‘The most common way to get something is, of course, to buy it.’
This is not to underestimate the complexities underneath the apparently simple transaction of buying and selling. A simpler law would have been that the ownership of property and money pass when they are handed over by their owner with the intent to transfer ownership. The presumption that the law makes is that between buyer and seller ownership passes when they intend it to pass. The seller’s principal obligation is over by purely promising to sell the property; this simple action has the effect of making the buyer the owner. But the buyer’s promise to pay does not make the seller owner of the buyer’s money, since money can only transfer ownership when it practically exchanges hands. This particular action of the law on the transfer of property means that a buyer has possession over the land even before money is delivered to the seller . Historically, this is because the most common disputes that came before the Chancery’s records in England were, at the request of the buyer (after tendering the price of the land), to order the seller to carry out the formalities necessary to make the buyer erga omnes the owner, i.e. to execute the appropriate deed and yield possession. In effect, the court regarded the buyer to already be the owner of the land and it would protect the buyer’s entitlement against the seller, his creditors, any donee, and any other buyer who knew or ought to know of the contract. This basic premise lays the groundwork for the rights and obligations that the buyer has in a case of sale by an ostensible owner.
In this light the researcher shall analyze the concept of Ostensible Owner and the conditions expressed in Section 41 of Transfer of Property Act, 1882. The researcher shall also examine the impact of statutory changes brought about to the application of Section 41 by the Benami Transactions (Prohibition of the Right to Recover Property) Act, 1988.
Section 41. Transfer by ostensible owner – 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.
Ostensible Owner, who is:
The first question that must be addressed is who is an ostensible owner. The ostensible owner is not the real owner of the property and does not have any authority to make the transfer. Nevertheless, as per this section, the transaction entered into by the ostensible owner shall be binding on the real owner.
In this respect, the law in this section derives from the same roots as the Rule of Estoppel given under section 115 of The Indian Evidence Act. This section provides that no one shall be allowed later on to deny the truth of a declaration or act that permits another person to believe a thing to be true and to act upon such belief.
By extension, an action or inaction (omission) or some declaration of the real owner is held responsible for permitting the buyer to consider a third party to be the owner of the property, ostensibly.
Nemo dat quod non habet
The Latin maxim nemo dat quod non habet is one of the basic principles of common law. It essentially means that a person cannot convey a better title than he himself possesses. An exception to this general principle occurs when the true owner, entrusts another person with the documents of title etc., and a third person, who (after due inquiry) deals with that other in a bona fide manner, the third person may acquire a good title in law to the property as against the true owner. The principle behind this section is that where it is imperative that 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 had the opportunity to prevent the fraud. Also, in such cases greater hardship is caused if the general rule that no one can confer a higher right on property than he himself possesses is enforced.
The doctrine of holding out
In this scenario, in cases of a joint family property, the purchaser must take extra care to ensure that the person selling the property is entitled to do so. Such a person conveying the property is not an ostensible owner. An ostensible owner is one who, on inquiry by a prospective purchaser, which a prudent and careful man would make in the circumstances of the case, appears to “ostensibly” bear all the characteristics that a true owner possesses and the real owner himself does not dispel that notion. Whether the person is holding himself out as the ostensible owner with the consent of the real owner is a question of fact.
In order to understand better who is an ostensible owner, it is elaborated who is not an ostensible owner: Temporary control over the property for some specific purpose entrusted by the real owner or, holding a property as an agent or as the guardian of minor’s property or any other fiduciary capacity does not make one an ostensible owner. For instance, the a person who manages an idol or is its trustee is not the ostensible owner of the property so held by him.
It should be kept in consideration that differentiating between an ostensible owner or real owner is difficult because an ostensible owner is in possession of all the characteristics of a real owner except the legal ownership of the property. Thus, establishing ostensible ownership of the property is the Court’s responsibility.
