Analyzing the transfer of property by an ostensible owner
The property right is an ancient and very important right of a human being. From great Greek philosophers to Indian philosophers all have contemplated the importance of the right to property of a human being living in a society. In India the property right was granted as a fundamental right under article 32 of the constitution however in the 44th amendment, it was changed to a mere constitutional right, but a constitutional right nonetheless.
In India, the transfer of property act, 1882 is the prime law of the land regarding property delimitations and to regulate the rights of all the concerned stakeholders including the ostensible owner. However various situations arise in business and non-business transactions wherein people need someone else to be the owner of a property in the eyes of law whilst the real owner, i.e., the one who pays, is someone else. The word ostensible it is meant something or someone who appears to true or right. In the case of an Ostensible owner, he merely represents himself as the real owner of the property and does actions concerning the property with the express or implied consent of the owner of the property. In the case of ostensible ownership of a property, the ostensible possess the indicia of ownership with relation to the property which includes right to the title, right to possession, documents inter alia selling of the property itself.
The concept of Ostensible Ownership and the principle of Holding out both comes from Section 41 of the transfer of property act. Section 41 is the main legal provision in the transfer of property act which concerns itself with the Ostensible owner. The principle of Ostensible owner is based upon the Latin maxim “Nemo dat quod non habet”, which means that no person can confer a title to another which he does not possess.
Section 41: This section of the transfer of property act defines an ostensible owner. The main aim behind the presence of this article in the act is to safeguard the rights of the real owner of the property, explain the duties of the ostensible owner whilst simultaneously protecting the third party in this type of transaction. Some important parts of this section are:
Consent: Section 41 plays important role in the consent of the real owner of the property, this is done to protect the rights of the real owner of the property and all the “persons interested” as defined in the section itself. Section 41 makes consent necessary part. Without the consent of the real owner of the property, the ostensible owner cannot sell the property. Inaction by the real owner of the property also implies consent.
Validity of Transaction: One other important part of this section is the validity of the transaction. After stating all the requirements and the needs which are to be fulfilled, this section concludes by allowing the transaction.
Consideration: Consideration is another important element present in Section 41 of the Transfer of property act, it states that there must be the presence of a valid consideration for a transaction under Section 41 to be held as valid.
Reasonable Care: In the last line of the section the term “Reasonable Care” is mentioned. Herein the term is used to add a sort of liability on the buyer of the property. The buyer is required because of the presence of this single word to take reasonable care whilst ascertaining that the property the buyer is buying is from the right person as in the owner of the property. Along with this, the buyer is also required to act in good faith whilst making the transaction. Here good faith means bonafide intention.
The burden of proof: In the situation, a dispute has arisen between the parties involved in a section 41 transaction, the burden of proof lies on the one who is buying the property or the one in whose name the property is been transferred. That person has to prove that the transaction is valid and no party has either acted in bad faith or broken any part of the essentials required under Section 41 of the Transfer of Property act. In the case a dispute has arisen between the real owner and the ostensible owner of the property, the burden of proof lies on the real owner to prove that he/she is the real owner of the property and the property has been sold without their consent.
Section 41 of the Transfer of Property act also is the birthplace of the principle of Holding Out, this principle is applicably in a case wherein the ostensible owner is holding onto the property of another person and/or firm with the express or implied consent of the real owner of the property. On the lines similar to section 41 of the Transfer of Property Act, the principle also states that the person who is buying the property from the ostensible owner or the real owner must make sure that the property has been purchased in good faith and consideration is present there.
Legal Jurisprudential History
To understand any issue thoroughly, one is required to understand the legal history behind the same. Therefore for a complete understanding of Section 41 of the Transfer of Property Act, one can refer to the reports by various law bodies of India, including the law commission of India along with the legal history of the same through the case laws. To understand the origins of the Benami Transaction or holding of ostensible ownership in India, one can at the report of the law commission of India on the same. The reasons provided by the law commission are as follows:
The practice of a joint Hindu family system in India, which could have lead to the origins of ostensible transactions as members of the family might buy or hold their property in some else’s name from the family.
