The article is written by Tejaswini Kaushal, a student at Dr. Ram Manohar Lohiya National Law University, Lucknow. This article talks about the rights of ostensible owners regarding the transfer of property as specified under Section 41 of the Transfer of Property Act, 1882.

It has been published by Rachit Garg.

Introduction

‘Property’ acts as one of the most indispensable needs of human life. In India, the right to property was provided as a fundamental right under Article 31, but it was abrogated by the 44th Constitutional Amendment Act, 1978 and subsequently replaced by Article 300A, which made it a constitutional right instead.

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Possession, contract, title documents, and other methods can be used to transfer properties from one person to another for consideration. Various laws have been created to guarantee the seamless transfer of property, whether it be movable or immovable. The Transfer of Property Act (‘the Act’) was enacted in 1882 to codify and harmonise all of the existing customary rules regarding the transfer of property. It solely deals with the transfer of property inter-vivos, that is, between living persons. 

The transfer of property by way of gifts, succession, inheritance, or testamentary is not covered by this statute. The Act establishes clear legislative regulations that govern the rights of the real owner, ostensible owner, and third party concerning the transfer. The goal of the Act was to make the transfer of land and property convenient and hassle-free for the general public. This Act establishes certain broad guidelines for the transfer of property that must be observed.

The principle of an ostensible owner performing the transfer of property was established to defend the rights of innocent third parties against actual property owners, it is codified under Section 41 of the Act. Innocent third parties’ rights are protected by this principle. It also discusses the different components and requirements that must be met in order for the plaintiff to profit from this concept, as well as its implementation in several case laws both before and after India’s independence.

What is Section 41 of Transfer of Property Act

The transfer of property to an ostensible owner is dealt with under Section 41 of the Transfer of Property Act, 1882. According to it, when a person acts on the express or implied consent of a person who is vested in a certain immovable property, that person is deemed the ‘ostensible owner’ of that property.

Necessary conditions for the application of Section 41 of Transfer of Property Act

To make use of this Section, one must meet specific prerequisites. They’re as follows:

  1. The most fundamental criterion is that the individual transferring the property must be the ostensible owner.
  2. The actual owner’s consent, which might be implied or expressed, is necessary.
  3. In exchange for the property, the ostensible owner must be compensated.
  4. The transferee must use reasonable caution over the transferor’s power over the property, and whether the transferee acted with bona fide intention.
  5. This section, needless to say, does not apply not to the transfer of movable property, and only to that of immovable.

An exception to the ‘Nemo Dat Quod Non Habet’ rule

The rule enunciated in Section 41 acts as an exception to the general principle that a person cannot transfer a superior title to property than what he holds i.e. ‘Nemo Dat Quod Non Habet‘. Section 41 is a well-accepted exception to this general principle. If the real owner, for example, entrusts a particular person with the title papers in any reasonable manner and makes him an ostensible owner, then a third party who (after appropriate investigation) trades with such an ostensible owner in a bona fide manner might obtain a valid title to the property as against the real owner.

Can the property be transferred to an ostensible owner 

The term ‘ostensible’ refers to what seems to be real. Therefore, the ostensible owner of a property is not the real owner. To third parties, he just portrays himself as the legitimate owner. Without really owning the property, an ostensible owner has all of the rights to it. By the explicit or implied consent of such an owner, he obtains these rights from the real owner. The real owner is the qualified owner of the property, whereas the ostensible owner is the full yet unqualified owner.

Persons who are not ostensible owners include:

  1. A self-proclaimed manager or agent
  2. A mortgagor is someone who has a small stake in a property and works as a servant.
  3. A co-sharer in occupation in a jointly shared family property of residence.
  4. The trustee or manager of the idol, because the idol is neither conscious nor capable of providing consent.

The ostensible owner is not the real owner, but he might pretend to be the real owner in such transactions. He obtained that right as a result of the real owner’s intentional neglect or acquiescence, making him an ostensible owner. The concept of assigning an ostensible owner is a universally applicable rule of natural equity, that if one man lets another hold himself out as the owner of a property, and a third person acquires it for value from that ostensible owner under the impression that he is the real owner, the person who thus allows the other to hold himself out must not be authorized to reclaim his ‘secret title’, unless he can overturn the purchaser’s arguments by proving that the third party had a direct notice, or constructive notice, of the genuine title, or that there should’ve been proper circumstances to prompt him to conduct an investigation which could have led to the discovery of true ownership.

