OSTENSIBLE OWNERSHIP

SUBMITTED BY

Rishabh Sen Gupta

UID: SM0116036

Faculty-in-charge

Mr. Ankur Madhia

NATIONAL LAW UNIVERSITY AND JUDICIAL ACADEMY, ASSAM.

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 TABLE OF CONTENTS

1. Introduction

1.1 Overview

1.2 Literature review

1.3 Scope and objectives

1.4 Research questions

1.5 Research methodology

2. Concept of ostensible owner

3. Essential conditions for section 41 of TPA
4. Statutory change
5. Concept of Benami transactions
6. Critical Analysis
7. Conclusion/Recommendations
8. Bibliography

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 CHAPTER 1

Abstract:

This research paper, the author analyses the concept behind ostensible ownership, it then
proceeds to discuss the essential conditions for section 41 of TPA. Thereafter, it discusses the
statutory changes in the concept of Benami transactions. It concludes with providing a critical
analysis on the subject and provides the readers an insight by giving valid recommendations

1.1 Overview:

Transfer of property by an ostensible owner is a concept which was incorporated to protect

the rights of innocent third parties vis-à-vis the property owners. The Transfer of Property Act,
1882, was passed with the purpose of making transfer of property easier and makes it
accessible to the population at large. This Act lays down certain general principles as to
transfer of property which has to be followed. Transfer of a property by and ostensible owner
is such a concept which was incorporated to protect the rights of innocent third parties vis-à-
vis the property owners. This principle was first used in the much celebrated case
of Ramcoomar Koondoo v. John and Maria McQueen by the Judicial Committee. This
research paper deals with analyzing the concept of ostensible ownership, the essential features
that are enshrined in Section 41 of the TPA, the statutory changes that have been brought in.
Thereafter, it provides a critical analysis concluding with recommendations.

1.1 Literature review:

Tripathi G.P., The Transfer of Property Act, Central Law Publications, 11th edition 1999

This laudable work by eminent author, Dr. G.P. Tripathi, provides a comprehensive analysis
of The Transfer of Property Act, 1882. Relevant pronouncements of the High Courts and the
Supreme Court have been included at appropriate places to illustrate, interpret and update the
provisions of the Law. The amendments to the Transfer of Property Act and Indian Registration
Act till date have also been incorporated in this work. The book shall be extremely useful to
the students of law pursuing LL.B and LL.M and also those preparing for competitive
examinations.

Sinha R.K., The Tranfer of Property Act, Central Law Agency, 4th edition 1999

An excellent book that covers all apects of property law such as its preliminary conceptions
and then goes about giving a detailed analysis of all the sections that are included in the

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Transfer of Property Act. It is really helpful for students and helps understand the concepts
lucidly and especially helpful with revision during hectic schedule of semester exams in law
school.

Mulla D.F., The Transfer of Property Act, Butterworths, 9th edition, 2000

An essential read for anyone wanting to enrol themselves in academia or any lawyer dealing
with property related disputes. Provides an in-depth analysis of all the aspects in context of
property law and has an excellent inventory of cases and commentary.

1.3 Scope and objectives:

This research paper deals with analyzing the concept of ostensible ownership, the essential
features that are enshrined in Section 41 of the TPA, the statutory changes that have been
brought in. Thereafter, it provides a critical analysis concluding with recommendations.

1.4 Research questions

 What is ostensible ownership?

 What are the essential conditions for section 41 of TPA?
 What have been the statutory changes that have been brought in?
 What is the concept of Benami Transactions?

1.5 Research methodology:

In this paper doctrinal research was involved. Doctrinal research is a type of research in which
secondary sources are used and materials are collected from libraries, archives, etc. books,
journals and articles were used while making this project.

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 CHAPTER 2

A person does not become ostensible owner if the real owner has entrusted him with temporary
control over the property only for some specific purposes or , where he holds a property as a
professed agent or as guardian of minor’s property or in any other capacity of fiduciary
character .A manager cannot be treated as ostensible owner even though his name entered in
the Municipal records as a real owner .1 Karta of a joint Hindu family is also not an ostensible
owner of the joint family . Similarly , a trustee or manager of an idol is an ostensible owner of
the endowed property held by him .2

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

In Jaydayal v. Bibi Hazra.3the Supreme Court observed that whether a person is an ostensible
owner , is a subjective question to be decided on this basis of facts 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 Benami transaction 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 i.e., who used to take care of and
control over the property?

6. Custody of the title deeds.

1
Muhammad Sulaiman v. Sakina Bibi, AIR (1922) All 392
2
Thakur Krishna v. Kanhayalal , AIR (1961) All 206
3
AIR (1974) S.C.171

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The burden of proof that a transaction is benami and that the transferor is an ostensible owner
lies on the person who claims that he is the real owner.

