Transfer by Ostensible Owner: Section 41 of Transfer of Property Act

Author: Utkarsh Singh; Amity University, Lucknow

I. Introduction

Ostensible Ownership is a word that allows family members to purchase property in another family member’s name for the person’s future security. Section 41 contains the definition of the ostensible owner[1]. ‘Ostensible Ownership denotes ownership that may be seen via acts or words[2]. The concept of ostensible ownership’ precludes the Landowner from asserting his title against an innocent third party who has been persuaded to bargain with the apparent owner.

Something that looks to be true is referred to as apparent. As a result, the ostensible owner is not the true owner of a property. To third parties, he just presents himself as the true owner. Without being the true owner of a property, such an ostensible owner has all of the rights to it. By the stated or implied assent of such an owner, he obtains these rights from the genuine owner. He is the entire and unqualified owner of the property, while the genuine owner is the qualified owner.[3] The sole difference between the real and ostensible owners of a property is that the ostensible owner does not want to keep or buy the property. The ostensible owner is referred to as a “Benamidar” in India, which means “a person who owns a property without a name.”

II. Persons who are unable to be ostensible owners include:

• Practicing agents
• Trustees
• Workers
• Guardians or anybody else acting in a fiduciary capacity[4]

Illustration: A possesses property in India, and he gives B permission to carry out all of the property’s ownership rights before departing for the United Kingdom. B will be the ostensible owner of such a property, and all of his actions will be counted as A’s. B proceeds to sell the property to C for a profit. A will never be able to reclaim his land from C. Because C thought B to be the property’s owner and behaved in good faith.

III. Ostensible Ownership: Origin

As per India’s Law Commission, there are four main causes for the establishment of Benami Transactions or the retaining of ostensible ownership in the country.

1. The practice of Benami is due to the prevalence of a Joint Hindu Family Structure, which may have led to a readiness to make concealed preparations.
2. To fool creditors, according to K.K. Bhattacharya, the foundation of the problem is a deceptive purpose to defraud creditors of their legitimate and legal dues.
3. A method of evading taxes. It might be to avoid paying taxes, convert black money, or hide income.
4. As per Pollock, “activities of this nature naturally emerge in a state of society where there is a significant risk of hostile defeat or confiscation from generation to generation.”

Ramcoomar Koondoo v. John and Maria McQueen[5] was the first lawsuit to employ the notion of ostensible owners.

In this case, the plaintiff’s estate was inherited by will, but she later discovered that the estate had previously been purchased in her name by someone else, who then sold the estate to a third party in good faith. The estate’s entire transaction was a “Benami” deal, which meant that no one else knew about it save the person who sold it. The plaintiff filed a claim against the third party to collect the estate. It was decided that the plaintiff could not reclaim possession of the estate from the third party since the transfer was legal.

The idea of an ostensible owner’s transfer of estate is an exception to the rule “Nemo dat quad non habet,” which states that no one can have a higher right over the property than he does. The innocent parties are protected by Section 41 of the transfer of estate statute against the improper activities of a third party. As a result, the damage resulting from such an act will be borne by the person who perpetrated or failed to prevent the fraudulent act.

As mentioned in section 41 of the said act[6], “Transfer made by Ostensible Owner: Where an individual is the ostensible owner of the immovable estate and transfers it for consideration with the consent, express or implied, of the individuals interested in such estate, the exchange must therefore not be voidable on the basis that the transferor was not permitted to make it: provided that the transfer acted in good faith after taking reasonable care to verify that the transfereor had the authority to make the transfer.” As a result, an ostensible owner possesses ownership rights, which include the right to title, possession, and papers, among other things. He also has the power to transfer the estate to the transferee for whatever reason, with the condition that the transferee act in good faith and believe the apparent owner is the true owner of the estate. The true owner cannot reclaim the estate after the transfer is completed, thus it is not voidable on the basis that an ostensible owner is not permitted to conduct the transfer.

The rightful owner can only reclaim the estate if the real owner can prove that the buyer did not act in good faith and did not take the reasonable care that a man would take when conducting such an estate transfer, or if the purchaser had knowledge of the real owner’s title. The transfer made by the ostensible owners is referred to as a Benami transaction. As a result, in such circumstances, the party claiming to be the true owner of the land bears the burden of proof.

