Ostensible Ownership Vis a Vis Benami Transaction in India

Yuvraj Dilip Patil

Property is one of the essential elements besides food & clothes to lead life for human being.
Besides essential need now a days people are more interested in investing in property. The
people are more interested in investing property besides gold, the reason being that it is always
profitable as you can reside in the property or can give it on lease or can sale it in higher price.
The reason is that the rates of property are increasing day by day. Many of the people purchase
the property for one price & after 6 months or 1 year sale it for higher price.
Ostensible Ownership is the concept which allows family members to purchase property in the
name of another member in the family for the future protection of the person. The concept of
ostensible owner is mentioned under sec 41 of Transfer of Property Act.
The author in this research paper has critically analyzed the concept of ostensible ownership. The
author answer the following research question i.e. - Transfer of property Act, 1882 allows to
purchase the property in the name of another person which is known as ostensible ownership
whereas the Benami Transaction Act, 1988 which is having the same meaning as of ostensible
owner under transfer of property act then why purchase of the property in the name of another is
permitted under Transfer of Property Act & is prohibited under Benami Transaction Act?
The Objective of research1. To study the concept of Ostensible owner Vis a Vis Benami Transaction
2. To critically analyse the benami Transaction Act
3. To make recommendations

Electronic copy available at: http://ssrn.com/abstract=2191951

The concept of Ostensible Owner & Benami Transaction

Ostensible literally means apparent or seeming. An Ostensible owner is a person who
apparently or seemingly appears to be the owner, though in reality he is not.1 He is person having
al indicas of ownership having being real ownership.2 He is different from a mere trespasser or a
person in unlawful occupation of the property. His behavior and conduct appears to be that of the
owner of the property with the consent or conduct of the real owner.
Transfer by ostensible owner. - 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 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.3

For instance, a woman owns the property and permits her husband to deal with it as if he is real
owner. The husbands name is entered in the revenue records for the purpose of paying the taxes,
it is he who finalizes whether and who should be inducted as a tenant in the property and the
wife does not object to it. He can be called an ostensible owner, while the real owner is the wife.
The essential of the section 41:1) Free Consent- By his conduct or consent or otherwise makes the other believe that a
particular person has all the powers over the property as that of the owner over the,
including that of alienation,
The transferor should be shown to have been the ostensible owner with the express or
implied consent of the true owner but the transfer itself need not be with the consent of
the true owner. 4
The consent includes express or implied as well. Negligence may amount to implied
consent.
2) Alienation - Such person in fact is not authorized to alienate the property. He alienates it
as an ostensible owner.
3) The transfer is for value or consideration, i.e. it is not a gift,
4) Transferee must take reasonable care- The transferee acts bona fide and has taken
reasonable care to ascertain that he is competent to transfer, i.e., the transferee does not
1

Dr. Saxena Poonam Pradhan, Property Law, (Ed-2nd 2011), P- 178

Kanashi Vershi v. Ratanshi Nenshi, AIR 1952 Kutch 85
3
Sec 41 of Transfer of Property Act, 1882
4
Ramjanam V. Beys, AIR 1958 Pat 537
2

Electronic copy available at: http://ssrn.com/abstract=2191951

have actual or constructive notice of the real facts, The transferee must show that he had
made such enquires as a reasonable prudent man would have taken to safeguard his
interests.
The burden of proving that the transferee was an ostensible owner is on the transferee
who seeks the protection of this section, and
5) Estoppel- The real owner would be prevented on disputing the validity of the transfer on
the ground that the transferor was not, in fact, competent to do so.
In Jaydayal v. Bibi Hazra5., the Supreme Court observed that whether a person is an ostensible
owner , is a subjective question to be decided on this basis of facts circumstances . The Court
observed further that following considerations must be taken into account while deciding
whether a person is ostensible owner or not:
1. Source of the purchase money i.e. who paid the price?
2. Nature of possession after the purchase i.e. who had the possession?
3. Motive for Benami transaction i.e. why the property was purchased in the name of the
other person?
4. Relationship between the parties i.e., whether the real owner and the ostensible owner
were related to each other or were strangers or friends?
5. Conduct of the parties in dealing with the property i.e., who used to take care of and
control over the property?
6. Custody of the title deeds.

The burden of proof that a transaction is benami and that the transferor is an ostensible owner
lies on the person who claims that he is the real owner.

