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Property law - transfer by ostensible owner

Property (Symbiosis International University)

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PROPERTY LAW
1ST INTERNAL ASSIGNMENT
S.41- Transfer by Ostensible Owner
(Transfer of Property Act, 1882)

Research Paper

Submitted by:
Tanmay Gupta
16010126334
Division D

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S.41- Transfer by Ostensible Owner

BBA.LLB 3rd Year

ABSTRACT
According to Black Law’s Dictionary, ‘Ostensible ownership’ means apparent ownership
derived from conduct or words. Theory of ‘ostensible ownership’ estops an owner of property
who clothes another with an apparent title from the latter asserting his title against an innocent
third party who has been induced to deal with the apparent owner.1

Ostensible literally means apparent, outwardly appearing as such, or seeming. Ostensible

owner is a person who is not the real owner of the property, while he appeared to be the real
one.2 He possesses the characteristics of the real owner and is a replica of him. It may be found
that ostensible owner has his name on title deeds and also possesses the same property but he
never intended to own the property. So the main difference between the real owner and the
ostensible owner is that the ostensible owner does not have the intention to hold or purchase the
property. In India ostensible owner is popularly known as ‘Benamidar’ which literally means a
person who is holding a property ‘without name’.

KEYWORDS Benami, ostensible ownership, Transfer of Property, Benamidar, Transfer by

ostensible owner.

RESEARCH QUESTIONS
1. What is the provisional relevance of S.41 of the Transfer of Property Act, 1882?
2. What is the relevance of the Benami Transactions (Prohibition) Amendment Act, 2016
with regard to S. 41 of the Transfer of Property Act, 1882?

RESEARCH METHODOLOGY

The research methodology followed in the paper is descriptive and doctrinal. The
researcher shall analyze various research articles, legislations, case laws, paper, journals of
different authors and news articles of different media communications. The paper does not
include any superfluous fact and researcher has come to decisions in few points on some
assumptions. Referring to all the primary and secondary material mentioned above, the present
study has been compiled and presented to the concerned.
1
BLACK’S LAW DICTIONARY1100 (6th ed.).
2
DR. SAXENA POONAM PRADHAN, PROPERTY LAW 178 (2d ed. 2011)

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S.41- Transfer by Ostensible Owner

INTRODUCTION

Property is one of the fundamental requisite in the life of a human being. Great Greek
Philosopher Aristotle argued that “Property should be ... as a general rule, private; for when
everyone has a distinct interest, men will not complain of one another and they will make
progress, because everyone will be attending to his own business ...” 3 This principle of Aristotle
is at least valid today as it was during his lifetime. So property and prosperity are inextricably
linked. The significance of having well-defined and emphatically ensured property rights are
widely recognized among economists and policymakers.

The right to property in India was granted as a Fundamental right under Article 31 but it
was abolished by 44th Amendment Act, 1978. It was rather made a constitutional right under
Article 300A which states that. "No person can be deprived of his property except by authority
of law."4

Properties can be conveyed by one person to another for consideration by the way of
possession, contract, title deeds etc. There are various legislations which are enacted to ensure
smooth conveyance of property which can be movable or immovable. In 1882, Transfer of
Property Act was enacted to unify and codify all the customary laws governing transfer of
property. It deals with the transfer of property inter-vivos i.e. between the living persons only.
This act does not govern the transfer of property through succession, testamentary, inheritance,
or by way of gifts etc.

Transfer of Property Act, 1882 provided definite statutory laws which regulate the rights
of ostensible owner, real owner and the third party related to the transfer. The author in this
research paper has critically analyzed the principle of ostensible owner and transfer of property
by ostensible owner under S.41 of Transfer of Property Act, 1882.

3
ARISTOTLE & BENJAMIN JOWETT, THE POLITICS OF ARISTOTLE (1885).
4
N.M. CONST. art. 300A

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S.41- Transfer by Ostensible Owner

It is a well settled principle of Property law that a person cannot transfer a property to
another person what he does not have or which is greater than what he possesses or own.
However transfer by ostensible ownership is an exception to this general rule.

