Ostensible Owner section 41 TPA

 INTRODUCTION:

The Transfer of Property Act, 1882, was passed with the purpose of making transfer of property easier and makes it accessible to the population at large. This Act lays down certain general principles as to transfer of property which has to be followed. Transfer of a property by and ostensible owner is such a concept which was incorporated to protect the rights of innocent third parties vis-à-vis the property owners. This principle was first used in the much celebrated case of Ramcoomar Koondoo v. John and Maria McQueen1 by the Judicial Committee.

Ramcoomar Koondoo V. John and Maria McQueen Case

In this case, the plaintiff who had inherited a property by way of a will came to know that someone else had already purchased this property in her name and subsequently sold this property to a third person, by making him believe that he had good title over that property. The whole transaction was a ‘benami’ transaction but was not known to anyone except the person who sold the property. The plaintiff sued the third party for recovery of the possession of the land but the committee held 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 the real owner, the man who so allows the other to hold himself our shall not be permitted to recover upon his secret title, unless he can overthrow that of the purchaser by showing, either that he had direct notice, or something which amounts to constructive notice, of the real title, or that there existed circumstances which ought to have put him upon an inquiry that, if prosecuted would have led to discovery of it.”

     

               It was there by held that the plaintiff cannot take back the property form the third party and that the transfer was a legitimate transfer in the eyes of the law. These wordings used in this case can be seen in the S. 41 of the Act which deals with Ostensible owner.

Section 41

Transfer by ostensible owner—Where, with the consent, express or implied, of the persons interested in immoveable 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.2

The section is a statutory application of law of estoppel – S. 115 of Indian Evidence Act3.

The transferee will be protected only if he has acted in good faith after taking reasonable care to ascertain that the transferor has power to make the transfer. The transferee who willfully shuts his eyes and takes the transfer without any inquiry is not protected. The transferee is also required to show that he had purchased the property after taking care to ascertain that the transferor had power to make the transfer what is reasonable care depends on the facts and circumstances of each case. The section makes an exception to the rule that a person cannot confer a better title that he has.

OSTENSIBLE OWNER: Ostensible owner is not the real owner but who can represent himself as the real owner to the 3rd party for such dealings. He has acquired that right by the willful neglect or acquiesces by the real owner of the property thereby making him an ostensible owner. A person who has gone abroad for some years has given his property to his family relative for making use of it for agricultural purpose and for all other purposes as he may deem fit. In this case the family relative is the ostensible owner and if during that period he sells the property to a third party, then the real owner after coming back cannot claim his property and say that the person was not authorized to transfer his property. An alternative case can be when the property

2 Section 41, Transfer of Property Act, 1882

3 When one person has, by his declaration, act or omission, intentionally caused or permitted another person to believe a thing to be true and to act upon such belief, neither he nor his representative shall be allowed, in any suit or proceeding between himself and such person or his representative, to deny the truth of that thing    is in wife’s name but husband used to take care of it and the other dealings related to the property. If the husband thereby sells this property, the wife cannot claim her property back. Or as in the Mohamad Shakur v Shah Jehan, in which the real owners lived in a different village, and had authorized a widow to use the property as she liked and afterwards, she sold it. The real owner lost the case and the transfer was a valid one.

Exception to rule Of Nemo Dat Quod Non Habet

The rule enunciated in this section 41 is an exception to the general rule that a person cannot convey a better title than he himself has in the property. i.e., Nemo dat quod non habet. To this general principle there is a well-recognized exception that if the true owner, as by entrusting him with the documents of title or in some other way, a third person, who (after due inquiry) bona fide deals with that other, may acquire a good title to the property as against the true owner. This section is based on the principle that where one of the two innocent persons must suffer from the fraud of the third party, the loss should fall on him who has created or could have prevented the opportunity for the fraud and that in such cases hardship is caused by the strict enforcement of the general rule that no one can confer a higher right on property than he himself possesses.

Case: Jaya Dayal Podder V. Bibi Hazara5

The Hon’ble Supreme Court observed that following considerations must be taken into account

while deciding whether a person is ostensible owner or not.

Source – who paid the price?

Possession with whom the purchase

Motive behind purchasing the property in someone else’s name

Relationship between the real owner and ostensible owner

Conduct of the parties in dealing with the property (who take care of the property) Custody of title 

     

                Further in Raj Ballar Dass V. Haripada Das6, the Hon’ble Supreme Court held that principles for determining whether transfer is benami are as under: -

The burden of showing that a transfer is a benami transaction lies on the person who asserts that it is such a transaction

If it is proved that the purchase money came from a person other than the person in whose favor the property is transferred, the purchase is prima facie assumed to be for the benefit of the person who supplied the purchase money, unless there is evidence to the contrary.

