Transfer by Ostensible Owner

This article titled ‘Transfer by Ostensible Owner’ is written by Nikita Dalal and discusses the concept of transfer by an ostensible owner.

I. Introduction

Section 41 of Transfer of Property Act, 1882, defines transfer by an ostensible owner as:

“Where, with the consent, express or implied, if 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 the power to make the transfer, has acted in good faith .”

II. Ostensible Owner

An ostensible owner is a person who has all the indicia of ownership without being the real owner. An ostensible owner has all the indications of ownership and looks like the owner of a property but is not its real owner. Without being an actual owner, such a person has apparently all the characteristics of a real owner.

Thus, a person may have possession and enjoyment of the property and may also have his name entered in the official records but even then he may not be the real owner of that property. Such a situation may arise where for some reason a person purchases property in the name of another person. Where a person purchases property in the name of another person it is called Benami transaction.

The person in whose name the property is purchased is called benamidar. A benamidar is an ostensible owner. Where some property was purchased by a father in the name of his minor sons the Calcutta High Court held that sons were ostensible owners because minor sons had no means to acquire property and they were not intended by proper to be real owners of the property.

A person does not become an ostensible owner if the real owner has entrusted him with temporary control character property only for some specific purpose or, where he holds property as a professed agent or as a guardian of minor’s property or in any other capacity of fiduciary character.

A manager cannot be treated as an ostensible owner even though his name is entered in the municipal records as a real owner.[1] Karta of the joint Hindu family is also not an ostensible owner of the joint family property. Similarly, a trustee or manager of an idol is not an Ostensible owner of the endowed property held by him.

Section 41 is applicable only where the transferor is the ostensible owner. But it is difficult to ascertain whether a person is an ostensible owner or real owner because he has all the characteristics of a real owner except the intention to own the property.It is for the Court to establish whether the transferor was an ostensible owner.

In Jayadayal Poddar v. Bibi Hazara, the Supreme Court observed that whether a person is an ostensible owner, is a subjective question to be decided on the basis of facts and circumstances.The Court observed further that the following considerations must be taken into account while deciding whether a person is an ostensible owner or not :

1. Source of the purchase -money i.e. who paid the price?
2. Nature of possession after the purchase i.e. who had the possession?
3. The motive for giving Benami colour to the transaction i.e. why the property was purchased in the name of other person?
4. Relationship between the parties i.e. whether the real owner and the ostensible owner were related to each other or were strangers or friends?
5. Conduct of the parties in dealing with the property i.e. who used to take care of and had control over the property?
6. Custody of the title deeds.

The burden of proof that a transaction is Benami, lies on the person who claims that he is the real owner. Where, on the basis of facts produced before the Court, the claimant failed to prove that he was the real owner and the person in whose name the property stands is merely a name-giver, the claimant cannot be regarded as the real owner of the property.

III. Transfer by Ostensible

Section 41 provides that where the immovable property is transferred by an ostensible owner with express or implied consent of the real, the transfer cannot be denied by the real owner provided the transferee in good faith has exercised reasonable care in finding out the transferor’s power to make the transfer and the transfer is for consideration.

Since the ostensible owner is not a real owner of the property, he has no authority to make the transfer. But, under the circumstances laid down in this section, the transfer is binding upon the real owner; it cannot be denied by him. In other words, the real owner is precluded or stopped from denying the transfer on the ground that the transfer was an unauthorized person.

Thus the law incorporated in this section is similar to the rule of estoppel given in Section 115 of the Indian Evidence Act. Section 115 of this act provides that where a person by his declaration or act permits another person to believe a thing to be true and to act upon such belief he shall not be allowed later on to deny the truth of that thin.

In this sense, Section 41 of the Transfer of Property Act provides an equitable remedy to a bona fide purchaser for value without notice. Validating the transfer made by an ostensible owner is also an exception to the general rule that no person can confer a better title to another than he himself has.

Where vendor owns only one-third share in the suit property but executes sale-deed for the entire property in favour of the vendee and the vendee was a bona fide purchaser, but he was held not entitled to the property as the vendor concealed the fact about his right in the property. The vendee was held entitled to take action against the vendor. Moreover, the vendor was not an ostensible owner with respect to the share not belonging to him.

Essential Conditions for application of Section 41:

Following conditions are necessary for the applicability of this section:

1. There is the transfer of immovable property by ostensible owner with express or implied consent of the real owner,
2. The transfer is for consideration,
3. The transferee has acted in good faith, and,
4. The transferee has exercised reasonable care in finding out the transferor’s power to make the transfer.

IV. Express or implied consent of the real owner

The transfer of property must be made by an ostensible owner with express or implied consent of the real owner. However, whether the consent is express or implied, it must be free consent. Where a benamidar obtains the consent of the real owner by fraud, force, coercion, the consent is not free and this section cannot apply.