ORIGIN OF OSTENSIBLE OWNERSHIP

According to the Law Commission of India there can be four main factors for the advent
of Benami Transactions or holding of an ostensible ownership in India.5

 First of the reasons can be the existence of a Joint Hindu Family System, which might
had induced a desire to make secret provisions,6 leading to the practice of benami.

 Second, can be to defraud the creditors, when K.K. Bhattacharya observes that its origin
is in the dishonest motive of defrauding creditors of their just and lawful dues.7

 Third, can be the scheme to evade taxes. . It may be to avoid the payment of tax, to
convert black money or to hide the earnings.

 Fourth, according to Pollock, ‘practices of this kind naturally grow up in a state of society
where there is an appreciable risk, from one generation to another, of hostile conquest or
confiscations.’8

The Law Commission, after making a detailed study and examining the views and
opinions of the public, came to the conclusion that such transactions are carried out by people
having funds and wealth from sources not disclosed to the revenue authorities and with tainted
funds to acquire properties in the names of ostensible owners.

It is in this background that the Benami Transactions (Prohibition of the Right to Recover
Property) Act, 1988 was enacted to come into effect from May 19, 1988 in all States, except
Jammu and Kashmir.

5
57TH REPORT OF LAW COMMISSION OF INDIA para 1.7 (1973).
WEST AND BUHLER, HINDU LAW 157, 563 (4th ed. 1884)
6

7
K.K. BHATTACHARYA, JOINT HINDU FAMILY, TAGORE LAW LECTURES 469- 470 (1884-85).
8
POLLOCK, ‘LAW OF FRAUD’, MISREPRESENTATION MISTAKE 83- 84 (1894)

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S.41- Transfer by Ostensible Owner

TRANSFER BY OSTENSIBLE OWNER

Section 41, Transfer of Property Act, 1882 reads as-

“Where, with the consent, express or implied, of the persons interested in immovable
property, a person is the ostensible owner of such property and transfers the same for
consideration, the transfer shall not be voidable on the ground that the transferor was not
authorized to make it.

PROVIDED that the transferee, after taking reasonable care to ascertain that the
transferor had power to make the transfer, has acted in good faith.”9

Section 41 deals with the transfer of property by an ostensible owner. The general rule is
that all ostensible owners cannot pass on the title to the transferee, but if the conditions laid down
in the section are fulfilled, ‘the transfer shall not be voidable on the ground that the transferor
was not authority to make it.’

This section enacts a rule of estoppel as against the real owner. The rule of Section 41 of
TPA, 1988 is a deduction from the law of estoppel which is enunciated in the S.115, Indian
Evidence Act. The general principle of which is thus stated by the House of Lords in Cairncross
v Lorimer:10

“If a man, either by words or by conduct, has initiated that he consents to an act which
has been done, and that he will offer no opposition to it, although it could not have been
lawfully done without his consent, and he thereby induces others to do that from which
they might have abstained - he cannot question the legality of the act he had so
sanctioned - to the prejudice of those who have so given faith to his words or to the fair
inference to be drawn from his conduct.”

9
Transfer of Property Act, 1882
10
(1860) 3 Macq 827.

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S.41- Transfer by Ostensible Owner

The law incorporated in Section 41 is based on the rules laid down by the Privy Council
in the leading case of Ramcoomar v. Macqueen11 and observes that-

“It is a principle of natural equity which must be universally applicable that, where one
man allows another to hold himself out as the owner of an estate and a third person
purchases it for value, from the apparent owner in the belief that he is real owner, the
man who so allows the other to hold himself out shall not be permitted to recover upon
the secret title.”

In Jayadayal Poddar v. Bibi Hazara,12 the SC observed that whether a person is

ostensible owner is a subjective question depending upon certain facts and circumstances. Also
the following parameters must be taken into account while ascertaining the ostensible owner:

a) Source of the purchase-money i.e. who paid the price.

b) Nature of possession after the purchase i.e. who had the possession.

c) Motive for giving benami colour to the transaction i.e. why the property was
purchased in the name of another person.

d) Relationship between the parties i.e. whether the real owner and the ostensible owner
were related to each other or were strangers or friends.

e) Conduct of the parties in dealing with the property i.e. who used to take care of and
had control over the property.

f) Custody of the title deeds.

