Nemo Dat Quod Non Habet: Analysing Transfer of Property by Ostensible Owners

Abstract

The word ‘ostensible’ refers to something that appears to be true on the face of it but it may not be true. In property law, an ostensible owner is the person who appears to be the actual owner of a property but only exercises apparent authority over such property. This doctrine is enshrined in the maxim “Nemo Dat Quad Non Habet” and also under Section 41 of the Transfer of Property Act, 1882, which allows an ostensible owner to transfer property rights with the consent of the actual owner. The ostensible owner possesses all interests in the property similar to that of an actual owner, such as possession, title documents, and the right to transfer the property for consideration. However, the actual owner retains ownership and provides the ostensible owner with the apparent authority over the property. An ostensible owner can be identified when someone holds the rights of ownership and is in possession of property without intending to be the actual owner. An ostensible owner can be differentiated from an actual owner based on the test that revolves around the person who provided the purchase money and the person who benefits from the property. The concept excludes fiduciaries like agents or guardians, wherein, for instance legal guardians cannot give consent on behalf of minors. Section 41 of the act states that an ostensible owner can transfer property with the consent of the actual owner subject to the condition that the transfer was done in good faith. The aforementioned section serves as an exception to the general rule that a person cannot transfer more than his actual interest in the property. The doctrine prevents the real owner from challenging the validity of the property transfer if they have led others to believe that the ostensible owner had the right to transfer the property. It is done to safeguard the interests of the ostensible owner. This includes scenarios where the real owner has given consent, either expressed or implied to the ostensible owner and the transfer is done in exchange for some consideration and not as a gift. For a transfer to be bona fide, the consent of the actual owner is important. The ostensible owner’s possession must be justified by the real owner’s consent. The transfer should be based on fraud on misrepresentation and in such cases, the defence of bona fide transfer shall not be permitted. Negligence by the real owner can also amount to implied consent. The transferee must exercise due diligence and take reasonable care to verify the ostensible owner’s authority to transfer the property while not solely relying on legal titles. The onus is on the transferee to prove that the transferor was the ostensible owner with all the interests of that of an owner and that the transfer was done in good faith. The Benami Transactions (Prohibition) Amendment Act, 2016, restricts transfers by ostensible owners, making such transactions illegal except under specified conditions such as, properties held in the name of Hindu Undivided Families, properties purchased in the name of spouses or children, and properties held in a fiduciary relationship. The concept of ostensible ownership is validated through principles of equity and natural justice, particularly the doctrine of estoppel. Section 41 allows ostensible owners to transfer property to bona fide purchasers, despite not being the true owners, provided specific conditions are met. However, the scope of Section 41 is limited by the Benami Transactions Amendment Act, 2016, which aims to curb fraudulent property transfers. The research article is going to carefully analyse transfer of property by ostensible owners and limitations to such transfers.

Introduction

The concept of ostensible ownership serves as an exception to the rule laid down in the maxim “nemo dat quod non habet” which means no person can give what he does not have. If an actual owner of a property transfers such property to a person who appears to be the owner (ostensible owner), and another person buys such property from the ostensible owner in good faith, the buyer shall be able to claim the property even if the actual owner demands it back later.

Section 41 of the Transfer of Property Act, 1882 (hereinafter referred to as “TPA”) states, “Where, with the consent, express or implied, of the persons interested in immoveable 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 authorised 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.”

Essentials of the section:

1. Person transferring the property must be an ostensible owner of such property.

2. There must be consent, either expressed or implied of the real owner for such transfer by the ostensible owner.

3. The ostensible owner must be compensated for the transfer effected by him

4. The person receiving such property has the duty to take reasonable care to ascertain that the ostensible owner is authorised to make such transfer and in good faith.

The section prevents the real owner of a property from making any representation which makes other persons to believe that only one individual has all the interest in the property including the capacity to alienate when it is not the case. Any transfer by an ostensible owner is valid only when the transfer is effected while meeting the essentials laid down in the section 41 of the TPA. In Niras Purbe and Ors. vs. Tetri Pasin and Ors.[1], a property was owned by a husband and before going on pilgrimage mutated the revenue records in his wife’s name. Later, the wife sold the land to another person who conducted the due diligence before making the purchase and also redeemed a mortgage on that land by paying off the debts. After returning from the pilgrimage, the husband filed a suit to claim land which failed due to his conduct of making his wife the ostensible owner.

Consent of the Real Owner

In cases where the substantial question of law is whether the purchaser was a bona fide purchaser or not, it must be proved that there was the real owner’s consent to the ostensible owner for the alienation of the property. Consent of the real owner is the only thing that gives validity to any alienation by the ostensible owner. So, such consent must be free and valid consent i.e., it must not be obtained by fraud, misrepresentation, coercion and etc. The rights of an ostensible owner derive its validity from the consent of the actual owner and he must be capable of giving consent for the alienation voluntarily[2]. The consent arising out of the mistake of fact can be a valid ground for a suit but any a suit for a mistake of law cannot be maintained. The transfer in itself doesn’t require the consent of the actual owner but it must be established by the transferor that he was acting as an ostensible owner at the time of the transfer[3]. Section 41 of the TPA is not applicable in cases wherein there was no consent (expressed or implied) by the actual owner and such owner is also challenging the occupation of the property by the purchaser.

