By TIOL News Service

CHENNAI, JAN 31, 2018: THE ISSUE is - Whether when the Revenue official is found to be an usurper of office under the provisions of Benami Act, proceedings initiated by him stands on no leg. YES is the verdict.

Facts of the case

The Assessee-company, inolved in production, collection and distribution of electricity. The Assessee had filed its return for the relevant AY. In the course of the assessment proceeding, the Revenue noted that the Assessee had invested in an Indian company namely, Zynergy India, promoted by one Mr. Rohit Rabindernath (Mr. RR) by way of shares and debentures. The Assessee was holding 51% of share capital of Zynergy India wherein, 5,43,470 were fully compulsorily and mandatorily convertible debentures with a face value of Rs.100/- each and 20,00,000/- were optionally fully convertible debentures face value of Rs.100/- each. The Revenue, found that the said transactions were benami and the Assessee was a benamidar and the shares and debentures were benami property. However, it was contended that the Assessee had completed the said transactions before the amendment to the Prohibition of Benami Transaction Act, 1988. It was further submitted that there were several litigation between the Assessee and Mr. RR and various entities controlled by him including the other shareholders of Zynergy Inidia by name M/s. Archer Power Systems Limited Archer). After receiving substantial investment from the Assessee, Mr. RR was alleged to had siphoned money out of Zynergy India and refused to make necessary disclosures and comply with the mandatory filings required under the Companies Act, 2013. When the Assessee asked for transparency of the transactions, Mr. RR and various companies controlled by him initiated litigation against the Assessee with a view to prevent them from examining the affairs of Zynergy India. However, M/s. Archer preferred before the National Company Law Tribunal (NCLT) to restrain the Assessee from exercising its rights in relation to the shares and debentures and also approached this Court wherein, initially, this court granted an exparte interim injunction. It is further found that the Assessee had preferred the NCLT against Mr. RR and his group for oppression and mismanagement and the NCLT had restrained the conduct of any related party transactions, without leave of the Tribunal and directed the management of Zynergy India to produce relevant information as sought for by the Assessee. Finally, the Revenue had issued an order u/s 24(3) intimating the Assessee that pursuant to the provisional attachment of shares and debentures, the Assessee was restricted from dealing in any manner and from exercising any rights in relation to such share.

In Writ, the High Court held that,

++ the reason, which makes it necessary to make a person, a party to an action, so that he should be bound by the result of the action and question to be settled. Thus, the test would be whether the said party is a necessary or proper party and presence of such party before the Court is necessary for complete and effective adjudication of the subject matter. Further, proper party has been explained is a person, whose presence is considered appropriate for effective decision of the case, though no relief may have been claimed by him. A party can be impleaded, if he has a direct interest and a legal interest in the subject matter. In a Writ Petition against the Government, if allegations are made against private parties or the officials, they should be impleaded. In the present cases, the Assessee has made several allegations against the Deputy CIT, Corporate Circle (I), who was the Initiating Officer of the said proceedings and rightly he has been impleaded in his personal capacity. Therefore, this court believes that the impleading parties are proper parties, whose presence is necessary for a complete and final decision of the question involved in these proceedings;

++ the Assessee's case is that the date of the gazette and the notification is 18.05.2017 and on and after the said date, it is only the income tax authority, who has been notified in the notification, who could exercise jurisdiction under the Benami Act. In the case of ITC Bhadrachalam Paperboards & Anr, the Apex Court held that "... the object of official publication in the gazette, is not merely to give information to public; Official Gazette, as the very name indicates, is an official document; it is published under the authority of the Government; publication of an order or rule in the Gazette, is the official confirmation of the making of such an order or rule; the version as printed in the Gazette is final and the same order or rule may also be published in the newspaper or may be broadcast by radio or television ..." Therefore, the notification, dated 18.05.2017, would come into effect from the date of publication in the official Gazette;

++ explaining the 'defacto doctrine', the Apex Court pointed out that this doctrine requires two requisites namely, (i) the possession of the office and the performance of the duties attached thereto and (ii) colour of title, i.e., apparent right to the office and acquiescence in the possession thereof by public. It was also pointed out that according to this doctrine, the acts of officers defacto perform within the sphere of their assumed official authority in the interest of the public or third parties and not for their own interest or generally held valid and binding, as if they were performed by de jure officers;

++ referring to the decision in the case of Gokaraju Rangaraj, wherein, it was observed that the 'defacto doctrine' is founded on good sense, the sound policy and practical interest. It is aimed at prevention of public and private mischief and the prevention of public and private interest. It avoids endless confusion and needless chaos. The legal principle laid down was that defacto doctrine can be invoked in cases, where there was appointment to office, which is defective, but notwithstanding the defect to the title of the office, the decisions made by such a defacto officer clothed with the power and functions of the office would be as efficacy as those made by a dejuri officer. However, it does not come to the rescue of an intruder or usurper or total stranger to the office and the doctrine can have no application to the case of a person, who is not the holder of the office;

++ the applicability of the defacto doctrine cannot be made to the present proceedings in an abstract manner, but has to be done bearing in mind the provisions of the Benami Act and in particular Section 24, Section 59 r.w. sec 2(19) and the notification dated 18.05.2017. If it is done, then the Revenue is not a person, who is the holder of the office, the Deputy CIT(Bename Prohibition) and for the purposes of the Benami Act, he could be termed as an usurper or total stranger to the office though not as a Deputy CIT. Thus, when a person, who has no authority to initiate proceedings under the Benami Act or issue orders of attachment under the Benami Act, does so, the very foundation on which he has done such act collapses and the proceedings have to be held to be wholly without jurisdiction;

++ this court held that the Revenue has lacked inherent jurisdiction to initiate proceedings as on 19.05.2017 and the said notice, the prohibitory order and the order of attachment are held to be without jurisdiction and consequently are liable to be set aside. Therefore, this ground is answered in favour of the Assessee. It is not necessary for this Court to go into the other aspects, as the very foundation based on which the Revenue exercised jurisdiction has collapsed and the proceedings are held to be void.

(See 2018-TIOL-188-HC-MAD-BENAMI)