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Ostensible Ownership: The Bone of Contention between Two Existing Laws

In order to present the collision between Transfer of Property Act & Benami Transaction Act regarding the concept of ostensible ownership i.e. - Transfer of property Act, 1882 allows purchasing the property in the name of another person which is known as ostensible ownership. Whereas the Benami Transaction Act, 1988, in spite of having the same meaning as that of ostensible owner under Transfer of Property Act, then why purchase of property in the name of another is permitted under the former Act; at the same time is prohibited under the later Act?

Firstly, the term ‘Ostensible’ literally means ‘apparent’ or ‘seeming’. An Ostensible owner, despite being ostensible owner he is person having all indication of genuine ownership.

Secondly, a Benami transaction means any transaction in which property is transferred to one person for a consideration paid by another person. This act provides where a property is transferred Benami, the person in whose name the property is held, shall become the real owner. In itself, a Benami transaction is not illegal.

The concept of transfer by ostensible owner is mentioned in section 41 under the Transfer of Property Act, 1882------- “Where, with 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 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 power to make the transfer, has acted in good faith.” *

The essential sum and substance of the section are:-

1) If the consent of the true owner taken once by the ostensible owner (is a must, whether express or implied) but the transfer itself need not be with the consent of the true owner. Hereby, negligence may amount to implied consent.

* Syed Hasan Jamil, Transfer of Property Act, National Law Book House, pg: 108 to 114** Mulla D.F., The Transfer of Property Act, Butterworths, 9th edition, 2000

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2) Such person who has no authority to alienate the property can alienate it as an ostensible owner.

3) It is applicable only where the transfer by an ostensible owner is with consideration but does not apply either to gifts or to gratuitous transfers.4

4) The transferee has taken reasonable care, which means the care an ordinary man of prudence would have taken to safeguard his interests. The object of this section is to protect a bona fide purchaser prejudiced by the conduct, however innocent and unintentional, of the real owner in allowing the world at large to think someone else is the owner of the property. *

5) Estoppel- The real owner would be prevented on disputing the validity of the transfer on the ground that the transferor was not, in fact, competent to do so. In Jaydayal Poddar v. Bibi Hazra(1974), the Supreme Court observed that whether a person is an ostensible owner , is a subjective question to be decided on this basis of factual circumstances. The Court observed further that following considerations must be taken into account while deciding whether a person is 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. Motive for giving the transaction a benami colour- i.e. why the property was purchased in the name of the 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 after the sale. i.e., who used to take care of and control over the property?6. Finally, the custody of the title deeds after the sale.**

In this respect, the law in this section derives from the same roots as the Rule of Estoppel given under section 115 of The Indian Evidence Act. The perquisites for this section applies are: 

· The transferor should have led the transferee to believe that he is, in fact the owner of the property

· The right should have devolved on the transferor subsequently.

· The transfer was in good faith, in believing that the he is dealing with the real owner of the property. Good faith means bona fide intention. The principles of equity and good conscience protect the interest of a bona fide purchaser only. He who seeks equity must behave equitably.

* Syed Hasan Jamil, Transfer of Property Act, National Law Book House, pg: 108 to 114** Mulla D.F., The Transfer of Property Act, Butterworths, 9th edition, 2000

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· The transferee had no notice of the transferor’s real position at the time of transfer. *

The Latin maxim ‘nemo dat quod non habet’ is one of the basic principles of common law, which means that a person cannot convey a better title than he himself possesses. An exception to this general principle occurs when the true owner, entrusts another person with the documents of title etc., and a third person, who dealt with that other in a bona fide manner.

In Mahinder Singh v. Pardaman Singh, the Delhi High Court said that when a transaction is Benami & the transferor is an ostensible owner, the burden of proof then lies on the person who claims that he is the real owner. In an Oudh case, the Additional Judicial Commissioners discussed the case law on the subject and the proposition was laid down that section 82, Trust Act, appears to throw the burden of proof of Benami transaction on the person who alleges or asserts that the transaction is Benami.*

Benami transactions are one of the most notorious sources of investment of black money may be the reasons behind purchasing is to hide the earnings. Sec 3. Of the Benami Transaction Act, 1988 lays down Prohibition of benami transactions-

(1) No person shall, on and after the commencement of this Act, enter into any Benami transaction.(2) Nothing in sub-section (1) shall apply to the purchase of property by any person in the name of his wife or unmarried daughter and it shall be presumed, unless the contrary is proved, that the said property had been purchased for the benefit of the wife or the unmarried daughter.(3) Whoever enters into any benami transaction shall be punishable with imprisonment for a term which may extend to three years or with fine or with both.**Act regarding joint family property. In case the joint fund of the HUF is enough to purchase the property, the presumption is that the property has been acquired for the HJF. Also, an acquisition in the name of the wife of a coparceners shall not be considered an acquisition for the joint family.  