The question of ostensible ownership is inextricably linked with the doctrine of advancement or, as they are known in India, benami transactions. Benami transactions is the use of an alias in respect of the holding of property, usually, (but not always) with the object of concealing the real owner. The genesis of the concept of benami is that consideration for a transfer must flow from one person and the transfer is taken in the name of the other person and the considering so flowing for the transfer was not intended to be a gift in favour of the person in whose name the transfer is taken. Benami transactions are not limited to purchases, and can extend to other modes of transfer as well.
In a 1974 judgment passed by the Supreme Court, Jaydayal Poddar v. Bibi Hazra, Sarkaria, J. for himself and Krishna Iyer, J. observed that a person’s position as an ostensible owner is a not a straightforward, but a subjective question that has to be decided based on factual circumstances. The Court observed further that the following factors must be taken into account while deciding whether a person in question was an ostensible owner or not:
“(1) the source from which the purchase money came;
(2) the nature and possession of the property, after the purchase;
(3) motive, if any, for giving the transaction a benami colour;
(4) the position of the parties and the relationship, if any between the claimant and the alleged benamidar;
(5) the custody of the title-deeds after the sale and
(6) the conduct of the parties concerned in dealing with the property after the sale.”
There is a presumption in the law that the transaction is a valid transaction. Therefore, the burden of proof of the transaction being a benami transaction and that the transferor is actually just an ostensible owner (the person in whose name the property is, i.e., the benamidar) lies on the person claiming to be the real owner. This position was further clarified in Mahinder Singh v. Pardaman Singh , where the Delhi High Court said that the burden of proof of benami transaction lies on the person who asserts that the transaction is benami. The basic principal here is proving that the price came from someone who was not the person in whose name the property is transferred. In fact, the purchase is to be inferred by a prima facie evaluation of the facts and circumstances. The same applies to the intention of the person who contributed towards the money which has to be inferred from the circumstances and relationship of the parties and the motive that governs their action in bringing about the transaction and their subsequent conduct.
Essential Conditions of Section 41
The transfer of an immovable property by the ostensible owner with the express or implied consent of the real owner:
The transfer must be made by an ostensible owner with the express or implied consent of the real owner. The consent must be free. The principles of natural justice shall follow in this as well and wherever a benamidar shall have obtained the consent of the real owner by fraud, force or coercion, the consent is not free and this section cannot be applied. The object of this section is to protect a bona fide purchaser prejudiced by the conduct, however innocent and unintentional, of the real owner in allowing the world at large to think someone else is the owner of the property. Similarly, where the real owner is not capable of giving consent (e.g., due to condition of insanity or minority) his consent amounts to no consent.
Section 41 is based on a law whose rules were laid down broadly by the Privy Council decision Ramcoomar Koondoo v. Macqueen. Here the Privy Council made the following observation:
“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 out shall not be permitted to recover upon the secret title” unless he can overthrow the title of the purchaser by showing that either the purchaser had direct notice or he had constructive notice about the real title or that there existed circumstances which ought to have put him upon an inquiry which, when pursued, would have led to a discovery of the fact of the ostensible ownership.
Transfer is for a consideration
Section 41 is applicable only where the transfer by an ostensible owner is with consideration. It does not apply to either to gifts or to gratuitous transfers.
Transferee acts in good- faith
It is essential that the transferee have acted in good faith, believing that the he is dealing with the real owner of the property. Good faith means bona fide intention. Where a person purchases property knowing well that the transferor is merely an apparent owner, the court can infer that his intention is not bona fide and there is no good faith on his part. The principles of equity and good conscience protect the interest of a bona fide purchaser only. He who seeks equity must behave equitably. Where good faith is absent, the court may presume that the ostensible owner and the purchaser have colluded. Section 41 is similarly inapplicable in a sham transaction because the transferee would then have knowledge of the existence of the real owner. Even if due enquiry made about the title of the seller is made by the purchases but he purchases the property with a dishonest intention this section will not protect him. This section imposes both the conditions of good faith and reasonable enquiry about the title; they are not exclusive of each other.
