Report No. 70

Chapter 37

Transfer by Ostensible Owner

Section 41

37.1. Introduction.-

To the general rule that only a person "competent to transfer" and "entitled" to transfer property can transfer property, the Act creates another exception in section 41. A transfer by a person who is not the real owner but only an ostensible owner of immovable property would, under the strict general rule of law, be ineffective. But, where the person concerned is an ostensible owner with the consent of the real owner, and the transfer is for consideration, a conflict of interests arises between the real owner and the transferee for consideration.

Now, if the transferee for consideration further proves good faith and reasonable enquiry, the conflict becomes more acute. Strict law would support the real owner, while equity would operate in favour of the transferee. In the above circumstances, there are ethical considerations in his favour which override the purely legal considerations that could be urged in favour of the real owner. It is axiomatic that the business of the law is to provide for the resolution of conflicts.

Section 41 reflects the decision of the law to adopt one particular approach for resolving the conflict. Where, of two persons, one must suffer, he who is less innocent must suffer, because the equities are against him though strict law is in his favour. On this principle, section 41 favours the bona fide transferee for value without notice-not in every case but where the transferor is the ostensible owner with the consent of the true owner.

37.2. Section 41.- To quote the section-

"41. Where, with the consent, express or implied, of the persons 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 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."

37.3. English law.-

This section harmonizes with the English Law, which similarly lays down that, if a person having a right to an estate, permits or encourages a purchaser to buy it of another, the purchaser shall hold it against the person who has the right, although covert or under age1. Even at law, as regards chattels, if a party negligently or culpably stands by, and allows another to contract in the understanding of a fact which he can contradict, he cannot afterwards dispute that fact in an action against the person whom he has himself assisted in deceiving.

1. Morgan, Pilgrem (in re:) v. Pilgrem, 18 Ch D 93; Carrit v. Real and Personal Advance Co., 42 Ch D 263.

37.4. Estoppel.-

This rule is hardly discussed in this form in modern English text books on the law of real property. It is regarded as belonging properly to the domain of estoppel. It is also true that with the increasing use of registration of land titles, occasions for using this doctrine are not so frequent in modern times as before.

In India, also, such occasions would have been rare, since the person who purchases or becomes a mortgagee of land would be expected to investigate the title of his immediate transferor, and it is, in most cases, necessary that the title to the land must ultimately find its source in an instrument registered and compulsorily registrable, thereby fixing the ultimate purchaser with notice. But a peculiar feature of Indian society-the practice of holding land benami-leads to the position that even the registered owner is not the real owner.

So a person investigating title even on the basis of registered documents still remains unaware of the title of the real owner. If, in such circumstances, he can satisfy also the other conditions laid down in section 41, the section could come into play. We do not, of course, imply that benami ownership is the only case of ostensible ownership.

37.5. Transfer need not be with consent.-

There seems to be some misconception on the question whether the transfer must be with the consent of the real owner in order that the section may apply. While it is necessary that the ostensible ownership must have been permitted or created by the real owner, it is not necessary that he must have consented to the actual transfer which is now sought to be validated under the section. Thus, the view that the words "with the consent, express or implied" govern the wordz1 "transfer" seems to be erroneous, and is opposed to the current of authority.2-3

1. Shafiatillah v. Samnalah, AIR 1929 All 923.

2. Fazal Hussein v. Mohd. Kasim, AIR 1934 All 193.

3. Fakhruddin Sahib v. Ram Sethi, AIR 1944 Mad 299.

37.6. Recommendation to amend section 41.-

To express the position with greater clarity in this regard and to avoid misunderstanding, we recommend that the opening words of the section should be revised so as to read-

"Where, a person is the ostensible owner of immovable property with the consent, express or implied, of the persons interested in such property and transfers the same for consideration

The object is to separate the phrase "consent express or implied" from the word "transfers".

37.7. Subsequent transfers.-

It stands to reason that the operation of the section should not be limited to the immediate purchaser from the ostensible owner, but should extend to subsequent purchaser also, subject to certain conditions. Here, however, a question of detail arises. Is it necessary that the subsequent transferee must satisfy the other requirements prescribed in the section-such as, consideration, reasonable care and good faith? Or, is it enough if the immediate purchaser had satisfied these requirements? Or, is it necessary that both the immediate purchaser and the subsequent transferee must satisfy these requirements?

Yet another alternative would be to take the view that either the immediate purchaser or the ultimate purchaser satisfies the requirements. The last mentioned view seems to be the view judicially taken.1-3 There is much to be said in favour of each of these views. In support of proposition that it is necessary and sufficient that the immediate purchaser satisfies the requirements laid down in the section, we can state that it is only if he gets a title not challengeable by virtue of the section that he in his turn can pass on a good title.

On the other hand, in support of the proposition that it is enough if the ultimated owner satisfies the requirements, it can be stated that since the ultimate purchaser acted honestly and with care, he meets the desideratum of equity and therefore, he is entitled to the protection irrespective of the non-fulfilment of the statutory requirements by the first purchaser. Then, in support of the view that it is enough if either of them satisfies the requirements, it can be urged that such a view would combine the good features of the first and the second views.

1. Cholam Saddique v. Jogindernath, AIR 1926 Cal 916.

2. Pormindernath v. Dhanmal, AIR 1940 Cal 565.

3. See also Mulla, (1973), p. 206.

37.8. No Change.-

Having considered all aspects of the matter, we think that although theoretically there is much to be said for the first view, yet, having regard to the fact that courts have taken a different view, it may not be expedient to disturb the judicial construction which seems to adopt the last view. We do not, however, think that there is need for putting in the section what has been held by the courts.

37.9. Mortgages.-

It remains now to deal with the questions of applicability of the section to mortgages. There are two aspects of the matter. That the expression "transfer" in the section is not limited to an outright sale, is fairly apparent from the judicial decisions on the subject1 relating to mortgages by the ostensible owner, and needs no clarification. The other aspect of the matter is concerned with the question whether an ostensible mortgagee could be treated as an ostensible owner.

In this connection, it is to be pointed out that he is the ostensible owner of 'immovable property'-using the expression 'immovable property' as wide enough to cover an interest in such property. On this view, we agree with Mulla's view that an ostensible mortgagee is the ostensible owner of the mortgagee's interest.

This point was the subject-matter of a difference of opinion in a Calcutta case2, and has been discussed in a Madras case3. In our .view, the section applies to an interest in immovable property as much as it applies to full-ownership of the property, there being no reason for taking a different view, and we do not consider any amendment to be necessary on this point.

1. See case law cited in Mulla, (1973), p. 198.

2. Jogendra v. Soloman, AIR 1930 Cal 92.

3. Parvati Amal v. Angamutu, AIR 1942 Mad 730.