IV. Property transfer by the ostensible owner

The idea of ostensible owner transfer is an exception to the rule ‘Nemo dat quod non habet,’ which states that no one can confer a greater right on the property that he owns. Section 41 protects innocent parties from a third-fraudulent party’s activities. The person who perpetrated or failed to prevent the fraud bears responsibility for the loss.[7]

“When an individual behaves on the explicit or implicit consent of an individual who is vested in an intangible asset, the person acting on such approval is the ostensible owner of the property,” according to Section 41 of the Act. He has all the signs of ownership, such as the right to title, possession, and documentation. He can sell the property to the transferee for a profit. The Transferee shall act responsibly and think that the ostensible owner of the property is the rightful owner. The genuine owner who permits the other to act as though he is the owner cannot be allowed to reclaim his title. As a result, the transfer is not voidable because the ostensible owner was not allowed to make the transfer.

The owner, on the other hand, can collect from the buyer if he can show that the buyer was aware of the genuine owner’s title. He also shows that the transferee did not act reasonably and did not exercise the care that a prudent person would use in making such a transfer.

An example of a transfer by an ostensible owner is a Benami transaction. In such cases, the individual who claims to be the true owner of the property bears the burden of evidence. However, other facts and circumstances, such as the parties’ intentions, actions, and source of purchase, must be taken into account when determining the burden of proof.[8]

For instance, suppose X purchases a property in the name of Y. For completing the sale, X pays a fee. Y then sells the property to Z while concealing the transaction from X. Unless X can show that Z had knowledge of the property’s genuine title and acted in bad faith, he cannot avoid the sale.

The following requirements must be met to determine whether a transfer is done by an ostensible owner. Even if one of the requirements listed below is not met, it will not be considered a transfer by the apparent owner.

1. The transferor should perform an immovable property transfer rather than a moveable property transfer.
2. To authorize a person to function as an ostensible owner, the real owner must offer verbal or implied consent.
3. The ostensible owner of the property should be the one who transfers it afterward.
4. The purchaser must pay the ostensible owner compensation for the transferred property.
5. The buyer must trust that the ostensible owner is the true owner and act in good faith. He should have additionally taken reasonable precautions when performing the transferor’s property transfer.[9]

V. Essentials

The rightful owner is liable for the ostensible owner’s transfer of immovable property if the following conditions are satisfied:

1. An individual has to be the ostensible owner of the property;
2. That individual must be the property owner with the real owner’s consent, express or implied;
3.  The transferee must buy the property from such ostensible owner for consideration.
4. The transferee must take reasonable precautions before accepting the transfer to determine whether the transferor has the authority to make the transfer; in other words, the transferor must have acted in good faith.

Only if the essential circumstances for the section’s applicability are met does the true owner lose his property rights under this section.

Consent

The real owner does not have to give the consent referred to in section 41. The genuine owner, on the other hand, must have the legal power to offer such consent.[10] Minors’ permission is invalid because they lack the legal capacity to do so under the requirement of transfer by the apparent owner. The consent must be granted voluntarily and without undue influence or false purpose. This permission should be given either explicitly or implicitly. When one person expressly permits another to do or not do something in unambiguous language, whether spoken or written, it is known as express consent. Such words should convey the authority that has been granted. The term “implied consent” refers to consent that is derived from another’s words or behavior. In such instances, consent is not explicitly provided, but it has the potential to be misinterpreted.[11]

Consideration

If the ostensible owner makes the transfer, care must be taken. He was unable to give the property away as a gift. As stated in the Indian Contract Act of 1872, consideration is a required component of every contract, and the beneficial owner’s transfer of property is only altered by contract. The general definitions put down in the Indian Contract Act, 1872 shall be drawn from everything not particularly mentioned in that Act, according to S. 4 of the Act.

Good Faith and Reasonable care

The term “reasonable care” refers to the kind of precautions that a prudent person would take. The transferee should exercise due diligence in determining the property’s real title. He should check to see if the transferor is the rightful owner of the property and that he acted in good faith.[12] The transferee should inspect the appropriate documentation and title of the property with sufficient care. To protect himself from the true owner, he should conduct proper research.[13]

Suitable Inquiry

It can be difficult to determine what constitutes a proper inquiry when an individual is required to make fair inquiries. The Indian courts have ruled that this is arbitrary, that it will be determined by the facts and circumstances of each case, and that what constitutes a proper investigation in one case may not be considered such in another with wholly different conditions.

If the transfer is made by Mahommedans, the buyer must inquire about the presence of a female heir. In some cases, only males relocate the property without the permission of the females; however, this is not a lawful transfer because the females still have a stake in the property, and the third party must inquire about certain details. The ultimate requirement is for the “transferee” to demonstrate that he acted responsibly and prudently as a businessperson.

Burden of Proof

The burden of proof will be on the transferee in the event of a dispute or if the legality of the transfer is questioned.[14] The transferee must demonstrate that the transfer was made in good faith. He must also show that he took reasonable steps to ensure that the transferor was the genuine and legal owner of the property unless he can show that the transferor hid material facts from him when performing the transfer.

