Transfer by Ostensible Owner

What does transfer by ostensible owner mean?

Meaning of ostensible owner: – Ostensible means what appears to be true but is not so. Ostensible owner means a person who appears to be the owner of a particular property but is not. He is not a trespasser or any person who is having unlawful possession of property. He acts like a property owner with the consent or conduct of the real owner.

Section 41 of the transfer of property act deals with the transfer of Ostensible Owner.

For Example: –  ‘X’ owns property in Delhi, but he lives in the USA. He allows ‘Y’, his brother who lives in Delhi to take care of the property, including payment of taxes, major repairs etc. Here ‘X’ is the real owner of the property, while ‘Y’ is the ostensible owner. Benamidars or Benami transactions are also an example of ostensible owners.

What are the essentials of ostensible owner?

• Transfer of immovable property by an ostensible owner
• Transfer is done for consideration
• A person interested in that property has consented to the transfer of property. The consent of the person can be express or implied.
• The transferee should have to take proper care and acted in good faith. “Such transfer is a valid transfer.”

Explanation: –

1. Transfer of immovable property by an ostensible owner: –
   • This section also applies to partial transfers. Therefore, a transfer does not need to be done by sale or exchange. A transfer involves the transfer of an interest in a property, For example: – a mortgage.
   • Transfer must be voluntary. Therefore, the transfer made by order of the court will not come under this section.
   • The section will be applicable only in cases of transfer of immovable property. Also, an actual owner must exist with an ostensible owner; otherwise, the principle has no application under this section.
2. The transfer should be for some consideration: –
   • This section also does not apply to transfers made without consideration, For example: – gifts. Therefore, a gift made by the ostensible owner of a property will not come under the purview of this section.
3. Consent of the person interested in the property: –
   • The term person has not been defined in the statute but includes the central and state governments. A person interested in property means the real owner here. To transfer under this section, the bona fide transferee must prove that the transfer is done by an Ostensible Owner and the transfer is done with the consent of the real owner.
   • The real owner must be able to give consent and the consent given must be independent. If the consent is derived from fraud or misrepresentation, then it would mean that the purchase is not bona fide and therefore, the petition under this section will not be entertained.
   • The consent of the real owner can be expressed or implied. Where the conduct of one person to permit another to act in a particular way, it amounts to implied consent. Mere silence will not amount to implied consent unless there is a duty to speak, but negligence on behalf of a real owner may amount to implied consent.
4.  The transferee should’ve taken reasonable care and acted in good faith : –
   • Section 41 states that the transferee must have taken reasonable care before entering into the transaction and must have assumed that the transferor had the right to transfer. The test of proper care is the amount of care a prudent man usually takes.
   • For Example: – ‘A’, the transferee knew that the land belonged to ‘X’. ‘Y’ told ‘A’ that ‘X’ has given him the authority to sell that particular land. Without making any inquiries and knowing that ‘Y’ does not have the authority to sell the land, ‘A’ entered into the transaction. Here, ‘A’ is not entitled to protection under Section 41 of Transfer of Property Act.

What is benami transaction?

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

Benami transactions are now dealt under the Benami Transactions Act, 1988. The Act prohibits Benami transactions and makes it equally punishable. The act declared that whoever is the ostensible owner of the property, will become the actual owner of that property.

There are 2 exceptions to the ban on benami transactions (Section 3, Benami Transactions Act, 1988): –

• If someone buys property in his wife’s name, or
• If someone buys property in the name of an unmarried daughter.

The Transfer is valid: – If the requirement of Section 41 is met, the transfer by the Ostensible Owner is valid and is not null or void.

Burden of proof: ostensible owner

The burden of proof under section 41 lies on the transferee, to prove that: –

• A transferor is an ostensible owner, and
• He took reasonable precautions, like a reasonably prudent person, to protect his interest.

Section 41: Rule of estoppel over the real owner of the property

Estoppel refers to a situation where a person makes other people believe in something which is not true and also the other person acts on the same, then the person who made the representation can’t refuse to act on the same. Here,

• The real owner of the property assures the other person (transferee) that the person dealing with  the property (ostensible owner) has the right to deal with it as the owner of the property and includes the right to alienate the property, regardless be it implicit or explicit;
• The person who is  alienating doesn’t have the authority to alienate the property but he alienates property as the ostensible owner;
• It should for a consideration ;
• Even after due care, the transferee believes that the transferor has the right to transfer;
• Now the real owner is prevented from questioning the transfer because the transferor was not competent to do so.

It is based on the principle that a person’s conduct led to a transfer. Even though two parties were cheated by the transferor, one enabled the fraud to take place (the real owner due to consent). The other innocent party should not bear the brunt of this.

Case Laws of transfer by ostensible owner

1. Padam Chand vs. Lakshmi Devi

A gift deed was executed by the father, who was the ostensible owner of the property in favor of his daughter and the idea for transfer was contented to be the love and affection in favor of his daughter. It was held that a gift is “part of the property by the owner without benefit” and Section 41 of the Transfer of Property Act had no application in the present case.

Therefore, it can be concluded that monetary consideration is needed to draw this section.

2. Ramcoomar Koondoo and others vs. Macqueen and another

Boono Baby was the mistress of Alexander Macdonald. Alexander bought the property in the name of Boono Baby. In June 1843, he sold the property to Ramdoni Kundu (Ramkomore Kundu’s father). After his death, his successor enjoyed unquestioned ownership for 24 years. Alexander made a will and stated that after Alexander’s death, the property would go to McCain, who was the daughter of Alexander and Boono Baby.

In this case, the court held that the sale was bona fide in nature and was properly investigated by the appellants as a prudent person.