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A Study on the Transfer of Property by an Ostensible Owner

Transfer of Property
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The researcher in the present study has broadly dwelled into the provision of Section 41 (Transfer of Property by Ostensible Owner) of the Transfer of Property Act by examining its applicability with the aid of various landmark cases laws such as Ramkoomar Koondoo v. John and Mari Mcqueen and Jaya Dayal Poddar v. Bibi Hazra etc. It is aimed to understand the relevance of the topic by reaching out to the objectives of the present manuscript. 

Review of Literature

  1. Yuvraj Dilip Patil, his research article titled Ostensible Ownership Vis a Vis Benami Transaction in India, has helped the researcher in conceptual understanding of the present study as it examined the concept of seeming ownership in-depth as it responds to the following research question that is “If the Transfer of Property Act, 1882 allows for the purchase of property in the name of another person, which is known as ostensible ownership, and the Benami Transaction Act, 1988 prohibits the purchase of property in the name of another person, why is the purchase of property in the name of another allowed under the Transfer of Property Act but prohibited under the Benami Transaction Act?However, this literature is limited to an extent that it is in the form of a comparative study and has superficially dealt with the ostensible owner under the Transfer of Property Act, of 1882.
  2. Divyanshi Saxena and Gurusha Muniyal, in their article titled Transfer of Property by Ostensible Owner, have helped the researcher to understand the essentials of the ostensible owner and the persons to get protection under section 41 of the Transfer of Property Act, 1882 by a few pertinent judicial dictums such as Ramcoomar Koondoo v. John and Maria Mc Queen and Jaya Dayal Poddar vs Bibi Hazra. However, the researcher has failed to mention the origin of the concept of ostensible ownership while dealing with the aspect of judicial pronouncements.
  3. Siddhant Sharma, in his article titled “Ostensible owner under TPA”, has aided the researcher in understanding the case of Ramcoomar Koondoo v. John and Maria McQueen, a significant case that was codified as Section 41 of the Transfer of Property Act. The researcher through this article comprehended the factors and requirements that must be met for the plaintiff to benefit from this principle. However, the literature is limited as it only explains the term ostensible owner under the Transfer of Property Act and fails to make a critical analysis beyond ostensible ownership under the Act.

Statement of Problem

The concept of Benami transactions is inextricably tied to ostensible ownership. The Benami Transactions Amendment Act of 2016 defines Benami transactions. In normal bona fide transactions, where a person purchases property in the name of his wife or unmarried daughter, the rules of this Act do not apply. As a result of the passage of the Benami Transactions Act, the scope of the Section 41 application has become relatively limited.

Objectives of Study

The objectives of the research project are as follows:

  1. To know and understand the meaning of ostensible owner.
  2. To study the evolution of the concept of the ostensible owner through various case laws.
  3. To determine the relevance of the doctrine by studying the provision of the transfer by an ostensible owner. 

Hypothesis

Section 41 of the Transfer of Property Act is protecting the rights of the third person who has acted in a good faith to purchase the property from its true owner/ ostensible owner by creating an estoppel to make the transfer of the property uninterrupted in favor of the third person.

Research Questions

The following are the research questions for the study:

  1. Who is an ostensible owner?
  2. What is the validity of the transfer made by an ostensible owner?
  3. What is the judicial stand taken on the transfer by an ostensible owner?

Scope and Limitation of the Study

The present study is focused on the provision related to the ostensible owner under the Transfer of Property Act of 1882 and how the transfer is carried out by such an owner. However, the present research fails to dwell on a detailed explanation of Benami Transactions.

Introduction to the Concept of Transfer by Ostensible Owner

The concept of “Transfer by Ostensible owner” is covered by these two broad principles. –

  1. Nemo dat quod non-habet which means no one has a higher right over property than what he possesses.
  2. Nemo plus Juris and alium transferee potest quam Ipsa habet means no person can transfer a title or right over the property greater than what he has.

The rule enunciated in Section 41 is an exception to the general rule that a person cannot transmit a greater title to a property than he holds in it. There is a well-known exception to this general principle: if the true owner, for example, entrusts the other with the title documents or in some other way, a third party who (after due inquiry) bona fide deals with that other, may acquire a good title to the property as against the true owner.