Similarly, if the real owner is incapable of giving consent (e.g. he is insane or minor,) his consent is no consent. If the real owner is a minor he is incapable of giving any consent. Therefore Section 41 does not apply where an ostensible owner transfers the property of a minor real owner.

The consent of the real owner is express if it is given in clear words authorising him to make the transfer. But such consent must not be brought about by a misapprehension of legal rights. The consent is implied if the real owner knows that the benamidar is dealing with his property as if it were his own but remains silent or acquiesces.

The real owner’s acquiescence (silence) or inaction implies his consent. In Anoda Mohan v. Nilphamari, A purchased a property in the name of his B. B’s name was entered in the revenue records and she used to deal with the property. After A’s death B mortgaged the property to C who took it in good faith believing that B had the authority to make the transfer.

It was held that since A himself had entered B’s name in the revenue record and since A allowed her to deal with the property, there was an implied consent of A to hold out B as an ostensible owner authorising him to transfer the property.

Accordingly, the mortgage could not be avoided and the mortgagee was protected under this section.

Silence may amount to consent only where the real owner is aware of his rights. Inaction or silence of the real owner at a time when he was not aware of his own ownership rights, would not debar him from claiming that transfer is made by an unauthorised person. In such a situation, he is entitled to avoid the sale and this section cannot protect the interest of the transferee.

The sale deed and Power of Attorney in favour of the defendant purchaser were duly registered. This amounted to certain of a third party right by a subsequent sale of the suit property by the defendant by virtue of Power of Attorney and sale deed. The Court said that such third party rights have to be protected. The plaintiff was allowed the relief claimed. The Court did not allow cancellation of the sale deed and Power of Attorney.

Attestation of the document by the real owner does not by itself imply consent. But, if it is proved that attestation took place in circumstances that involved knowledge of or consent to the transaction, it may be registered as implied consent.

V. Landmark Case

1. Ramcoomar Koondoo v. Macqueen

The law incorporated in Section 41 is based on the rules laid down by the Privy Council in this leading case. Briefly, the facts and the law laid down, in this case, were as follows :

One Alexander had purchased some properties in Calcutta in the name of Bunnoo Bibee who was his Mistress. Macqueen was one of the two children born to him by his Mistress (Bunnoo Bibee). The sale deed was in the name of Bunno Bibee and she also used to manage the properties.

Later on, during the life of Alexander, Bunno Bibee sold the properties to Ramdhone (father of Ramcoomar ). After the death of Bunnoo Bibee, Macqueen filed a suit against Ramdhone claiming the properties on the ground that her father Alexander had left a will in her favour and that her father was the real owner, not Bunno Bibee who was merely a benamidar.

Ramdhone pleaded that he was a bona fide purchaser without notice of the Benami title of the seller (Bunnoo Bibee). The Calcutta High Court decided in favour of Macqueen whereupon Ramcoomar (son of Ramdhone who was then substituted in place of his father) went in appeal to the Privy Council which reversed the judgement of the Calcutta High Court and decided in favour of Ramcoomar.

Allowing the appeal of Ramcoomar, the Privy Council held that even assuming that Alexander was the real owner and that Bunnoo Bibee was merely an apparent (ostensible) owner since Alexander has allowed (i.e. given implied consent to) Bunnoo Bibee to hold their secret title unless they could prove that purchaser had direct or constructive made following well-known observations :

“ 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 in the belief that he is real owner, the man who so allows the other to hold himself out shall not be permitted to recover upon the secret title.”

Where a person declares himself to be the ostensible owner of the property but he is not so with the consent express or implied of the real owner and transfers the immovable property, the transferee cannot claim title to that property as the conditions of Section 41 are not complied with, the transferee is not a bona fide purchaser.[2]

VI. 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 property e.g., it may be a sale, exchange, mortgage or lease.

VII. Transferee acts in good faith

It is necessary that the transferee acts in good faith,i.e., he has purchased the property in the honest belief that the transferor had the power to transfer the property. Good faith means bona fide intention.

Where 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, protect the interest-only of a bona fide purchaser.

He who seeks equity must do equity. Thus, this section can protect the interest of 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.[3]

Where to parties live in the same village and have knowledge of the fact that another person and not the seller was in possession of the property, the Court may presume the absence of good faith. Similarly, knowledge of any previous dealings with the property or, knowledge of the defective title of the transferor deprives the purchaser of the protection under this section.[4]

In Gurubaksh Singh v. Nikka Singh, there was a partition of joint family property but there was also some dispute over the respective shares. While the objection and application for the correction of the mistake were still pending, a part of the property was sold.

