TRANSFER BY AN OSTENSIBLE OWNER OR THE DOCTRINE OF HOLDING OUT [Section 41]

T.P. Act, 1882

TANMOY MUKHERJEE INSTITUTE OF JURIDICAL SCIENCE

Dr. Tanmoy Mukherjee      

 [Advocate]

 TRANSFER BY AN OSTENSIBLE OWNER OR THE DOCTRINE OF HOLDING OUT [Section 41]-

Tanmoy Mukherjee

       [Advocate]

 

Meaning-

 Section 41 of the T.P. Act, 1882 deals with transfers by Ostensible Owner. The word 'Ostensible' means "apparent or professed". 'Ostensible owner' means "as apparent owner". It is used in contradistinction to the expression, "real owner". An ostensible owner is one, who has all the indica of ownership without being the real owner. An ostensible owner is one who is not a real/true owner, but exhibits himself to be so by possessing the qualities of ownership and possessing the property but never intended to own the property.

The general rule is, he, who conveys (transfers) property, must have good title. It is based on the maxim 'Nemo dat quod non habet', which means "no one can convey a better title than what he himself has". However, this general rule is subject to certain exceptions. Transfer by ostensible owner is an exception to this rule. Therefore, transfer by ostensible owner is valid, provided the conditions under Section 41 of the T.P Act are satisfied. It is also known as 'the doctrine of holding out'.

Section 41, which deals with transfer by ostensible owner, reads as follows-

Where, with the consent, express or implied, of the person interested in immovable property, a person is the ostensible owner of such property and transfers the same for consideration, the transfer shall not be voidable on the ground that the transferor was not authorized to make it; provided that the transferee, after taking reasonable care to ascertain that the transferor had power to make the transfer, has acted in good faith.

The foundation of Section 41 is based on the judgment of Privy Council in -

Ram Coomer vs. Mac Queen (1872) 11 Bang. LR 52.

-It was held that the purchaser's title cannot be impeached on the ground of the doctrine of holding out. In this case 'B' is an ostensible owner, and 'B's transfer was held valid.

The Court observed - '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 other to hold himself out shall not be permitted to recover upon his secret title, unless he can overthrow that of the purchaser, by showing either that he had direct notice or something which amount to constructive notice of the real title, or that there existed circumstances, which ought to have put him upon an enquiry, that, if prosecuted, would have led to a discovery of it.

Facts of the case in detail-

 One Alexander Macdonald who lived in Calcutta had a mistress known as Bunnoo Bibee. He had two children by her. One of them was the respondent, Macqueen. The property in dispute was purchased in the name of Bunnoo Bibee. The sale deed stood in her name. She received the rent from the tenants.

In June 1843, she sold the property to Ramdhone Koondoo (father of Ram Coomar) for Rs. 945. Subsequently, the purchaser created important buildings upon the land and increased the value to such extent that the property was valued to Rs.40000. After the death of Bunoo Bibee a suit was brought against Ram Dhone by Macqueen, claiming under the will of Alexander Macdonald. The claim put forward in the suit was that the purchase, although in the name of Bunoo Bibee was a purchase benami by Macdonald that he was the real purchaser, but had used her name in making the purchase.

-The defence put forward by the defendant was that their father (Ram Dhone) purchased the estate of Bunnoo Bibee without any notice of the benami title.

-The Calcutta High Court decided in favor of the respondent and decreed the suit. On appeal to the Privy Council, the judgment of the Calcutta High Court was reversed and suit dismissed.

Conditions-

 A transfer by ostensible owner to be effective (valid), the following conditions are to be satisfied under Section 41 of the Act-

1. The transferor must be an ostensible owner.

2. There must be consent express or implied from the real owner.

3. He must transfer that property.

4. The transfer must be for consideration.

5. The transferee should have acted in good faith and has taken reasonable care that the transferor had power to transfer.

Burden of Proof-

In sale/transfer by ostensible owner, the burden of proof lies on transferee. The transferee has to prove the following conditions to establish himself as a bonafide purchaser;

(1) The real owner allowed another person to act as owner of the property.

