Ostensible Owner: Concept, Meaning and Explanation | Benami Transactions

Ostensible means it appears to be true, but in reality, it is not. An ostensible owner means a person who appears to be the owner of a particular property but is not. He is not a trespasser or person having unlawful possession of the property.

He behaves like the property owner with the consent or conduct of the real owner itself. Example: X owns property in Delhi, but she lives in the USA. She allows Y, her brother, who happens to live in Delhi, to take care of the property, including the payment of taxes, carrying out major repairs, etc. Here X is the Real Owner of the property, whereas Y is the Ostensible Owner. Benamidars or Benami Transactions are also an example of Ostensible Owners.

Section 41 of the Transfer of Property Act, 1882 deals with – the transfer by the Ostensible Owner

I. Essentials of Section 41

1. Transfer of Immovable property
2. Done by ostensible owner
3. The transfer is done for a consideration
4. The person interested in that property has consented for the transfer. The consent can be expressed or implied.
5. The transferee should’ve taken reasonable care and acted in good faith.

Such a transfer is a valid transfer.

Explanation

• Transfer of Immovable Property by ab Ostensible Owner

1. This section applies to partial transfers as well. Hence, it is not necessary for a transfer to be that by sale or exchange. A transfer includes the transfer of an interest in the property, for example, mortgage.
2. The transfer must be a voluntary one. Hence, the transfer made by the order of court would not fall under this section.

The section will apply only in the cases of transfer of immovable property. Also, there must exist a real owner with an ostensible owner, otherwise, the principle under this section has no application.

• The transfer must be for some consideration:

This section also doesn’t apply to the transfers done without any consideration i.e. gratuitous transfer, for example, Gifts. Hence, a gift made by an ostensible owner of a property would not fall under the purview of this Section.

Padam Chand v. Lakshmi Devi[1]

A gift deed was executed by father, who was the ostensible owner of the property in favour of his daughter and the consideration for the transfer was contended to be love and affection in favour of his daughter. It was held that a gift is “parting of the property by the owner without any pecuniary benefit” and that Section 41 of TPA had no application in the present case.

Hence, it can be concluded that monetary consideration is needed to attract this section.

• Consent of the person interested in the property:

The term person is not defined in the statue but it includes the Union and State Governments. The person interested in the property means the real owner here. In order to move under this section, the bona fide transferee has to prove that the transferor is the ostensible owner and the transfer is done with the consent of the real owner.

The real owner should be capable of giving consent and the consent given should be free. If the consent is taken by fraud or misrepresentation, then it would mean that the purchase is not bona fide and hence, the plea under this Section would not be entertained.

Intention to deceive is immaterial under the consent given. Even if the real owner was innocent, but the transferee made proper inquiries and had acted in good faith, his interest would be protected.

The Consent of the real owner can be expressed or implied

Where the conduct of the person allows another to act in a particular way, it amounts as implied consent. Mere silence would not amount to implied consent unless there is a duty to speak, but the negligence on the part of a real owner may amount to implied consent.

• The transferee should’ve taken reasonable care and acted in good faith:

Section 41 says that the transferee must have taken reasonable care before entering into the transaction and must have believed that the transferor had the authority to transfer. The test of reasonable care is the amount of care that an ordinarily prudent man would take. This puts a duty on the transferee to inquire before entering into the transaction as to the title of the transferor and protect his own interest.

The question as to whether the inquiry was made by the transferee is a question of fact, but whether the inquiry made by the transferee was reasonable according to an ordinarily prudent man so as to attract the application of Section 41 of TPA is a question of law and such plea has to be taken up in the pleadings. Whether the inquiry made by the transferee was reasonable is subject to the circumstances of each case.

The transferee should’ve acted in good faith means that the transferee actually believed that the transferor had the authority to transfer. The transaction shouldn’t be a sham one.

Example: A, the transferee knew that the land belonged to X. Y told A that X has given him the authority to sell the land. Without making any inquiries and knowing that Y cannot sell the land, entered into the transaction. A is not entitled to protection under Section 41 of TPA.