Section 41 of the Transfer of Property Act of 1882 establishes the idea of ostensible ownership. The apparent owner is referred to as an ostensible owner. The ostensible owner is not the genuine owner, but he acts as if he is to the third parties involved in the transactions. When there is deliberate neglect or acquiescence on the part of the genuine owner, he has obtained the right from them, making him the ostensible owner.

This section derives its application from a statutory provision that talks about the law of estoppel. This general principle is asserted by the House of Lords that If a man has initiated that he consents to an act that has been done and that he will offer no opposition to it, although it could not have been lawfully done without the consent, and he thus induces others to do that from which they might have abstained- he cannot question the legality of the act he has so sanctioned- to the detriment of those who have placed their faith in his words or the fair inference to be drawn from his conduct. 

Section 115 of the Indian Evidence Act, of 1872 lays down the doctrine of estoppel and one of the leading causes of this section goes down equally under Section 41 of the Transfer of Property Act where a person transferred the property to his wife and after his death, she mortgaged the property. Her son was equally assisting his mother and receiving the mortgage money, by the principle of estoppel he would be estopped from raising any dispute to the mortgage, and by the virtue of Section 41 the mother has the consent of the son to become an ostensible owner. 

Hence, by reading the wordings of Section 41 one may derive that it protects the rights of the third party who has purchased the property from the ostensible owner in a good faith and due care by barring the true owner to contest the transfer later. To understand the section better it is pertinent to elaborate on the essential conditions of section 41 to know who may avail of its benefits.

Essentials of Section 41 (Transfer of Property by Ostensible Owner)

Right to Property

“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 has the power to make the transfer, has acted in good faith”. 

Essential requirements to fall within the ambit of this section are as follows:

  1. The transferor must be an ostensible owner.
  2. To be an ostensible owner there should be consent from the real owner, either express or implied.
  3. The transfer of the property should be for consideration. 
  4. The transferee must have acted in good faith and taken reasonable care to ascertain that the transferor was the true owner.

Ostensible Owner

The ostensible owner is not the true owner, but he might pretend to be the genuine owner in such transactions. He has obtained that right as a result of the genuine owner’s intentional neglect or acquiescence, making him an apparent owner. One person who has been away for several years has donated his property to a family member to utilize for agricultural purposes and whatever else he sees fit. In this situation, the apparent owner is a family member, and if he sells the property to a third party during that time, the true owner cannot claim his property and claim that the person who sold it to him was not permitted to do so.

Another example is when the property is registered in the wife’s name, but the husband is in charge of the finances and other aspects of the property. If the husband sells the property as a result, the wife will be unable to reclaim it. For example, in Mohammad Shakur Khan And Anr. vs Musammat Shahjahan Begam, the original owners lived in a different hamlet and had permitted a widow to use the land as she pleased before selling it. The case was lost by the real owner, and the transfer was legal.

Consent

The primary goal of this clause is to preserve the rights of the innocent third party that purchased the property when the genuine owner was at fault for failing to object to the transfer. However, it is a necessity that the genuine owner has the competence to offer consent, and that consent is not obtained by any illegal means. Even if the ostensible owner claims to have the minor’s consent, it will be deemed null and void because minors lack the legal capacity to give the needed consent. The true owner’s consent is also not required, and it’s also possible that the true owner was unaware of the transfer. 

The consent may be expressed or implied. 

The real owner is not necessarily to offer express consent or to give his consent in writing. As a result, where another person deals with the real owner’s property as if it were his own, and the real owner is aware of it, it is said to be implied consent on the real owner’s behalf. It was established in the case of Shamsher Chand v Bakshi Meher Chand ( A.I.R. 1947 Lah. 147) that if a person is unaware of his rights or is silent about them, the genuine owner cannot be deemed to have consented to the transfer of the property.