Implied Consent

According to section 41 of the TPA, it is not necessary that the consent of the real owner shall be expressed or in written. There is no mandate as such and the actual or real owner of the property may also give implied consent under section 41. It is evident that the ostensible owner has to possess and act upon the property as the real owner by the consent of the such real owner. If the real owner is well of aware of the actions of the ostensible owner in regard to the property, then the consent of the real owner is deemed to be implied consent whereas, any negligence on behalf of the real owner will also be deemed as an implied consent[4]. Therefore, the actual owner’s implied consent is only termed as free and valid when such actual owner is well aware of all the actions and representations made by the ostensible owner with regards to the property.

Furthermore, it shall be noted that the consent does not include the intention to deceive i.e., an ostensible owner while transferring the property to the transferee shall not have the intention to deceive either the actual owner or the beneficiary who is receiving the property. The object of the section 41 is to protect the transferee from any loss that might occur to him after he has done proper enquiry regarding the property and the purchase was a bona fide purchase on his behalf.

Reasonable Care by Transferee

The rule laid down under section 41 imposes a duty on the transferee to exercise reasonable care while entering into any such transaction involving transfer of property. The degree of care shall be that of a man with ordinary prudence and must exercise proper due diligence before entering into any such transaction. The duty imposed on the transferee is in regards to the title of the ostensible owner on the property and his capacity to alienate such property. Here, the transferee cannot escape his duty by merely stating that his agent was acting on his behalf[5] or the transferee relied upon the land revenue documents[6]. The transferee in order to evade the duty imposed on him and protect himself from any consequences arising out of the doctrine of constructive notice can show that the inquiry was initiated by producing sale certificate or the presence of other rightful owners in case of joint Hindu family property.

The duty imposed on the transferee extends to the extent that when after the inquiry it cannot be ascertained based on the findings of the inquiry that the transferor is not the real owner of the property then there is no further duty to inquire about the whereabouts of the property. In cases where transferee has not fulfilled his duty as aforementioned, he shall not be protected under the section 41 of the TPA. He must prove that he acted in good faith and made proper inquiry in relation to the property and tried to ascertain the actual owner of the property. Furthermore, the interests of an actual owner in a property are always more compared to the interests of an ostensible owner in the same property. Hence, in cases where the transfer by the actual owner was done before a transfer that was effected by the ostensible owner to the transferee, in such case the prior transfer shall be valid and it shall not attract the provision of section 41 of the TPA[7].

Transfer Not Voidable

The section 41 of the TPA renders the transfer as not voidable based on the premise that the transferor had no authority to make the transfer when the transferee made proper inquires and acted in good faith. The term not voidable in this context does not mean that the entire transaction is not voidable and only takes away the right of the actual owner to make claims over the property on the premise of transferor’s incapacity to transfer. They can be rendered as voidable on various other grounds but it cannot be done by the virtue of section 41 of the TPA.

Burden of Proof

Under the section 41 of the TPA, the onus lies on the transferor to prove that he is an ostensible owner and possesses all the interests of that of an owner. Talking about the transferee, he is also bound to prove that the purchase was a bona fide purchase and he took reasonable care as required under section 41 of the TPA. In the case when, the transferee has exercise reasonable care on his behalf and has conducted proper enquiry which results in discovery of some material fact which may be not suggest bona fide transfer if effected then the onus shifts onto the transferor[8]. The actual owner’s interest in the property must be protect at all costs unless such owner has through his act or omission made the purchaser of the property believe that the ostensible owner is the actual owner of the property.

Benami Transactions and Ostensible Ownership

The Benami Transaction (Prohibition) Amendment Act, 2016, prohibits the transfer of property by an ostensible owner under certain exceptions, which are –

• Property held by Karta or any other member of the HUF that is being used for the benefit of the HUF is transferred to an individual known to such HUF; such transfer will not amount to a Benami transaction under the Act;

• Any property purchased by a person in the name of his wife or children will not be a Benami transaction under the act;

• Any property held by a trustee for the benefit of another person will not amount to Benami transaction under the act;

• Any property jointly held by the descendants and the consideration for such property is being paid by a person known to such descendants, will not amount to Benami transaction under the act.

In Sri Thakur Krishna Chandramajiu vs. Kanhayalal and Ors.[9], the court held that any property owned in the name of the name of a benami owner is liable to be acquired by the state without paying any consideration on its behalf.

Conclusion

Section 41 of the TPA facilitates the transfer of property by an ostensible owner and not the actual owner by meeting certain conditions. The law of estoppel is necessary in this scenario as it stops the real owner from further making any claims after the transfer has taken place. It is there to protect bona fide purchasers who took reasonable care and made proper inquiries in this regard. Furthermore, the Benami Transactions (Prohibition) Act, 1988 complements this provision by restricting the transfer of such properties of which actual ownership cannot be determined.

In order to promote transparency and prevent abuse of the legal provisions, it is essential to address the loopholes of benami transactions and ostensible ownership. These loopholes can be exploited to hide credentials of the actual owner and evade obligations set by law.

[1] AIR 1917 CALCUTTA 655

[2] Amalabala Dasi vs. Sarat Kumar Dasi, AIR 1932 CAL 380

[3] Fazal Husain vs. Muhammad Kazim, AIR 1934 ALL 193

[4] K.V Galliara vs. U. Thet, AIR 1929 Rangoon 117

[5] Purnendu Nath Tagore vs. Hanut Mull Dogar and Ors., AIR 1940 CAL 565

[6] Partap Chand vs. Saiyida Bibi, 23 A. 442: A.W.N. (1901) 137

[7] Mathura Kalwar vs. Ambika Dal and Ors., AIR 1914 ALLAHABAD 313(2)

[8] Dhuruba vs. Puma, AIR 1973 Ori 192

[9] AIR 1961 ALL 206