Some people might have had the aim of defrauding their creditors, so they implemented the idea of ostensible owner, a recent example of this could be the cases of Vijay Mallya or Nirav Modi.
Another possible reason could be to avoid taxes and/or to convert black money or to hide the earnings.
Another reason for the origins of ostensible property in India could be to protect the property from hostile conquest or confiscation.
The commission after a long and detailed study concluded that the majority of these sorts of the transaction are done by people who have black money or tainted money which they want to cover up and not pay taxes to the government.
The jurisprudential history of the ostensible owners in India can be understood by the case laws:
In the case of Jayadayal Poddar vs. Bibi Hazara, the highest court of the country held that whether a person is an ostensible owner or the real owner is subjected to various facts and situations:
The real source of the money from which the property was bought.
The nature of the possession of the property.
Custody of the title.
Conduct and other behavior of the parties.
Relationship between the owner and the ostensible owner.
The motive for this transaction.
Other Major cases in the history of Ostensible ownership in India are:
CAIRNCROSS ET AL. V. LORIMER ET AL: Consent once provided for a specific act, cannot be denied after the completion of the said act. This case law is the basis for Section 41 of the Transfer of Property act.
Ram Coomar V. M.C Queen (1872) 18: The privy council held that since the seller was the ostensible owner of the property hence, the transfer made was legal. This case led to the foundation of the principle of Holding out.
Nirvas Purve v. Mst. Tetri Pasin (1916) 20 Cal W.N. 103: The real owner was leaving for pilgrimage and left the property in his wife’s name. The wife subsequently sold the property. The transaction was held to be valid since the wife was the ostensible owner of the property.
Padam Chand vs. Lakshmi Devi (2010): The court, in this case, held that property given to someone as a form of gift for love cannot be held to be given under the principle of ostensible ownership, and the receiver would not be an ostensible owner in this situation.
Analysis with Illustrations
To deepen the understanding of Ostensible Owners in India and the laws behind the same, here are some illustrations:
Mr. A wants to buy a property for investment, however, due to his current business enterprises and the market situation he is unable to buy the property in his name, therefore, in this case, he buys the property in the name of his wife, Mrs. B. in this situation, therefore, Mrs. B will be the ostensible owner whilst Mr. A will be the real owner.
Mr. C buys a property for his wife Mrs. D from the “Stree Dhan” of her wife. After a while Mr. C dies, in this case, Mr. C was the original owner till the time of his demise. Mrs. D was the ostensible owner till the time of Mr. C’s demise, however, after the death of Mr. C, Mrs. D will become the real and the only owner of the property.
M. Z buys some property for his son Mr. Y as an investment and gift. In this transaction Mr. Z would be termed as the owner of the property whilst Mr. Y would be the ostensible owner.
Ostensible owners and the concept of Ostensible ownership in India, are old concepts which are suited according to the particular needs of the Indian society, nowadays with the rise of the modern concept of living the concept of ostensible ownership has come under the radar of numerous organization and committee, however, still, the concept is working and continue to under Section 41.
Section 41 of the Transfer of property act does its intended task by protecting the rights of the real owner (and/or interested parties) whilst simultaneously protecting third parties from any possible harm that they might face. This section whilst making several safeguards to all the parties involved also makes sure that the intention of the real owner of the property is safeguarded, this intention is determined by various factors including payment of consideration, custody of titles, actual possession of the disputed property among various other things.
The concept of Benami property (or ostensible ownership) has been subjected to the provision of the Benami Transactions Act, 2016. This legislation overall prohibits Benami transactions between various parties with subject to a few exceptions. It is also worth noting that this sort of transaction has been termed a criminal offense. The few noteworthy exceptions are governed under Section 41 of the Transfer of Property Act.