11
AIR. 1963 SC 1917.
12
AIR 1974 SC 171; Union of India v. Moksh Builders And Financers Ltd., 1977 AIR 409.

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S.41- Transfer by Ostensible Owner

ESSENTIAL CONDITIONS OF S.41

Following conditions are necessary for the applicability of this section:-

1. EXPRESS OR IMPLIED CONSENT OF REAL OWNER

Generally, consent means that some liability attaches to the real owner that due to his
fault, the world begins to believe that another person is the owner of the property. 13This fault of
the real owner may be express or implied. In case of express consent, it is given in clear and
unambiguous words authorizing ostensible owner to make the transfer. The consent is implied if
the real owner knows that he is dealing with his property as if it were his own but remains
acquiesce or silent. The real owner’s acquiescence or inaction implies his consent if he is aware
of his rights. 14

Mere act of attestation of a document by a real owner does not imply consent if he was
not aware of the circumstances which involved knowledge of the transaction. 15

Section 41 does not apply to minors, and a minor’s guardian who transfers the property of
a minor cannot be treated as an ostensible owner with the consent of the minor, who by, reason
of the disability of infancy, cannot give his consent. 16 Also, the religious endowments do not fall
under this section as the property is vested in the shrine and no particular person can give
consent, express or implied. 17

2. TRANSFER FOR CONSIDERATION

The principle protecting the transferee applies only where the transfer is for some
consideration. It does not apply to gifts or gratuitous transfers. Therefore, the real owner is not
estopped from denying a gift made by an ostensible owner.

13
Ladhibai v. Ravji Nagshi, AIR1950 Kutch 34
14
Beniram v. kundan Lal, 21 All. 496
15
Tarabag Khan v. Nanak Chand, (1932) 138 I.C. 263
16
Shamsher Chand v. Mehr Chand ,AIR 1947 Lah. 147
17
Nathubai v. Mulchand , Bom.L.R.535

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S.41- Transfer by Ostensible Owner

3. TRANSFEREE ACTS IN GOOD FAITH

It is necessary that transferee acts in good faith, i.e., he has purchased the property in the
honest belief that transferor had authority to transfer the property. Good-faith means bona fide
intention. It is based on the principle that “He who seeks equity must do equity”. Thus, this
section can protect the interest of only such bona fide purchaser whose own conduct is equitable
and just.

Where the purchaser had the full knowledge that the transferor is a benamidar, he is not
acting in good faith. In the absence of good-faith, the Court may presume connivance between
benamidar and the purchaser. 18Merely knowledge of any previous dealings with the property or,
knowledge of the defective title of the transferor deprives the purchaser of the protection under
this section.19

4. REASONABLE ENQUIRY BY TRANSFEREE

Good-faith or bona fide intention of the transferee is not enough. To attract the provisions
of this section the transferee must also have exercised reasonable care in ascertaining the title
and authority of the transferor.20

Reasonable care means that care which a man of ordinary prudence should take while
making inquiries regarding the title of an immovable property. The standard of enquiry expected
from the transferee depends upon the facts and surrounding circumstances which may vary
according to the different circumstances of each case. 21 However, the enquiry made by the
purchaser must be diligent and not casual or superficial. 22

18
Gurubaksh Singh v. Nikka Singh ,AIR 1963 SC 1917
19
Lala Jagmohan Das v. Lala Indar Prasad, Al. 1929 Oudh. 160
20
Hardev Singh v. Gurmail Singh, AIR 2007 SC 1058
21
Beyas Singh v. Ram Janam Ahir, AIR 1961 Pat. 16
22
Nageshar Prasad v. Raja Pateshri (1915) 20 Cal.W.N.265,34 I.C. 673 P.C.

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S.41- Transfer by Ostensible Owner

BENAMI TRANSACTIONS (PROHIBITION) AMENDMENT ACT, 2016

This Act prohibited the transfer by ostensible owner (Benami Transactions) and made it
illegal with few exceptions. Some of the following provisions of the Act of 1988 have been
reproduced herein below:

 A “Benami Transaction” has been defined under Section 2(9) A (a) of the Act to mean a
transaction in which a person transfers property to another person for a consideration paid
or provided by a third person.