‘Indicia’ of ownership

The facts of each case determine what an indicia of ownership is. Possession, for one, acts as a form of ownership evidence. Possession is ostensibly an act of ownership, but it is not necessary, because the real owner may not be capable of handling his own property. He could hire a manager to look after his estate. Although management implies possession, the manager may be hired to conduct additional management tasks such as leasing, collecting rentals, and overseeing the estate assigned to his care.

Involuntary transfer and partial transfer 

Transfer of property ownership might be involuntary or voluntary.  It is a voluntary transfer when the owner of the property transfers it willingly. It might be accomplished in the following ways:

  1. In exchange for consideration, such as a mortgage, sale, lease, or exchange, 
  2. As a gift, and 
  3. By will

When a court seizes a person’s property, it is known as involuntary transfer or involuntary alienation. This approach may also alienate the joint family’s assets or a co-undivided partner’s participation in the estate. The provision under Section 41 of the Act only pertains to voluntary transfers. It is not applicable upon coercive, involuntary, or legally compelled transfers, such as judge-ordered auction sales. 

Benami transactions

The Benami Transaction (Prohibition) Act of 1988 states that when the transfer of a property is done benami (that is, under the name of some other person), the person who holds the property becomes the real owner. The benamidar is only a trustee for the real owner and merely acts as a representative. If a property is acquired in the guise of a benamidar and the indicia of ownership are entrusted to him, the real owner can only overcome the impact of alienation by demonstrating that it was done without his consent and that the buyer was aware of it. No litigation, actions, or claims to enforce any right concerning the property held benami against the person in whose name the property is held, or any other person claiming to be the real owner of the property, is allowed under the Act.

In other words, following the implementation of the Act, the real owner is no longer able to reclaim the property from the benamidar by instituting any legal suit. The argument of being the real owner is likewise unsustainable. 

However, the Act offers certain exemptions when the provision of Section 41 do not apply:

  1. When the person in whose name the property is held acts as a coparcener and that property is being held for the benefit of all coparceners in the Hindu Undivided Family, or
  2. Where the person in whose name the property is held is a trustee or some other person acting in a fiduciary position, and the property is held for the benefit of another person towards whom he acts as a trustee or in a similar capacity. Excluding the cases where he is a coparcener in a Hindu Undivided Family or a trustee acting in a fiduciary capacity, an ostensible owner or benamidar will become the real owner. Therefore, except if benamidar is a coparcener or a trustee acting in a fiduciary position, the provision established by Section 41 of the Act stands to be modified.

The Supreme Court noted in Jayadayal Poddar v. Bibi Hazara (1974) that whether a person is an ostensible owner is a subjective matter that depends on specific facts and circumstances. When determining whether a person is an ostensible owner or not, the following factors must be considered: 

  1. Who paid the price, or who paid the purchasing money? 
  2. Who held possession following the purchase, i.e. who owned the property? 
  3. The motive for acquiring the property in a benami fashion i.e. why was the property acquired in the name of someone else? 
  4. Relationship between the parties, i.e., whether the real and ostensible owners were familiar with each other or not?
  5. The parties’ conduct in managing the property, i.e. who used to look after, oversee and manage the property? 
  6. Who had custody of the title deeds?

Requirements of transfer by an ostensible owner 

The following are the main requirements for a lawful transfer by an ostensible owner: 

  • The individual must be the ostensible owner of the property. 
  • He must hold the property with the express or implied consent of the real owner.
  • The transferee must acquire the property for consideration from such an ostensible owner. 
  • The transferee must take reasonable precautions before accepting the transfer to ensure that the transferor has the authority to make the transfer, i.e., he must act with bona fide intentions. 

The transferee would not be entitled to derive the benefits of this Section if any of the foregoing requirements were not met. If all of the following requirements are met, the actual owner’s stake will be taken away.

