads as:

“2. A benami transaction means….

9. … Except when the property is held by:

(iii) any person being an individual in the name of his spouse or in the name of any child of such individual and the consideration for such property has been provided or paid out of the known sources of the individual.”

Thus, a benami transaction was defined including its exception as mentioned above.

The Delhi judgment has missed this all together by ruling:

“33. Section 4 creates an absolute bar against the enforcement of rights in respect of property held benami. It stipulates that no person claiming to be the real owner of such property can institute any suit, claim, or action to enforce rights against the benamidar or any other person in whose name the property stands. Equally, it prohibits the raising of any defence in a pending suit, claim, or action on the ground that the property, though standing in the name of another, actually belongs to the real owner. The combined effect of sub-Sections (1) and (2) is that the real owner is entirely disabled from seeking recognition of any right, title, or interest in the benami property, either by way of initiating proceedings or by way of defence.

34. In this backdrop, once the property stands in the joint names of the spouses, the husband cannot be permitted to claim exclusive ownership merely on the ground that he alone provided the purchase consideration. Such a plea would contravene Section 4 of the Benami Act, which imposes an absolute bar against the enforcement of rights in respect of property held benami. The provision clearly stipulates that no person claiming to be the real owner of a property standing in another's name can either institute proceedings or raise a defence asserting such ownership. Thus, the combined effect of the presumption of equal ownership between spouses and the statutory prohibition under Section 4 is that the Appellant is prevented from contending that the amount from the sale of the joint property belongs to him alone.”

The judgment erred by fundamentally misunderstanding the statutory framework of the Benami Transactions (Prohibition) Act. The Court's reasoning proceeds as follows: it invokes Section 4, which creates an absolute bar against enforcing rights in "benami" property, and then applies this bar to prevent the husband from claiming the property is his alone.

However, this reasoning collapses at the threshold because it ignores a critical statutory provision. Under Section 2(9)(A)(iii) of the 2016 amendment, property held in the name of a spouse is explicitly excluded from the definition of "benami transaction" itself (provided the consideration comes from known sources of the individual).

The legal consequence is clear: if a transaction does not meet the definition of "benami transaction" in the first place, then the Section 4 prohibition simply cannot apply to it. Section 4 bars enforcement of rights in respect of property held benami. But if the property is not benami because it falls within the spousal exception in the definition clause, then there is no benami property to which Section 4 can attach.

The Court's error lies in applying Section 4 without first determining whether the transaction was benami. This it could not do if it missed the spousal exception that has been moved to the definition. This inverts the statutory structure: one must first establish that a transaction is benami (by checking the definition and its exceptions) before Section 4's consequences can be invoked. By skipping this step, the judgment misapplies the law entirely.

Now we return to the Madras judgment, which is a good point to develop the jurisprudence on the matter of a woman's right to her husband's property built during the tenure of a marriage.

The crux of the ruling is succinctly stated in paragraph 49, which reads:

"When the husband and wife are treated as two wheels of a family cart, then the contribution made either by the husband by earning or the wife by serving and looking after the family and children, would be for the welfare of the family and both are entitled equally to whatever they earned by their joint effort. The proper presumption is that the beneficial interest belongs to them jointly. The property may be purchased either in the name of husband or wife alone, but nevertheless, it is purchased with the monies saved by their joint efforts."

Better property rights for women in marriage is a laudable end, but whether it is politically palatable depends on the times. For example, it seems to have slipped everyone's notice that the presumption in favour of the wife in the earlier Act, that property bought in her name would be for her welfare was removed by the 2016 amendment

It is not surprising that the change was not noticed, given that a mere change in placement of the Section was mistaken for deletion, and thus the fact that the presumption was removed in the changed placement of the section is rendered moot.

One hopes a new jurisprudence will emerge after reading the entire statute.

Malavika Rajkotia has been an advocate in the Indian Courts for over 35 years and has developed a practice on divorce and property law.