 There is a total prohibition against the real owner asserting his ownership rights against
the benami owner23. The property owned and held in the name of the benami owner is
liable to be acquired by the government through a competent authority (appointed under
the Act for this purpose) without paying any compensation whatsoever 24. The burden of
proof is on the person who sets up the benamidar.

EXCEPTIONS UNDER THE ACT

According to, the Section 2(9) A (b) under Benami Transactions (Prohibition)
Amendment Act, 2016, Benami transactions are prohibited but there are certain exceptions to
this rule and they are as following:

(i) The property which is held by a Karta or any other member in a Hindu Undivided Family
and the property held for the benefit of the other coparceners of the family and the
consideration of which is given by the known sources of HUF will not amount to a
Benami transaction.

(ii) The property held by a trustee or other person who, in a fiduciary capacity has the benefit
of another person for whom he has a trustee will also normally not amount to a Benami
transaction. Fiduciary capacity means being in a position of a trustee and being in a
position where the person can be stated to have duties of good faith, trust, confidence and
transparency and one who must exercise a high standard of care in managing another
person’s money or property.
23
Rai Sunil Kumar v. Thakur Singh, AIR 1984 Pat 80.
24
Thakur Krishna v. Kanhayalal, AIR (1961) All 206.

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S.41- Transfer by Ostensible Owner

(iii) The prohibition does not apply to an individual who buys property in the name of
his spouse or in the name of any child. But the consideration has to be paid by the known
sources of the individual.

(iv) Where the property of a person is held jointly by brother or sister or lineal ascendant or
descendant and the consideration is paid by the known sources of the individual.

These exceptions have been governed by Section 41 of the Transfer of Property Act, 1882 as
these are excluded in the definition of Benami Transactions under the Section 2(9) A of Benami
Transactions (Prohibition) Amendment Act, 2016.

CONCLUSION

Section 41 of the Act has done an equitable task to safeguard the interest of the third
innocent party involved in the transaction. This section enacts the rule of estoppel as against the
real owner if there is some fault attached to him. And the transaction shall not be voidable on the
ground that the transferor was not authority to make it. And the true character of the transaction
was determined by the intention of the person who contributed the purchase money. The
intention was determined based on the relationship of the parties, the motive for the transaction,
the custody of the title deeds, the payment of considerations and actual possession of the
property in dispute.25

The concept of ostensible ownership is subjected to the provisions of Benami Transactions Act,
1988 (Now, it is Benami Transactions Amendment Act, 2016). The legislation of 1988 prohibits
all the Benami transactions subject to few exceptions. It has made such transactions a criminal
offense. The Act has prohibited Benami transactions retrospectively and is intended to curb the
menace of tax evasion, defrauding creditors, escaping from the statutes like ‘Abolition of
Zimandari’ etc. And these exceptions have been governed by Section 41 of the Transfer of
Property Act, 1882.

25
SOLIL PAUL, MULLA, THE TRANSFER OF PROPERTY ACT 291 (1999)

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BIBLIOGRAPHY

BOOKS & STATUTES REFFERED

1) GOUR HARI SINGH, COMMENTARY ON TRANSFER OF PROPERTY ACT (11th ed. 2009).

2) SINGH AVTAR (DR.), TEXTBOOK ON THE TRANSFER OF PROPERTY ACT (3rd ed. 2013).

3) SINHA R. K., THE TRANSFER OF PROPERTY (15th ed. 2014).

4) DR. SAXENA POONAM PRADHAN, PROPERTY LAW 178 (2d ed. 2011)

5) TRIPATHI, G. P. (DR.), THE TRANSFER OF PROPERT ACT (17th ed. 2011).

6) MALLICK M. R., A COMMENTARY ON TRANSFER OF PROPERTY ACT (2nd ed. 2001).

7) MITRA B. B., COMMENTARY ON TRANSFER OF PROPERTY ACT (11th ed. 2009).

8) V.N. SHUKLA, CONSTITUTION OF INDIA (1950).

9) SOLIL PAUL, MULLA, THE TRANSFER OF PROPERTY ACT (1999)

10) THE TRANSFER OF PROPERTY ACT, 1882

11) THE BENAMI TRANSACTIONS (PROHIBITION) ACT, 1988

12) THE BENAMI TRANSACTIONS (PROHIBITION) AMENDMENT ACT, 2016.

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