  1. The transferor must be an ostensible owner

When it has already been proven that the transfer was performed with the real owner’s permission, the real owner will be estopped from making a claim on the property. It will be applicable even if the transferee had performed no investigations to see if the transferor had the authority to make the transfer, which is otherwise essential for this section to apply. Hence, the transfer itself does not need to be done with the approval of the real owner for this provision to apply. It is sufficient if the transferor is the ostensible owner with the approval of the real owner at the moment of transfer.

  1. The real owner’s consent is essential for ostensible ownership

Unless the ostensible ownership of the transferor has been formed, allowed, or acquiesced in by him, the real owner will not be barred under this provision. This can be done by:

  • express words of consent, or 
  • acts or behaviour that indicate consent, so that the real owner establishes or enables the impression of ownership or acquiesces in it. 
  1. Express Consent:

The consent is said to be express when: 

  1. the owner clearly says using words, spoken or written that: 

(a) he has no interest in the property or

(b) that another person has an interest in the property; or 

  1. The owner performs any act that demonstrates that he has no interest in the property, such as attesting a deed stating that he has no interest in the property, or that a third party has an interest in the property, such as getting the property mutated in the name of another and disclaiming his interest. Unless there is a responsibility to speak, or the inactivity or silence is comparable to speaking, mere inaction or silence is not material. 
  2. Implied Consent: 

Implied consent refers to consent that can be inferred from a person’s actions or behaviour. If the real owner is aware that someone else is handling his property and agrees to it, his silence or inaction might imply consent.

However, prior to such a consent being inferred, it must be established that the person delivering the consent was cognizant of his right, interest or title to the property and that despite that knowledge, he provided the consent. His act or conduct at a time when he was unaware of his own right does not preclude him from pursuing his own claim against the transferee.

  1. The transfer must be for consideration 

A transferee can only profit from Section 41 of the Act if he can show that he received the property in exchange for something. There should be a quid pro quo in the transaction.

  1. The transferee must take reasonable precautions 

The clause states that a transfer made by an ostensible owner is not voidable because the transferor was not allowed to perform it, as long as the transferee was:  

  • Taking reasonable precautions to ensure that the transferor has the necessary authority to effectuate the transfer, and 
  • Acting with bona fide intention. 

If a transferee does not have constructive knowledge of the real owner’s title and no means to investigate the real title-holder of the property, he may be protected under this clause.

  1. Degree of Care: In order to determine whether the transferee has the authority to affect the transfer, the following requirements to ensure a certain degree of care must be met: 
  2. Ordinary Prudence and Reasonability: Whether the transferee took reasonable care to ensure that he had the authority to make the transfer must be decided in light of the facts of each instance. The test for the same is to see whether the transferee acted 

(a) like a reasonable man, and 

(b) with ordinary prudence.

  1. Standard of diligence: The conventional standard of diligence for determining whether the transferee has the power to affect the transfer is requesting and examining the title under which he claims to be the owner. If in the document itself, that is produced as the title deed for the transferee’s examination, there is any indication to put the transferee on enquiry with respect to the possibility of some other document or improper ownership of title, then the matter needs to be investigated further.  

2. The transferor must demonstrate that he has conducted the usual title search: The proviso states that the transferee must have taken reasonable care to ascertain that the transferor possessed the power to make the transfer, and this is an essential requirement for the provision to apply. Therefore, the transferee must demonstrate that he conducted the standard title investigation. He would not have been granted the benefit of the clause if he had not done so.

3. If the title is obvious, no inquiry is necessary: In case the title is obvious, no inquiry may be carried out. When a person appears to be in possession of the property, is documented as the owner, retains the property’s title deeds, and talks with a third party about it, there is nothing to establish that the third party acted with mala fide intentions in dealing with him about the property.

4. Impact of a lack of reasonable care: If this aspect of lack of due care used to determine the true fact is missing the transferee cannot enjoy the benefits of the Section.