The Benami Transaction Act does not apply to agricultural land since it was enacted by the Parliament under Entry 6 of List II of the Seventh Schedule, relating to the transfer of property other than agricultural land. 

Under the Income tax act, the person purchases the property in the name of family member it will be taxed & there are no chance of hiding the income

* Syed Hasan Jamil, Transfer of Property Act, National Law Book House, pg: 108 to 114** Mulla D.F., The Transfer of Property Act, Butterworths, 9th edition, 2000

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therefore, Benami transactions are permitted to certain extent as mentioned under exception of definition of Benami Transaction. Therefore, the Concept of Ostensible Ownership under sec 41 is subject to the provisions of Benami Transaction under sec 3 of Benami Transactions (Prohibition of the Right to Recover Property) Act, 1988. After study of Provisions under Benami Transaction Act, 1988, it is clear that the provisions of the aforesaid Act are inadequate to deal with Benami transactions. Sec 64 of Income tax Act, 1995- Income of individual to include income of spouse, minor child, etc. 1 2[ 3[ (1)] In computing the total income of any individual, there shall be included all such income as arises directly or indirectly.*

After analyzing different cases and concept of ostensible ownership, the drawing conclusion is that Ostensible ownership derives its legitimacy from the ideas of equity and natural justice, in particular the doctrine of estoppels. It is an exception to the doctrine nemo dat quod non habet since it does, for reasons of equity, allow ostensible owners to have delivered the rights of true ownership to bone fide transferees. Benami transactions are where the real ownership lies in another who pays the consideration, while the ostensible ownership lies in the benamidar who only lends his name to the title deeds.

Since the enactment of Benami Transactions (Prohibition) Act, 1988 an ostensible owner has become a real owner except in certain situations. So, clearly, after the passing of the Benami Transactions Act, the scope of application of section 41 has become very limited. Ultimately, the transferee, who purchases the property from the ostensible owner, cannot take the benefit of section 41 unless the ostensible owner is the wife or unmarried daughter of the real owner.

Bibliography:1. Mulla D.F., The Transfer of Property Act, Butterworths, 9th edition, 20002. Saxena Poonam Pradhan, Property Law, Lexis Nexis Butterworths Wadhwa Nagpur, 2ndEdition 20113. Tripathi G.P., The Transfer of Property Act, Central Law Publications, 11th edition 19994. Aminul Islam, Transfer of Property Act, 1882. Sufi Publications, pg: 42 5. Syed Hasan Jamil, Transfer of Property Act, National Law Book House, pg: 108 to 114

Case Laws:I. Kanashi Vershi v. Ratanshi Nenshi, AIR 1952 Kutch 85II. Ramjanam V. Beys, AIR 1958 Pat 537III. Jaydayal v. Bibi Hazra, AIR (1974) S.C.171

IV. Mahinder Singh v. Pardaman Singh

* Syed Hasan Jamil, Transfer of Property Act, National Law Book House, pg: 108 to 114** Mulla D.F., The Transfer of Property Act, Butterworths, 9th edition, 2000

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Reference:a. http://ssrn.com/abstract=2191951 b. Manila M Sarkaria, Benami Transction Bill 2011: A ray of hope? , SAARC LAW,

www.saarclaw.com (visited on 14th Dec 2012)c. Sec 41 of Transfer of Property Act, 1882d. Land disputes | Law Teacher http://www.lawteacher.net/property-trusts/essays/land-

disputes-law-essays.php#ixzz3KHeQY3Y5

* Syed Hasan Jamil, Transfer of Property Act, National Law Book House, pg: 108 to 114** Mulla D.F., The Transfer of Property Act, Butterworths, 9th edition, 2000