• Ramcoomar Koondoo and others v. Macqueen and another[2]

Bunoo Bebee was Alexander McDonald’s mistress. Alexander bought the property in the name of Bunoo Bebee. In June 1843, she sold the property to Ramdhoni Kundoo (father of Ramcoomar Kundoo) by a sale deed. After which he and after his death, his heir enjoyed undisputed ownership for 24 years. Alexander made a will and the will be stated that after Alexander’s death, the property would go to Macqueen, who was the daughter of Alexander and Bunoo Bebee.

When the will came to the knowledge of Bunoo Bebee, a case was filed contending that Bunoo Bebee didn’t have the right to sell the property as she was merely an ostensible owner. Alexander had no intention to transfer the property to Bunoo Bebee. His intentions are clearly reflected in his will where he transferred his property to his children after his death.

It was contended by the appellant that as per the registered sales deed, Bunoo Bebee was the registered owner of the land and was residing on the same property after the death of her husband. Ramdhoni Kundoo (father of Ramcoomar Kundoo), had no idea about the Benami title.

Calcutta HC decided in favour of Macqueen. But the decision of Calcutta HC was reversed by the Privy Council.

Held: Sale was bonafide in nature and that reasonable inquiry as a prudent man was made by the appellants.

II. Benami Transaction

A Benami transaction is an example of Ostensible Ownership. A Benami transaction implies that the property is held by one person whereas, the consideration for the same is provided by another. Hence, the real owner is the person who provides the consideration and the person whose name the property is considered as the ostensible owner.

Benami transactions are now dealt with under the Benami Transaction Act, 1988. This Act prohibits Benami transactions and makes the same punishable. This Act declared that whoever is the ostensible owner of the property will become the real owner.

Section 3 (3) Benami Transaction Act, 1988 says that whoever buys the property in name of another would be punished .

There are two exceptions (Section 3, Benami Transaction Act, 1988)to the prohibition on Benami Transactions:

1. If one buys the property in the name of his wife, or
2. If one buys the property in the name of an unmarried daughter.

• Transfer is valid

If the essentials of Section 41 are fulfilled, then the transfer by the Ostensible owner is Valid and not voidable or void.

III. Burden Of proof

The burden of proof under Section 41 lies on the transferee to prove that:

1. A transferor is an Ostensible Owner, and
2. He took reasonable care, like a reasonable prudent man would, to protect his interest.

When Section 41 has no application:

1. The transfer was done while the proceedings were pending, and the subject matter of the proceeding is the same property. Section 52 of TPA has an overriding effect on TPA.

2. When the case falls under Sections 19 and 24 of the Displaced Persons (Compensation and Rehabilitation) Act, 1954 – as estoppel cannot be pleaded against the provisions of the statute.

Section 41 of TPA enacts Rule of Estoppel over the real owner of the property

Estoppel signifies a situation where a person makes others believe in something or some fact which is not true / which is false and then the person acts over that belief, the person who made the representation can’t refuse to act on that representation then.

Here,

1. The real owner of the property makes the other person (transferee) believe that the person dealing with the property (ostensible owner) has the authority to deal with it as the owner of that property, and that includes the authority to alienate the property, whether impliedly or expressly;
2. The person alienating doesn’t have the authority to alienate the property, but he alienates it as the ostensible owner;
3. For consideration ;
4. The transferee, even after taking reasonable care, believes that the transferor has the authority to make the transfer;
5. Now the real owner is prevented from questioning the transfer on the ground that the transferor was not competent to do so.

This is based on the principle that because of the conduct of one person, the transfer took place. Even if the two parties were defrauded by the transferor, one enabled the fraud to take place (the real owner because of the consent). The other innocent party should not suffer because of this.

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[1] Padam Chand v. Lakshmi Devi, (2010) 173 DLT 604 (Delhi)

[2] Ramcoomar Koondoo And Ors v. Macqueen And Ors, (1872) SCC Online PC 29

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1. Rule of Part Performance
2. Fraudulent Transfer