  1.  The transferee must act in Good Faith 

It is essential for the transferee to act with a bona fide intent.  It is possible that there may be investigation without good faith as well as good faith without investigation. The real owner will not be affected by the transactions being entered into by the ostensible owner in either of these scenarios. This provision requires honesty as “good faith.” A person may commit a mistake, but he must do so in good faith. A transferee cannot claim protection under this clause simply because he was unaware of the actual owner’s title. He must not close his eyes and make a hasty purchase from an ostensible owner without first determining whether the transferor has the authority to make the transfer. The mere fact that the buyer’s name was registered in the revenue papers at the required period is insufficient to establish that he was a genuine buyer. He must conduct a reasonable investigation into both the transferor’s title and his authority to sell.

Rule of estoppel under Section 41 of Transfer of Property Act 

The law of estoppel argues that when the real owner of property depicts some other person as the owner to third parties, and the latter act on that depiction, the real owner cannot rescind his representation. This provision establishes an estoppel rule against the real owner. The rule of Section 41 of the Act, 1988 is derived from Section 115 of the Indian Evidence Act, 1872, which defines the law of estoppel. The House of Lords articulated this concept in Cairncross v Lorimer (1860) as, a party, either by words or conduct, representing to consensually perform or abstain from doing an act, and the other party acts on that representation, the former will have to stick to his representation.

Burden of proof 

The burden of proof for the transferee seeking immunity under this provision is on the transferee to show that he or she was an ostensible owner. He must establish that the transferor is the property’s ostensible owner or that the transaction is a Benami transaction. He must also show that he took reasonable precautions to protect his interests. The burden of proof transfers to the other side if the other party claims to have evidence leading to a starting point of inquiry that, if pursued or studied, would have led to the disclosure of truth. If a person claims ownership of property that has been transferred to another person, he must prove it.

The essential legal principle is that unless the legitimate owner has done something to fool innocent purchasers or pledges into assuming that the immediate possessor is the actual owner, his rights should be protected prima facie. He would have to show that the real owner has forfeited his right to reclaim possession as a result of his actions or omissions.

Non-applicability of the provision under Section 41 of Transfer of Property Act

If during the pleadings, it is not mentioned that the transferor was an ostensible owner with the voluntary consent of the real original owner of the property, the plaintiff’s claim for the title to the property as a result of a transfer of land by an individual besides the owner to him would be dismissed. The cancellation order can be appealed on the merits by subsequent purchasers, but the sale in their favour is not protected by Section 41 of the  Act. The following vendor can only request compensation or refund from his seller. Section 41 cannot be used to create a transferee pendente lite since he wouldn’t be a bona fide transferee without notice.

Landmark case laws concerning Section 41 of Transfer of Property Act 

1. Ramcoomar Koondoo v. John and Maria McQueen (1872)

The notion of transferring property by an ‘ostensible owner’ was developed to defend the rights of innocent third parties against property owners, which was initially used by the Judicial Committee in the landmark case of Ramcoomar Koondoo v. John and Maria McQueen, and then subsequently reflected as Section 41 in the Act.

Facts

The land, which was perpetually leased at a set rate, was sold to Bunnoo Bebee, mistress of Alexander Macdonald by deed of sale by the then landlord. It could not be said with certainty that the father, Macdonald, had possession of the property. In any case, the evidence does not indicate that he ever lived on the land, yet there is sufficient evidence of Bebee’s residence upon the land.

Subsequently, Bebee died and the plaintiff (Ramdhone, Ramcoomar Koondoo’s father), inherited the property, discovered that Bebee had previously acquired the property in her name, and then sold it to a third party (John and Maria McQueen) by convincing them that he possessed sufficient title to the land. The entire transaction was a benami transaction, which meant that only the individual who sold the land knew about it. John and Maria McQueen, who lived on the property but failed to pay rent, were sued by the plaintiff for recovery of the possession of the land. The Calcutta High Court ruled in Mcqueen’s favour, prompting Ramcoomar (who had filled in for his father following his death) to file an appeal with the Privy Council.

Issues

  1. Whether or not the property belonged to Macdonald?
  2. Whether Maria McQueen received it by his will?
  3. Whether the appellants acquired bond bonds without notice for a good sum?

