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

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

Let’s look at the bare law first-

Bare Law :

Section 41. Transfer by ostensible owner.—Where, with the consent, express or implied, of the persons interested in immoveable property, a person is the ostensible owner of such property and transfers the same for consideration, the transfer shall not be violable on the ground that the transferor was not authorised 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.

Bare law explanation

This section describes a situation where a person poses as the owner of a property with the consent of its real owner, and sells it to a buyer for consideration (for a price). The ostensible nature of the transferor's interest in property notwithstanding, such a transfer of property is considered valid as per law. And once such a transaction is carried out, real owners cannot approach the court and say that the person who transferred it was not the real owner and hence the transfer should be voided. 

Provided, that the transferee acted in good faith, and took reasonable care to find out whether the transferer posing as the owner had the actual power to make the transfer. 

There is a well-known legal maxim, applicable to property laws, that says, Nemo dat quod non-habet, i.e. no person can transfer a title better than he himself has. 

The authority of a transferor in such cases flows from the consent of the real owners who entrusted him with the authority and power to transfer their property. Therefore, the transferor's title is considered to be as good as the real owners of the property; and the transferee acquires the same interests over the property as its real owners. 

In a sense, it could be said that this rule is not very different from the rule of estoppel in section 115 of the Indian Evidence Act. In Crystal Developers v Asha Lata Ghose, 2004, the court explicated Section 41 of the Transfer of Property Act in terms similar to that of the principle of estoppel- if an owner allows another person to represent himself as a party authorized to transfer property to potential buyers, and a transfer duly occurs, then the real owners are estopped from claiming later that the transferor had no real authority to carry out the transaction. The transferee’s claim holds good. In Cairacross v Lorimer, 1860, the House of Lords observed, "If a man either by words or by conduct, has intimated that he consents to an act which has been done and that he will offer no opposition to it, although it could not have been lawfully done without his consent and he thereby induces others to do that from which they might have abstained, he cannot question the legality of the act, he had so sanctioned to the prejudice of those who have so given to his words or to the fair inference to be drawn from his conduct." 

In a similar vein, in Ram Coomar v Macqueen the Privy Council held that,  "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 hold himself out shall not be permitted to recover upon his secret title, unless he can overthrow that of the purchaser, by showing either that he had direct notice or something which amounts to constructive notice, of the real title, or that there existed circumstances which ought to have put him upon an inquiry that, if prosecuted, would have led to a discovery of it." 

And, this principle seems only fair, because in most cases the purpose behind representing another person as the ostensible owner is to conceal the property from law enforcement agencies and creditors. 

Benami Transactions:

Legal suits pertaining to ostensible ownership and transfer of property is now governed by the relatively recent, Benami Transactions (Prohibition of the Right to Recover Property) Act, 1988.

A Benami transaction is the one in which property is transferred to a person other than the one paying for it. The person paying the consideration asks the transferor to name another person as the transferee. Such a transferee is referred to as a benamidar (an ostensible owner). 

As per the Benami Transaction Act, when a property is transferred in the name of an ostensible owner (it is transferred benami), then the ostensible owner becomes the real lawful owner of it. Thereafter, the person who paid for the transaction is barred from approaching the court to claim ownership of the property. Put differently, when a transaction of transfer of property is done benami, the real owner loses all his rights and interests over it. There are only two exceptions to this law- where the benamidar is a co-parcener in a Hindu undivided property, or a trustee standing in a fiduciary capacity. In all other cases the rule dictated by Benami Transaction Act is strictly enforced.

This act also shows leniency in favor of transactions done for the benefit of near and dear ones- section 3 of the act clarifies that the provisions of this act do not apply to the purchase of property by any person in the name of his wife or unmarried daughter.

Who is an ostensible owner?

Over the course of decades, courts have explicated the scope of section 41. According to various judgments, the following are not considered to be ostensible owners, owing to their restricted or qualified ownership rights-

1. A manager in possession of the property transferred is not an ostensible owner bearing the right to transfer it.

2. A licensee in possession of a property has no right to transfer it.

3. An agent cannot transfer property as an ostensible owner, as per section 41.

4. A manager or trustee.

5. A mahant in possession of a math’s property.

Unlike a mortgagee or a hirer of goods, an ostensible owner holds full and unqualified ownership of his property. His right to hold on to, or alienate his property is absolute. In Jayadayal Poddar v Bibi Hazra, 1974, the Supreme Court laid down that we should not adhere to some formulaic notion about who an ostensible owner is; this cannot be known beforehand and applied to all situations. Substantive questions of law ought to be decided on the basis of concrete facts and circumstances of a case. Some useful criteria are as follows:

1. The party that paid for the transaction; the person who bore the monetary burden of the transfer must be ascertained. 

2. Who was in possession of the property when the transferred took place? 

3. The motive behind the transaction; was it done to deceive the law? Or to achieve some ulterior motive?

4. The nature of relationship between the benami holder and the person who paid for the transaction.

5. Possession of the title deed.

6. Who was responsible for the maintenance and upkeep of the property.

It was held by the Supreme Court in Suraj Ratan Thirani v Azamabad Tea Co. Ltd.1965, that the burden of proof in case of a benami property lies on the real owner. He must prove before the court that he is the real owner, whereas the transferor is a benami property holder.