Transfer by ostensible owner – section 41 of Transfer of Property Act
INTRODUCTION TO TRANSFER BY OSTENSIBLE OWNER
Ostensible Ownership is a term that enables family members to buy the Property in the name of another family member for the future security of the person. The definition of the ostensible owner is set out in Section 41 of the Transfer of Property Act. According to the Black Law Dictionary, ‘Ostensible Ownership implies an evident Ownership resulting from actions or words. The principle of ostensible ownership’ prevents the owner of the Land, who clothes another with the obvious title of the latter, claiming his title against an innocent third party who has been induced to negotiate with the apparent owner.
Ostensible simply means the presence, the appearance, or to seem. Ostensible owner is a person who is not the actual owner of the Land, though he appears to be the real owner. Thus the only distinction between the real owner of the property and the ostensible owner of the property is that the ostensible owner of the property does not wish to keep or buy the property. In India, the ostensible owner is popularly known as ‘Benamidar,’ which literally means a person who owns a property ‘without a name.’
ORIGIN OF OSTENSIBLE OWNERSHIP
According to the Law Commission of India, there may be four key reasons for the emergence of Benami Transactions or the holding of an ostensible ownership in India.
- The presence of a Joint Hindu Family Structure, which may have led to a willingness to make hidden provisions, has led to the practise of Benami.
- To deceive the creditors, when K.K. Bhattacharya observes that its root is due to the deceptive intent of defrauding creditors of their just and legal dues.
- A way to avoid taxes. It could be to stop paying taxes, to convert black money or to cover up the income.
- According to Pollock, ‘activities of this kind naturally evolve in a state of society where there is an appreciable risk, from generation to generation, of hostile defeat or confiscation.
ESSENTIALS OF SECTION 41 OF TRANSFER OF PROPERTY ACT (TRANSFER BY OSTENSIBLE OWNER)
The real owner shall be liable for the transfer of immovable property by the ostensible owner if the following conditions are met –
- A person must be the ostensible owner of the property,
- That person must be the owner of the property with the consent, express or implied, of the real owner;
- For consideration, the transferee must purchase the property from such ostensible owner.
- Before taking the transfer, the transferee must take reasonable care to ascertain whether the transferor has the power to make the transfer; in other words, transferor must have acted in good faith.
The real owner is deprived of his property rights under this section only if the essential conditions for the applicability of the section are met.
CONSENT FROM THE REAL OWNER
The main aim of this section is to secure the interests of the innocent third party who bought the property while the real owner was himself at fault for not protesting the transfer. The necessary requirement, however is that the actual owner should have the capacity to give consent and that consent should not be obtained from any unlawful act. In the case of minors, even if the ostensible owner claims that he has the consent of the minor, no consent will be granted, as the minors do not have the capacity give the consent.
The implied consent can be derived from the actions of the real owner. The actual owner is not required to give his express consent or to give his consent in writing. Therefore if another person is concerned with the property of the real owner, as if the property was his own, and the real owner is aware of it would be said that the real owner’s approval is tacit.
Consideration is a must if a transfer is made by the ostensible owner. He could not give away the property as a gift. As also given in the Indian Contract Act, 1872 that consideration is a required component of any contract and the transfer of property by the beneficial owner is effected only by contract. It was also provided in S. 4 of the Act, the general meanings laid down in the Indian Contract Act, 1872 shall be deduced from anything not specifically specified in that Act.
Reasonable care can be understood as the care that a reasonable and ordinary man would have taken. It is his responsibility to check the title of the transferor. In the case of Mathura v. Ambika, where the real owner had sold the property to another individual and had declared it before the sale by the ostensible owner could have been registered, it was held that the transfer by the real owner would have been valid as it had a greater ownership of the property than the ostensible owner and the rights of a third person who had bought the property from the ostensible owner.
As an individual is expected to make fair enquiries, it is often difficult to decide what the proper enquiry would be. The courts in India have held that this is arbitrary, that it will rely on the facts and circumstances of each case and that it may also be the case that what amounts to a proper investigation in one case may not be considered a proper investigation in another case with entirely different facts.
If the transfer is made by Mahmomedans, the purchaser is required to inquire whether there is a female heir also. In certain situations, it is the case that only males move the property without the permission of the females and this would not be a valid transfer because they still have a stake in the property and so the third party needs to ask about certain things. The ultimate test is that the “transferee” should prove that he behaved as a responsible businessman and with ordinary prudence.
Good faith basically means that the transferee should have sincerely assumed that the ostensible owner is the real owner after all the correct enquiries made by him. But if after careful enquiries, the transferee is informed that the person selling the property to him is not the actual owner, but only the ostensible owner, the transferee cannot ignore the true facts. This is because a person cannot take advantage of his own negligence and then claim the immunity of that act. The interests of the real owner must also be protected against such individuals.
Ramcoomar Koondoo V. John and Maria McQueen Case:
In this case the plaintiff, who had inherited the property by way of a testament, came to realise that someone else had already bought the property in his name and then sold the property to a third party, by making him think that he had a good title to the property. The entire transaction was a ‘benami’ transaction, but no one was identified except the individual who sold the property. The plaintiff sued the third party to reclaim the ownership of the land, but the Committee ruled that:
“It is the concept of natural equity, which must be universally applicable, that if one man permits another to hold himself to be the owner of the estate, and a third person purchases it for value from the apparent owner in the belief that he is the owner of the estate, the person who thus permits the other to hold himself to our own shall not be permitted to regain his hidden title, unless he is able to overthrow that of the purchaser by demonstrating, either that he had a clear notice, or anything which amounts to a constructive notice, of the true title, or that there were circumstances which should have led him to an investigation which if brought to justice, would have led to the discovery of it.”
It was held that the plaintiff could not take back the property of a third party and that the sale was a lawful transfer in the eyes of the law. The text used in this case can be found in the S. 41 of the Act dealing with the ostensible owner.
Shafiquallah v. Samiulah:
The owner of the property died, and then his ownership of the property was with his illegitimate sons who were not entitled to the legal title of the property. The lawful heirs of the owner brought an action against the illegitimate sons to reclaim the land. However the illegitimate sons sold the property to a third party, pretending to be ostensible owners. The court held that the illegitimate sons did not have the consent of the actual owner, whether express or implied, to be ostensible owners of his property. Hence section 41 cannot be invoked.
Section 41 of the Act preserves the interests of the innocent third party involved in the transaction. This section sets out the estoppel law against the actual owner if there is a fault attached to it. And the agreement will not be held null and void on the basis that the transferor was not empowered to do so. The true nature of the transaction is determined by the intention of the individual who contributed to the purchase of the Land. The purpose was decided on the basis of the relationship between the parties, the reason for the transaction, the custody of the title deeds, the payment of the factors and the actual ownership of the Property in dispute.
Author: Ishita Agrawal,
B.A.LL.B. 3rd year, Himachal Pradesh National Law University Shimla