Judgement

The appellants’ response is that their father acquired Bunnoo Bebee’s estate without being aware of the benami title, and therefore they are entitled to keep it, despite the fact that there was initially a resultant trust in favour of Macdonald. In such a circumstance, they bear a disproportionate amount of the burden of proof, and hence they must first prove that the purchase was done on Macdonald’s behalf and with Macdonald’s money. The proof for this was not produced by the respondent. Furthermore, Bunnoo Bebee treated the land as part of Macdonald’s inheritance following his death. The appellants proved their right to keep the property against the benami title, according to their Lordships.

It’s unlikely that the buyer was aware that the title was not the same as or similar to the one that appeared. There is no indication in any of the paperwork that the transaction was not what it looked to be. All of the documentation, on the other hand, point to Bunnoo Bebee making the transaction herself or for her benefit. Even if Macdonald was the real owner and Bunnoo Bebee was merely an ostensible owner, the Privy Council held that because Macdonald had given implied consent to Bunnoo Bebee to hold herself out as the real owner. Therefore, the plaintiff or his representatives couldn’t recover the title unless they could prove that they were the real owners. It was then decided that the plaintiff could not reclaim the property from the third party and in the eyes of the law, the transfer was held to be legally sustainable.

2. Md. Shafiqullah Khan v. Md. Samiullah Khan (1929)

Facts

In this case, regardless of the fact that they were legally unqualified to possess the land, the owner’s three illegitimate sons (Nuhullah, Hakimullah and Halimullah) got it after his death. The genuine heir, the defendant Muhammad Shafiqullah Khan who is admittedly his son, filed a lawsuit to assert his inheritance rights. The possessors, on the other hand, kept control of the property and sold it to a third party (Samiullah, the defendant) while pretending to be the legitimate owners. 

Issues

Whether the illegitimate sons were ostensible owners under Section 41 of the Act? 

Judgement

On the issue of the benefit of Section 41 of the Act, the lower court found that Samiullah had no knowledge of Shafiqullah’s suit, that he acted in good faith and took the property from Nuhullah and others believing they had the title, and that this belief was induced in his mind by Shafiqullah Khan’s previous conduct, which had allowed the names of Nuhullah and others to remain in the revenue papers. Hence, he determined that the mortgagee Samiullah was protected under Section 41 of the Act and that Shafiqullah Khan was barred from establishing his own title. 

The Allahabad High Court, however, stated that this legal situation would not satisfy the requirement for Section 41 because ownership was not obtained with the express or implied consent of the lawful owner. Hence, they were not deemed to be the ostensible property owners.

3. Niras Purbe And Anr. v. Musammat Tetri Pasin And Ors. (1915)

Facts

In the instant case, while on pilgrimage, a husband registered his land in the revenue records under his wife’s name. He then permitted her to take out a mortgage on the property. When the husband moved out, the wife sold the property to a third party, who paid off the mortgage. He claimed to recover the land from these defendants on the ground that his wife had no power to sell it to them. 

Issue

Whether the husband can reclaim the title of the property?

Judgement

The court ruled that the spouse could not reclaim or redeem the land from the buyer if the buyer acted in good faith and took reasonable steps to verify the land’s ownership, as had been done. 

Conclusion

Section 41 of the Transfer of Property Act has done a decent job of safeguarding the interests of the unsuspecting third party. Although the section may appear to be prejudiced in favour of the third party, this is only the case if the real owner is at fault. No one can simply claim that he now owns the property and therefore cannot be evicted. The third party must use extreme caution when acquiring the property, and these criteria were imposed by law to prevent the ostensible owner and the third party from abusing this provision. In a manner, this also protects the real owner’s interests.

In a nutshell, Section 41 of the Act, specifies the powers of the ostensible owner and discusses the nature of his transactions. The power provided by the property owner to enter transactions on his behalf is the most noticeable feature of the ostensible owner. The consent for this authority might be expressed or implied, as defined by several landmark case laws. Additionally, consent cannot be obtained by deception. Also, once done, a property transfer is irreversible at the owner’s discretion. This includes partial transfers such as mortgages and leases, as well as complete transfers of rights such as sales and exchanges. Furthermore, the law sets the burden of proof on the transferee to show that the transferor is the ostensible owner. He must also act with bona fide intention and make appropriate investigations about the progress of the transfer of property while being sufficiently cautious.

References

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