VI. The Rule of Estoppel applies to the genuine owner of the property under Section 41 of the TPA.

Estoppel refers to a circumstance in which a person convinces others of something or a fact that isn’t real or incorrect, and then the person acts on that belief; the person who created the representation can’t refuse to act on it.

1. The genuine owner of the property convinces the other person (transferee) that the person to deal with the property (ostensible owner) has the power to deal with it as the owner of that property, including the authority to alienate the property, whether implicitly or expressly;
2. The individual alienating the property does not have the authority to alienate it, but he does so as the ostensible owner;
3. For a consideration;
4. The transferee, despite taking reasonable precautions, believes that the transferor has the authority to make the transfer;
5. Now the actual owner is barred from pursuing the transfer because the transferor was incompetent to do so.

This is predicated on the idea that a transfer occurred as a result of the actions of one individual. Even if the transferor misled both parties, one of them permitted the fraud to occur (the real owner because of the consent). The innocent party should not be harmed as a result of this.

VII. Benami Transaction

According to Agnew, the word ‘Benam’ is Persian in origin and is formed up of the syllables ‘be’ and ‘Nam,’ which imply ‘no-name,’ i.e., nameless or fake. Benami simply means that a buyer wants to buy property but does not want to buy it in his name, so he buys it in the name of someone else. The goal of a Benami transaction is to conceal real estate, sometimes to evade creditors, and other times simply out of habit or superstition.

The Benami Transaction Act of 1988 (section 3) prohibits Benami transactions, although Section 41 of the Transfer of Property Act of 1882 permits them. As a result, a transfer by ostensible ownership under section 41 is subject to the rules of the Benami Transactions (Prohibition of the Right to Recover Property) Act, 1988.

VIII. Cases

Shafiquallah v. Samiulah[15]

When a property owner died, his illegitimate sons took ownership of the property, even though they were not legally entitled to it. To reclaim the property, the owner’s legal heirs launched a lawsuit against the illegitimate sons. The illegitimate sons, on the other hand, sold the property to a third party while pretending to be the legal owners. The court ruled that the illegitimate sons did not have the express or implied approval of the true owner to be ostensible owners of his property. As a result, section 41 cannot be used.

Nirvas Purve v. Mst. Tetri Pasin[16]

While on pilgrimage, a husband registered his land in the revenue records under his wife’s name. He then permitted her to take out a mortgage on the property. When the husband moved out, the wife sold the property to a third party, who paid off the mortgage. The court ruled that the spouse could not reclaim or redeem the land from the buyer if the buyer acted in good faith and took reasonable steps to verify the land’s ownership.

IX. Conclusion

The interests of the innocent third party participating in the transaction are protected under Section 41 of the Act. This section outlines the estoppel legislation that applies to the actual owner of the item has a flaw. And the contract will not be declared null and void because the transferor lacked the authority to do so. The genuine character of the transaction is decided by the intent of the person who contributed to the Land acquisition. The purpose was determined based on the parties’ relationship, the transaction’s purpose, the possession of the title deeds, the payment of the factors, and the actual ownership of the disputed property.

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[1] Sec 41 of Transfer of Property Act, 1882

[2] According to the Black Law Dictionary

[3] Kannashi Vershi v/s Ratanshi Nenshi AIR 1952 Kutch 85

[4] The Law studies, Transfer by Ostensible Owner, March 16, 2018, http://thelawstudies.blogspot.com/2018/03/transfer-by-ostensible-owner.html

[5] (1872) 11 Beng LR 46.

[6] Section 41, Transfer of Estate Act, 1882.

[7] Vibha Sirothiya, Position of Ostensible Owner in Indian Property Law vis-à-vis Benami Transactions      http://www.goforthelaw.com/articles/fromlawstu/article28.htm

[8] Mahinder Singh v. Pardaman Singh (1992) 196 ITR 786 Delhi

[9] Neerja Gurnani, Ostensible Owner under TPA, April 4, 2015

[10] Sambhu Prasad v. Mahadeo Prasad, (1933) A.I.R. 493 

[11] Abdulla Khan v Bundi, (1912) ILR 34 All 22

[12] Kanhu Lal v Palu Sahu, [1920] 5 Pat LJ 521.

[13] Gurbaksh Singh v Nikka Singh  1963 AIR 1917, 1963 SCR Supl. (1) 55

[14] Ram v. Muktinath, (1956) A.I.R. 154  

[15] AIR 1929 All 943

[16] (1916) 20 Cal W.N. 103