A person who is unaware of his rights could never consent to such a transaction, and such a transaction would be invalid. The clause does not indicate that the genuine owner must have given his or her approval to the transfer because if that were the case, the true owner could never have objected to the transfer. It’s only that the true owner is either uninformed of or careless about the transaction. If the true owner’s silence encourages a third party to assume that the ostensible owner is the real owner of the property, it may be considered consent.

Consideration

An ostensible owner is 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 an ostensible owner’s property can only be transferred as a contract. S. 4 of the Act also states that anything not expressly defined in this act must be drawn from the general definitions outlined in the Indian Contract Act of 1872.

Reasonable Care

To understand its meaning reference can be taken to the case where there was a mistake in the revenue records about the owner’s name. The name written was that of someone else, and the rightful owner had already complained about the mistake. The person whose name was on the revenue records later sold it to a third party, who took possession of the property without making required investigations, and the rightful owner later objected. The court determined that the third person did not use the reasonable care expected of him, and hence he is not protected under this section. The third party is required to produce all available documents that may provide more information on the title to the property, which may include police registers, municipal registers, and other documents.

In a case where the real owner sold the property to another person and had it registered before the ostensible owner’s transfer could be registered, the real owner’s transfer would be valid because he has a greater title to the property than the ostensible owner, and the rights of the third party who had purchased the property from the ostensible owner would not be protected under this section. Hence, reasonable care implies that the purchaser dealing with the transferor must inquire about everything possible about the property and its title like a prudent person. 

Good Faith

After conducting all of the necessary investigations, the transferee should have honestly thought that the ostensible owner is the genuine owner. However, if the transferee discovers after making thorough inquiries that the person selling him the property is not the true owner but merely the ostensible owner, the transferee cannot ignore facts. This is because a person cannot profit from his negligence and then claim protection for it. The true owner’s rights must likewise be protected against such individuals.

Scope of Section 41 (Transfer of Property by Ostensible Owner) of the Transfer of Property Act and Benami Transactions

A Benami transaction means any transaction in which property is transferred to one person for a consideration paid or provided by another person. Under no circumstances may the actual owner enforce his rights against the Benami owner. Except for the limited circumstances, the Benami Transaction (Prohibition) Amendment Act of 2016 forbids the transfer by an ostensible owner and makes it illegal and criminal. Those exceptions are as follows:

  • Property held by a Karta or any member of a HUF and purchased by a known source of the HUF will not be considered a Benami transaction under the Act if it is held for the benefit or gain of the other members of the HUF.
  • The Benami transaction does not prohibit a person who purchases property in the name of his spouse or any child. However, it is subjected to consideration to be paid by the ancestors. 
  • The property that is held by a person in the capacity of a trustee for the benefit of another person will not amount to a Benami transaction/property. 
  • When a person’s property is jointly held by his or her brother, sister, lineal descendent, or antecedent, and the consideration is paid to the owner by a known individual.

The exceptions provided above are governed by Section 41 of the Transfer of Property Act.

Understanding the Applicability of Transfer by Ostensible Owner with the help of Judicial Pronouncements

Ostensible Owner

The meaning and concept of the ostensible owner can be understood from the two landmark cases of Ramcoomar Koondoo Vs John McQueen and Jaya Dayal Poddar Vs Bibi Hazra. The first case led to the emergence of the concept of the ostensible owner while the latter laid down the pertinent tests to determine who is an ostensible owner. 

Ramcoomar Koondoo v. John McQueen

Facts of the Case – Alexander Macdonald, his mistress Bunno Beebee, and their two children lived in Calcutta. Maria married Mcqueen, who was also a defendant in the case. BBunnybeebee was granted the land in dispute as a selling document. It was impossible to say with certainty if Alexander lived on the property after the transaction. Bunno Beebee lived on the property after Alexander died for a while before renting it out. Bunno Beebee afterward sold the site to another party, who built specific structures on it. Bunno Beebee died soon after, and the guy who built the building on the site (Ramdhoone) rented it to the respondent. Due to non-payment of rent, the landlord (Ramdhoone) filed a lawsuit against the renters. Later, the respondent filed a suit against Ramdhoone (now appellant Ramcoomar son of Ramdhoone) and his family, attempting to evict them from the land.