In Mahinder Singh v. Pardaman Singh4, court clarified the position saying that the burden
lies on the person who asserts that it is such a transaction. The governing principal for
determining the question whether a transaction is benami or not is to be proved by showing
that the purchase money came from a person other than the person in whose favour the property
is transferred . The intention of the person who contributed towards the money has to be
inferred from the circumstances and the relationship of the parties and the motive governing
their action in bringing about the transaction and their subsequent conduct.

4
AIR 1992 Del 357.

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 CHAPTER 3

1. There is transfer of an immovable property by ostensible owner with express or

implied consent of the real owner.

The transfer must be made by an ostensible owner with express or implied consent of the real
owner and it must be a free consent. Where a benamidars obtains the consent of the real owner
by fraud, force or coercion, the consent is not free and this section cannot apply. Similarly, if
the real owner is incapable of giving any consent (e.g., he is insane or minor) his consent is no
consent .If the real owner is minor he is incapable of giving any consent. Therefore section 41
does not apply where ostensible owner transfers the property of minor real owner.

The law incorporated in section 41 is based on the rules laid down by the Privy Council in the
leading case of Ramcoomar Koondoo v. Macqueen5 Here the Privy Council 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 owner in the belief that he is the real owner, the man who so
allows the allows the other to hold himself out shall not be permitted to recover upon the secret
title”.

2. 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 transfer or property e.g., it may be sale ,exchange ,
mortgage or lease .

3. Transferee acts in good- faith

It is necessary that transferee acts in good faith i.e., he has purchased the property in the honest
belief. Good faith means bona fide intention. When a person purchases property with full
knowledge that the transferor is merely an apparent owner his intention is not bonafide and

5
(1872 ) 11 Beng . L.R. 46,52

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there is no good faith on his part. Principles of equity on which this section is based, protects
the interest only of a bonafide purchaser. He who seeks equity must do equity. Thus, this
section can protect the interest 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.6And it should also be
noted that even if the purchaser makes due 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.7

4. Reasonable care of the transferee

Reasonable care means that care which a man of ordinary prudence should take while making
inquiries regarding the title of an immovable property .But it is not possible to lay down any
general rule regarding the nature of enquiry to be made by the transferee which may be called
as ‘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.8 However ,the enquiry must be diligent and not
superficial or casual .Some specific circumstance or fact should be pointed out as starting point
of an enquiry which might have led to some result .9In Supreme Court case of Gurbaksh
singh v Nikka singh Subba Rao .J. said that Being an exception, the onus certainly is on
transferee to show that the transferor was the ostensible owner of the property and that he had,
after taking reasonable care to ascertain that the transferor had power to make the transfer,
acted in good faith

6
Rai Sunil Kumar v.Thakur Singh .A.I.R.(1984)Pat.80
7
Khwaja Afzalv.Md. Saheb, A.I. R. (1936) Nag. 214
8
Beyas Singh v. Ram Janam Ahir , A.I.R. (1961)
9
A.I.R. (1963) S.C. 1917

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 CHAPTER 4

The law relating to transfer by an ostensible owner as given in section 41 of the act is now
subject to the provisions of the Benami Transactions (Prohibition of the Right to Recover
Property) Act , 1988.

According to Sec.2(a) of this act “benami transactions” means any transaction in which
property is transferred to one person for a consideration paid or provided 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 .

Here any property held benami is not limited to any particular time, date or duration i.e. the
Act, 1988 is retrospective in operation. Once the property is found to have been held benami
no suit, claim or action to enforce any right in respect thereof shall lie. 10

Sec.4(1) of the Act lays down that- No suit ,claim or action to enforce any right in respect of
any property held benami against the person in whose name the property is held or against any
other person shall lie by or on behalf of a person claiming to be the real owner of such property.

Further Sec. 4(2) of the Act provides that –No defence based on any right in respect of any
property held benami whether against the person in whose name the property is held or against
any other, shall be allowed in any suit, claim or action by or on behalf of a person claiming to
be the real owner of such property.

In Om Prakash Rawal v. Justice Amrit Lal Bahri11 the defence taken by the defendant that
the plot in fact was purchased by him in the name of his brother i.e. the plot was purchased
benami, cannot be allowed by virtue of section 4(2) of the Benami Transactions (Prohibition)
Act, 1988..

As by way of an exception to the above-mentioned rules, section 4(3) provides that that now
an ostensible owner has become a real owner except where he is a coparcener in a Hindu
Undivided Family or a trustee. Accordingly the law laid down in section 41 of the Transfer of
Property Act stands modified except where benamidars is a coparcener of a trustee or a person
standing in a fiduciary capacity. Besides the above mentioned two exceptions the provisions
of this Act do not apply, also in usual bonafide transactions where person purchases property

10
Mithilesh Kumari v. Prem Behari Khare, AIR 1989 SC 1247.
11
AIR 1994 HP 27

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in the name of his wife or unmarried daughter. Section 3(2) provides that there is no prohibition
on such transactions and it shall be presumed unless the contrary is proved that the said property
had been purchased for the benefit of the wife or unmarried daughter.