The Supreme Court held that since parties lived in the same village and the facts established beyond reasonable doubt that the purchaser had knowledge of the disputed title of the seller, the purchaser had no good faith. The Court observed that in the absence of good faith on his part, the purchaser could not claim the benefit of Section 41.

Where the transferee had full knowledge of the fact that the person purporting to transfer the property to him was not the owner because it belonged to his grandmother, the Court held that he could not acquire title. The consent letter, even if it was genuine, could not operate as a conveyance or create any interest in favour of the plaintiff.

Where the vendor did not give original title deeds to his vendee, the sale was held to be not in good. The title deeds were lying with the bank as a security. The Bank’s claim to recover vacant possession of the property was allowed.

Even if the purchaser makes do an 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.[5]

VIII. Reasonable care by the transferee

Good faith or bona fide intention of the transferee is not enough. To attract the provisions of this section the transferee must also have exercised reasonable care in ascertaining the title and authority of the transferor. Reasonable care means that care which a man of ordinary prudence should take while making inquiries regarding the title of immovable property.

But it is not possible to lay down any general rule regarding the nature of the enquiry to be made by the transferee which may be called ‘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 made by the purchaser must be diligent and not superficial or casual. Some specific circumstance or fact should be pointed out as a starting point of an enquiry that might have led to some result.

Revenue records are not the records or titles. Inspection of the revenue records or municipal registers alone is, therefore, not sufficient. The fact that the transferor’s name is entered in the revenue records or in the registers of an office is not, by itself, sufficient proof of the title of the transferor. The purchaser who wants to get the protection under this section must not rely solely on the revenue records but make further enquiries.

In Nageshar Prasad v. Raja Pateshri [6] A was the real owner of a property. In the revenue records instead of A, the name of B was entered by mistake. B mortgaged the property to C who accepted the mortgage relying on the revenue register. A denied the transfer on the ground that B was not authorised to mortgage the property. C claimed the benefit of this on the ground that he had taken reasonable care in ascertaining the title of B by inspecting the revenue records.

The Privy Council held that since C had not exercised reasonable care in enquiring about the authority of B, he cannot get the benefit of this section. The Court observed that if C had made further enquiries, he would have that B’s name was entered in the register by mistake and A had already raised an objection against the wrong entry of B’s name in the register.

A purchaser who claims the protection of Section 41 must also inspect the records at least for twelve years in the Registration Office. In Muhammad Shafi v. Muhammad Said [7], A the real owner mortgaged his property to B. It was a usufructuary mortgage and B was in possession of the property. By an error, the name of B was entered in the revenue record. B sub-mortgaged the property to C.

Mortgage by A and sub-mortgage by B both were registered. A filed a suit against C to redeem the mortgage. C pleaded that A has no right against him because B was an ostensible owner and his name was entered in the records. The Privy Council observed that if C would have enquired further he would have found that in the mortgage deed to C, B has described himself to be A’s mortgage not the owner of the property. Therefore, the Court held that C was not entitled to the protection of this section and A can enforce his rights against C.

IX. Subsequent transfers

The protection of a bona fide transferee for value under this section is not limited to the first transferee. A transferee from the first transferee and every subsequent transferee is entitled to the protection of this section provided transfer in his favour fulfils the condition prescribed here.

Thus, the subsequent transferee must be a transferee for value, without notice of the real owner’s title and having made reasonable enquiry of the transferor’s power of disposition. However, if all conditions are satisfied, such transferee shall not be deprived of the protection even if the first or any intermediate transferee had notice of the title of the true owner.[8]

X. Transferee under Displaced Persons (Compensation and Rehabilitation ) Act,1954

It has been held by the Full Bench of the Punjab and Haryana High Court that the expression “ostensible owner” would include a transferee from the State or Union Government of evacuee property. The above Act, being a special Act, its provisions have an overriding effect upon the T.P. Act, it being general Act.

A transfer from such allottee to any other person would have been held under the category of transfer by the ostensible owner and therefore valid but for the fact that the original allottee had committed fraud. He had no title and could convey no title.[9]

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References

[1] Muhammad Sulaiman v. Sakina Bibi ,(1922) All 392.

[2] Wazir Singh v. Avtar Singh and others ,AIR 2018 (NOC) 859(P&H).

[3] Rai Sunil Kumar v. Thakur Singh ,AIR 1984 Pat.80.

[4] Lala Jagmohan Das v. Lala Imdar Prasad ,AIR 1929 Oudh.160.

[5] Khawaja Afzal v. Md. Saheb , AIR 1936 Nag.214

[6] 1915

[7] 1930

[8] Purendu Nath v. Hanut Mul, AIR 1940 Cal.565

[9] Niranjan Kaur v. Financial Commissioner, Revenue and Secretary to Govt. of Punjab, AIR 2011 P&H 1(FB).

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