The true character of the transaction is governed by the intention of the person who has contributed the purchase money, and

The question as to what his intention was has to be decided on the basis of the surrounding circumstances, the relationship of parties, the motive governing their action is bringing about the transaction and their subsequent conduct etc.

ESSENTIALS OF SECTION 41

1) There is transfer of an immovable property by ostensible owner with express or implied consent of the real owner.

The transfer must be made by an ostensible owner with express or implied consent of the real owner and it must be a free consent. Where a benamidars obtains the consent of the real owner by fraud, force or coercion, the consent is not free and this section cannot apply. Similarly, if the real owner is incapable of giving any consent (e.g., he is insane or minor) his consent is no consent. If the real owner is minor he is incapable of giving any consent. Therefore section 41 does not apply where ostensible owner transfers the property of minor real owner. The law incorporated in section 41 is based on the rules laid down by the Privy Council in the leading case of Ramcoomar Koondoo v. Macqueen

   2) Transfer is with consideration.

Section 41 is applicable only where the transfer by an ostensible owner is with consideration. It does not apply to gifts or gratuitous transfers. Therefore, the real owner is not precluded from denying a gift made by an ostensible owner. However, if the transfer is with consideration. It may be any kind of transfer or property e.g., it may be sale, exchange, mortgage or lease.

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. Good faith means bona fide intention. When a person purchases property with full knowledge that the transferor is merely an apparent owner his intention is not bonafide and there is no good faith on his part. Principles of equity on which this section is based, protects the interest only of a bonafide purchaser. He who seeks equity must do equity. Thus, this section can protect the interest only such purchaser whose own conduct is equitable and just. In the absence of good faith, the court may presume collusion between ostensible owner and the purchaser. Accordingly, if the transaction is a sham (false) one, section 41 cannot apply because the transferee would then be in the knowledge of the reality. And it should also be noted that even if the purchaser makes due enquiry about the title of the seller but has no good faith i.e. purchases the property with dishonest intention, he cannot get the benefit of this section. This section imposes both conditions: good faith and reasonable enquiry about the title; they are not so in the alternative

4) Reasonable care of the transferee

Reasonable care means that care which a man of ordinary prudence should take while making inquiries regarding the title of an immovable property. But it is not possible to lay down any general rule regarding the nature of enquiry to be made by the transferee which may be called as ‘reasonable care’ for all the cases . 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. However ,the enquiry must be diligent and not superficial or casual

   .Some specific circumstance or fact should be pointed out as starting point of an enquiry which might have led to some result. In Supreme Court case of Gurbaksh singh v Nikka singh Subba Rao J. said that Being an exception, the onus certainly is on transferee to show that the transferor was the ostensible owner of the property and that he had, after taking reasonable care to ascertain that the transferor had power to make the transfer, acted in good faith

STATUTORY CHANGES: Benami transactions (Prohibition) Act,

1988. This Act was introduced as an act of the parliament in 1988 to prohibit certain types of financial transactions. Although benami transactions were declared illegal due to enactment of the said act, the act had limited success in curbing them. Therefore, act was amended in 2016.

The PBPT Act prohibits recovery of property held benami from benamidar by the real owner. Properties held benami are liable for confiscation by the government without payment of compensation. SECTION 41 IS SUBJECT TO THE PROVISIONS OF BENAMI TRANSACTIONS ACT.

BENAMI TRANSACTION: The original 1988 act defined as benami transaction in which property is transferred to one person for a consideration paid or provided by another person. After amendment in 2016, the definition has been widened to include –

The transaction is made in a fictitious name

The owner is not aware of or denies knowledge of the ownership of the property or The person providing the consideration for the property is not traceable.

As per section 2 (8) of the 2016 Act12, benami property means any property which is subject matter of benami transaction and also includes the proceeds from such property.

Property transactions among family members is not benami transactions. Here the act clearly sets the limit of relationship only lineal ascendants (father, mother, grandparents, and great grandparent) and lineal descendants (children, grandchildren and great grandchildren) are considered as family members.

         In MITHILESH KUMARI V. PREM BEHARI KHARE 13 Supreme court held that the BENAMI TRANSACTIONS ACT,1988 is a piece of declaratory enactment which makes benami transactions punishable and also prohibits the right to defences against recovery under benami transactions. The court observed that as the result of the provisions of this enactment, all properties held benami at the time of coming into force of this Act may be affected irrespective of their beginning; duration and origin.

CONCLUSION

We reach to the conclusion that after enactment of Benami Transactions (Prohibition) Act the situation is quite clear. It may be stated that now an ostensible owner has become a real owner except where he is a coparcener in a Hindu Undivided Family or a trustee. Besides them the provisions of this Act do not apply, also in usual bonafide transactions where person purchases property in the name of his wife or unmarried daughter.