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 CHAPTER 5

Benami transactions are one of the most notorious sources of circulation and investment of
black money. The Government has recently been facing a great deal of heat on the issue of
black money and corruption from the Supreme Court, the civil society, and the Opposition for
not doing enough to deal with this menace. Sadly, such transactions are rampant in the real
estate sector of our country.12

“Benami transactions” means any transaction in which property is transferred to one person
fora consideration paid or provided 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.13

Sec 3. Of the Benami Transaction Act lays down Prohibition of benami transactions-

(1) No person shall 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 of 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.

Sec.4(1) of the Benami Transaction Act lays down that- No suit ,claim or action to enforce any
right in respect of any property held benami against the person in whose name the property is
held or against any other person shall lie by or on behalf of a person claiming to be the real
owner of such property.

Further Sec. 4(2) of the Benami Transaction Act provides that –No defence based on any right
in respect of any property held benami whether against the person in whose name the property
is held or against any other, shall be allowed in any suit, claim or action by or on behalf of a
person claiming to be the real owner of such property.

12
Manila M Sarkaria, Benami Transction Bill 2011: A ray of hope? , SAARC LAW, www.saarclaw.com
13
According to Sec.2 (a) of Benami Transactions (Prohibition of the Right to Recover Property) Act, 1988

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 CHAPTER 6

Under Transfer of property act it is clearly mentioned that when the one person pays
consideration & purchases the property in the name of another person the later is considered as
ostensible owner & the transaction is benami transaction. Whereas, under the Benami
Transaction Act it is prohibited. Now it is question arises that why it is permitted in one &
prohibited in the other act.

There are many reasons behind purchasing the property in the name of another person. One of
the reasons may be to avoid the payment of tax, to convert black money or to hide the earnings.
To prevent that the Benami Transaction act, 1988 is enacted. But the exception under benami
transaction act clearly mentions that, Benami transaction prohibition shall not 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 of the unmarried daughter.

Under the Income tax act, there is a provision of “clubbing of income”14, the result of this is
that, even though the person purchases the property in the name of family member it will be
taxed & there are no chance of hiding the income 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 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 as the Act, inter alia,—

(i) does not contain any specific provision for vesting of confiscated property with the Central
Government;

(ii) Does not have any provision for an appellate mechanism against an action taken by the
authorities under the Act, while barring the jurisdiction of a Civil Court; (iii) does not confer
the powers of the Civil Court upon the authorities for its implementation.

14
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

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 CHAPTER 7

1) There is need to amend the following provisions of sec 3 of Benami Transaction act,
1988 as follows:-

(1) No person shall, on and after the commencement of this Act, enter into any benami
transaction.

(2) Nothing contained in sub-section (1) shall apply to a benami transaction entered into by any
person, being an individual, in the name of his–

(a) Spouse;

(b) Brother or sister; or

(c) Any lineal ascendant or descendant.

2) Property held benami liable to confiscation by the Government authority after serving the
notice by the authority & satisfaction that the person possessing the property under benami
transaction.

3) There is need to provide a mechanism and procedure for confiscation of property held
benami-

Mechanism:-

The Central Government shall vest powers under this act to following revenue authorities for
the purposes of this Act:-

1. Talathi at Village level

2. Tahasildar at Taluka level

3. Collector at District level

Powers of the Authorities

1. These authorities shall have same powers as vested in a civil court while trying a suit in
matters such as inspection, production of documents, issuing commissions, etc.

2. If the above Authorities have reason to believe that a property is held benami, he may issue
a notice to the benamidar and call for documents and reports for inquiry

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3. He shall issue a notice, after the inquiry, to provisionally attach any property, which he has
reason to believe is held benami.

4. He may impound or retain any books of accounts that it may feel is required for the inquiry,
for a period not exceeding three months from the date of attachment of the property

5. after hearing the person whose property is attached, may make an order for the confiscation
of the property held benami

6. Any person aggrieved by an order of the Officer shall appeal to the Civil Court. Any person
aggrieved by the Civil Court in turn may appeal to the High Court.

4) Special Court –

Any person who enters into benami transactions, or abets or induces another person to enter
into such transactions shall be punishable with an imprisonment for six months to two years,
and liable to a fine of up to 25 per cent of the fair market value of the property held in benami.
In addition, any person who wilfully gives false information shall be liable to an imprisonment
of three months to two years and a fine of up to 10 per cent of the market value of the property.

The Bill provides for Special Courts to try such cases.

The Central Government, in consultation with the Chief Justice of the High Court, shall for
trial (as per Cr.P.C) of an offence punishable under the Benami Transaction Act, by
notification, designate one or more Courts of Session as Special Court or Special Courts for
such area or areas or for such case or class or group of cases as may be specified in the
notification.

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 BIBLIOGRAPHY

Books Reffered:

 Tripathi G.P., The Transfer of Property Act, Central Law Publications, 11th edition
1999

 Sinha R.K., The Tranfer of Property Act, Central Law Agency, 4th edition 1999

 Mulla D.F., The Transfer of Property Act, Butterworths, 9th edition, 2000

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