Issue Raised – Whether the appellants had purchased the property bona fide for valuable consideration without any notice.

Court’s Observation – “It is a universally applicable principle of natural equity that if 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 allows the other to hold himself out shall not be allowed to recover on his secret title unless he can show either direct notice or constructive notice”. In this case, it was determined that the appellant could not obtain the property back from the third party because the sale was legal. The concept that evolved from this case reflects under Section 41 of the transfer of property statute. 

Jaya Dayal Poddar v. Bibi Hazra

This case is important as the Supreme Court gave a few tests to determine who is an ostensible owner. The relevant portion of the case are as followed: 

  • Test 1: is to look for the money’s origin. The money in question is the one used to acquire the property. The purpose of the test is to see if the source (i.e., the person from whom the money is taken name)’s appears in the property’s documentation, or if another person’s name appears in the document. To put it another way, it must be demonstrated that the money for the transaction came from someone other than the person who made the purchase.
  • Test 2: The second test is to determine the intent. The purpose of test 2 is to establish whether the person whose name appears on the paper has a genuine interest in purchasing the property.
  • Test 3: is the most important test for determining whether or not a person is an ostensible owner. To establish this test, one must first determine who is benefiting from the property. Is it the individual who bought the house or a third party? The term “enjoyment of the property” must be fully understood in this context. The right to transfer, the right to give on lease, and the right to receive consideration for the property are the broader characteristics of the vocabulary of enjoyment of property.
  • Test 4: is a more finishing statement. The purpose of this test is to determine why the property was purchased in the name of an ostensible owner rather than the actual owner. The test looks for the rationale for the ostensible owner’s behavior.

All the above reasonable tests and the observations made by the court make it much clear to ascertain who is an ostensible owner. The above study concludes with the landmark judgments concerning section 41 of the Transfer of Property Act.

Conclusion

The researcher would like to conclude by mentioning that with Section 41 of the Transfer of Property Act, 1882 the interests of the innocent party that deals with the contract of transfer are well secured. The act serves two purposes: first, it protects the interests of the innocent party, and second, it protects the interests of the true owner. As observed by the courts, the interest of the third party is protected by complying with the rules of natural equity and the doctrine of holding out while the latter’s interest is guarded by placing a duty upon the transferee to deal with the transfer like a prudent person, that is, by making a reasonable inquiry and acting in good faith.

When one reads the section it appears that it is only taking care of the interest of the transferee or the third party but it is serving the purpose to preserve the genuine interest of the transferee by separating the fault of the true owner from affecting the contract of transfer that took place amongst the competing parties. No one can later come and argue that he/she is the owner and the transfer is faulty. However, this section equally imposes a mandate on the third party to remain cautious of their dealing and this section cannot be violated by either him or the seeming owner.

Further, following an analysis of numerous case laws and the concept of ostensible ownership, I may conclude that ostensible ownership is a concept whose authenticity and validity are drawn from ideas of equity and natural justice, particularly the estoppel theory. It creates an exception to the “nemo dat quod non-habet” rule, allowing apparent owners to transfer true ownership rights to bona fide transferees on equitable grounds. Benami transactions are inextricably related to ostensible ownership. The Benami Transactions Amendment Act of 2016 defines Benami transactions. If a person purchases property in the name of his wife or unmarried daughter, the Act’s prohibitions do not apply to ordinary bona fide transactions. Hence, as a result of the establishment of the Benami Transactions Act, the scope of Section 41 has been reduced.


References

Books

Sir Dinshaw Fardunji Mulla, Mulla The Transfer of Property Act 219 (12th ed. 2015).

Statute(s)

  • Transfer of Property Act, 1882, § 41, No. 4, Acts of Imperial legislative council, 1882 (India).
  • The Benami Transactions (Prohibition) Act, 1988 § 2, No. 45, Acts of Parliament, 1988 (India).
  • The Indian Contract Act, 1872, § 11, No. 9, Acts of Imperial legislative council, 1872 (India).

Articles


Submitted by Yashi Jain, 4th Year Student at Marwadi University, Rajkot, Gujarat

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