(2) He purchased the property for a valuable consideration and acted in good faith; and

(3) He made enquiries.

Who are not ostensible owners-

 The following persons have not been held to be the ostensible owners:

(1) A trustee in a trust;

(2) Karta in a joint family;

(3) A guardian of a minor, a proposed agent or manager etc.

(4) A licensee in possession of property;

(5) A menial servant in occupation of a property;

(6) A manager or trustee of an idol; and

(7) A donor, who has not reserved to himself any power of revocation of the deed of gift.

 Transfer by Benamidar-

- A benamidar is an ostensible owner and if a person purchases from a benamidar, the real owner cannot recover unless he shows that the purchaser had actual or constructive notice of the real title.

-A benami transaction is that where a person with funds supplied by himself, buys property in the name of another; there is a resulting trust in favor of the person who has supplied funds, the beneficial interest being in him, though the ostensible ownership is in the latter. Thus, the person who supplies funds for purchase of property is the real owner and the person in whose name property is acquired is a benamidar or an ostensible owner, e.g. if A purchases a house with his money in the name of his wife or his child, A will be the real owner and wife or child, as the case may be, will be a benamidar.

-A transfer by a benamidar is covered by this section and the transferee will be protected provided he takes property in good faith after taking reasonable care to ascertain that the transferor had power to make the transfer. A benamidar is an ostensible owner within the meaning of this section.

Benami Transfers and Rights of Real Owner-

In 1988 Benami Transaction (Prohibition) of the Right to Recover Property Act, 1988 (45 of 1988) was passed by the Parliament which replaces Ordinance No.2 of 1988. The Act has taken away the protection given by Section 41, Transfer of Property Act to the real owners.

Salient features of the Act-

1. The Act has only four sections. It came into force on 19-5-1988 but the Act has retrospective operation and applies even to those cases where appeal is pending. The High Court should take note of the legislative change and decide the appeal according to law as it is at the time appeal is heard irrespective of what it was when trial Court heard and decided it.

2. The Act debars the real owner from claiming back the property on the basis of real title. It also disallows any defence to real owner on the basis of real title against the benamidar.

3. The Act provides two exceptions in which real owner can still claim the property on the basis of secret title—

(i) Where the person in whose name property is held is a coparcener in a Hindu undivided family and the property is held for the benefit of the coparceners in the family;

(ii) Where the person in whose name the property is held is a trustee or other person standing in a fiduciary capacity and the property is held for the benefit of another person for whom he is trustee or towards whom he stands in such capacity.

4. Nothing in the Act shall affect provision of Section 53 of Transfer of Property Act or any law relating to transfer for illegal purposes.

5. The Act repeals (a) Section 82 of Trust Act; (b) Section 66 of Civil Procedure Code; and (c) 281-A of Income Tax Act.

 

-The principle of Section 41 of Transfer of Property Act is not restricted to conveyances and applies also to mortgages. A mortgagee from an ostensible owner acting in good faith and with reasonable care has frequently been allowed the benefit of the section.

- In Jogendra's case there was a difference of opinion as to whether an ostensible mortgagee could be treated as an ostensible owner. It is submitted that he is the ostensible owner of the mortgagor's interest. If a purchaser for consideration of that interest, who had acted in good faith and with reasonable care, sought to enforce the mortgage, it seems clear that the mortgagor, who created that interest, would be estopped.

Applicability to minors-

The section does not apply to minors. A guardian of a minor, who transfers his property, can be treated as an ostensible owner with consent of the minor.

Transfer by person having authority to revoke former transfer-

 Where a person transfers any immovable property, reserving power to revoke the transfer, and subsequently transfers the property for consideration to another transferee, such transfer operates in favor of such transferee (subject to any condition attached to the exercise of the power) as a revocation of the former transfer to the extent of the power.

Illustration: A lets a house to B, and reserves power to revoke the lease if, in the opinion of a specified surveyor, B should make use of it detrimental to its value. Afterwards A, thinking that such use has been made, lets the house to C. This operates as a revocation of B's lease subject to the opinion of the surveyor as to B's use of the house having been detrimental to its value.