SECTION 41 –TRANSFER BY OSTENSIBLE OWNER
Where a person purchases property in the name of another it is called benami transaction. The person in whose name property is purchased is called benamidar. Benamidar is an ostensible owner. Where with a consent, express or implied of the persons interested in immovable property a person is the ostensible owner of such property and transfer 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 the power to make the transfer has acted in good faith.
Section 41 lays down the rule that the real owner cannot avoid the transfer on the ground that it has been made without authority.
Law relating to transfer by ostensible owner is subject to the provision of Benami Transaction (Prohibition of the Rights to recover Property) Act,1988.
Foundation of the section is well known passage from judgment of Judicial Committee in Ramcoomar v Mc-queen. This section is statutory application of law of estopple.
Requirements of the Section
The transferor is the ostensible owner i.e. he had been permitted by the real owner to pose as owner. He is so by the consent express or implied of real owner. The transfer has been made for consideration. The transferee has acted in good faith taking reasonable care to ascertain that transferor had the power to transfer.
Who is Ostensible Owner?
- Jayadayal Poddar v Bibi Hazara AIR 1974 SC171
- Source of the purchase – money i.e. who paid the price?
- Nature of possession after the purchase i.e. who had the possession?
- Motive for Benami transaction i.e. why the property was purchased in the name of the other person?
- Relationship between the parties i.e. whether the real owner and the ostensible owner were related to each other or were strangers or friends?
- Conduct of the parties in dealing with the property i.e. who used to take care of and control over the property?
- Custody of the title deeds.
PROHIBITION OF BENAMI TRANSACTIONS
- Section 2(a) benami transaction means any transaction in which property is transferred to one person for a consideration paid or provided by another person.
Section 3. 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 or 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.
- Prohibition of the right to recover property held benami-
- 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.
Section 4(3) Nothing in this section shall apply,–
(a) where the person in whose name the 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; or
(b) 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 a trustee or towards whom he stands in such capacity.
Sec 2(8) “benami property” means any property which is the subject matter of a benami transaction and also includes the proceeds from such property
- A benami transaction as defined under Section 2(9) of the Act is a transaction in which:
- the property is held by one person and paid for by another
- it is held in a fictitious name or
- the owner of such property is unaware of or denies having knowledge of such ownership or
- the person financing such transaction is not traceable.
Exceptions to benami transactions under Section 2(9).
These exceptions include property held by:-
- A karta for his or his family member’s benefit
- a person standing in fiduciary capacity for the benefit of another, including a trustee an executor, a partner, a company director or a depository participant or agent or
- a person for the benefit of his spouse or child or
- a brother or sister or lineal ascendant or descendent.
- Provided the consideration paid for such transactions comes from known and traceable resources.
- Also the Central Government may, by notification, exempt any property relating to charitable or religious trusts from the operation of this Act.
- A Benami transaction applies to properties (assets) whether movable or immovable, tangible or intangible, corporeal or incorporeal.
- A Benamidar is a person or a fictitious person as the case may be in whose name the benamiproperty is transferred or held and includes a person who lends his name.