Reasonable care be taken by the transferee:
Reasonable care means the care an ordinary man of business or prudence would take in the process of inquiring about the title of an immovable property. It is not possible to delineate “general rules” laying down the form of the enquiry to be made by the transferee which may be considered to amount to ‘reasonable care’ in all the cases. The standard of enquiry expected from the transferee depends upon the facts and surrounding circumstances which vary on a case to case basis. However, the enquiry must be thorough and not superficial. A specific circumstance or fact should be pointed out in the case that should have been the starting point of an enquiry which could lead to some result. In Gurbaksh Singh v Nikka Singh the Court said that in exceptional cases, it is the transferee’s responsibility to show that the transferor was the ostensible owner of the property. The transferee must show that the decision to transfer was only taken after taking “reasonable care” and the action had been in good faith.
Benami Transaction v/s Sham Transaction
A benami transaction is different from a sham transaction. The chief characteristic of a benami transfer is to give it the appearance of reality, to cloak a fictitious transfer with all the appearance of a genuine one. But the dominant question is one of intention. Was there an intention to benefit the ostensible owner? Whereas, in a sham transfer, the question is whether the transfer was made with a view to evict the tenant. A benamidar is a mere name lender. He is the apparent owner. While in a sham transaction there is no transfer actually and the title remains with the transferee even after the supposed transfer. In the former case, it is of importance who paid the consideration for the transfer, but in the latter case the point for consideration is whether there was consideration paid at all. A benami transaction which is not a sham transaction contemplates the transfer of property but consideration is not paid by the transferee but by another. The person from whose pockets came the money was the real owner.
Impact of Benami Transaction Act
The law relating to transfer by an ostensible owner as given in section 41 of the act is now subject to the provisions of the Benami Transactions (Prohibition of the Right to Recover Property) Act, 1988. This Act provides that no suit, claim or action to enforce any right in respect of property held Benami against any other person shall lie by or on behalf of a person claiming to be the real owner if the property is held benami. The doctrine of benami has, by virtue of this enactment, ceased to be a part of the Indian law.
Section 3 of Benami Transactions Act provides that no person shall enter into benami transaction. This is subject to sub-section 2 of section 3 which excludes from the Act’s operation the purchase of any property by any person in the name of his wife or unmarried daughter with the presumption that such property had been purchased for the benefit of the wife or unmarried daughter.
The benami transaction which shall attract the above mentioned provisions of sections 3 and 4 shall be those in which a) there is transfer of property, b) the consideration paid or provided is not by the transferee but by another.
There is a presumption in this Act regarding joint family property. In case the joint fund of the HUF is enough to purchase the property, the presumption is that the property has been acquired for the HJF. Also, an acquisition in the name of the wife of a coparcenor shall not be considered an acquisition for the joint family.
The Benami Transaction Act does not apply to agricultural land since it was enacted by the Parliament under Entry 6 of List II of the Seventh Schedule, relating to the transfer of property other than agricultural land.
After analyzing different cases and concept of ostensible ownership, we reach to the conclusion Ostensible Ownership is a concept that derives its legitimacy from the ideas of equity and natural justice, in particular the doctrine of estoppels. It is an exception to the doctrine nemo dat quod non habet since it does, for reasons of equity, allow ostensible owners to have delivered the rights of true ownership to bone fide transferees. Ostensible ownership is inextricably linked with the concept of benami transactions. Benami transactions are where the real ownership lies in another who pays the consideration, while the ostensible ownership lies in the benamidar who only lends his name to the title deeds.
Ostensible ownership is different from a sham transaction that since the enactment of Benami Transactions (Prohibition) Act, 1988 an ostensible owner has become a real owner except in certain situations. 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 bona fide transactions where person purchases property in the name of his wife or unmarried daughter.
So, clearly, after the passing of the Benami Transactions Act, the scope of application of section 41 has become very limited. Ultimately, the transferee, who purchases the property from the ostensible owner, cannot take the benefit of section 41 unless the ostensible owner is the wife or unmarried daughter of the real owner.