AIR (1974) S.C.171

Benami Transaction

Benami transactions are one of the most notorious sources of circulation and investment of black
money. The Government has recently been facing a great deal of heat on the issue of black
money and corruption from the Supreme Court, the civil society, and the Opposition for not
doing enough to deal with this menace. Sadly, such transactions are rampant in the real estate
sector of our country.6
Benami transactions means any transaction in which property is transferred to one person for
a consideration paid or provided by another person. This act provides where a property is
transferred benami, the person in whose name the property is held, shall become the real owner.7
Sec 3. Of the Benami Transaction Act lays down 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 of 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.
Sec.4(1) of the Benami Transaction Act lays down that- 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.
Further Sec. 4(2) of the Benami Transaction Act provides that No defence based on any right
in respect of any property held benami whether against the person in whose name the property is
held or against any other, shall be allowed in any suit, claim or action by or on behalf of a person
claiming to be the real owner of such property.

Manila M Sarkaria, Benami Transction Bill 2011: A ray of hope? , SAARC LAW, www.saarclaw.com (visited on
14th Dec 2012)
7
According to Sec.2 (a) of Benami Transactions (Prohibition of the Right to Recover Property) Act, 1988

Critical analysis
Under Transfer of property act it is clearly mentioned that when the one person pays
consideration & purchases the property in the name of another person the later is considered as
ostensible owner & the transaction is benami transaction. Whereas, under the Benami
Transaction Act it is prohibited. Now it is question arises that why it is permitted in one &
prohibited in the other act.
There are many reasons behind purchasing the property in the name of another person. One of
the reasons may be to avoid the payment of tax, to convert black money or to hide the earnings.
To prevent that the Benami Transaction act, 1988 is enacted. But the exception under benami
transaction act clearly mentions that, Benami transaction prohibition shall not 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 of the unmarried daughter.
Under the Income tax act, there is a provision of clubbing of income 8, the result of this is that,
even though the person purchases the property in the name of family member it will be taxed &
there are no chance of hiding the income therefore, Benami transactions are permitted to certain
extent as mentioned under exception of definition of Benami Transaction.
Therefore, the Concept of Ostensible Ownership under sec 41 is subject the provisions of
Benami Transaction under sec 3 of Benami Transactions (Prohibition of the Right to Recover
Property) Act, 1988.
After study of Provisions under Benami Transaction Act, 1988, it is clear that the provisions of
the aforesaid Act are inadequate to deal with benami transactions as the Act, inter alia,
(i)

does not contain any specific provision for vesting of confiscated property with the
Central Government;

(ii)

Does not have any provision for an appellate mechanism against an action taken by
the authorities under the Act, while barring the jurisdiction of a Civil Court; (iii) does
not confer the powers of the Civil Court upon the authorities for its implementation.

Sec 64 of Income tax Act, 1995- Income of individual to include income of spouse, minor child, etc. 1 2[ 3[ (1)] In
computing the total income of any individual, there shall be included all such income as arises directly or indirectly

Recommendations
1) There is need to amend the following provisions of sec 3 of Benami Transaction act, 1988
as follows:(1) No person shall, on and after the commencement of this Act, enter into any benami
transaction.
(2) Nothing contained in sub-section (1) shall apply to a benami transaction entered into by any
person, being an individual, in the name of his
(a) Spouse;
(b) Brother or sister; or
(c) Any lineal ascendant or descendant.
2) Property held benami liable to confiscation by the Government authority after serving the
notice by the authority & satisfaction that the person possessing the property under benami
transaction.
3) There is need to provide a mechanism and procedure for confiscation of property held
benamiMechanism:The Central Government shall vest powers under this act to following revenue authorities for the
purposes of this Act:1. Talathi at Village level
2. Tahasildar at Taluka level
3. Collector at District level
Powers of the Authorities
1. These authorities shall have same powers as vested in a civil court while trying a suit in
matters such as inspection, production of documents, issuing commissions, etc.
2. If the above Authorities have reason to believe that a property is held benami, he may
issue a notice to the benamidar and call for documents and reports for inquiry
3. He shall issue a notice, after the inquiry, to provisionally attach any property, which he
has reason to believe is held benami.
4. He may impound or retain any books of accounts that it may feel is required for the
inquiry, for a period not exceeding three months from the date of attachment of the
property
5. after hearing the person whose property is attached, may make an order for the
confiscation of the property held benami

6. Any person aggrieved by an order of the Officer shall appeal to the Civil Court. Any
person aggrieved by the Civil Court in turn may appeal to the High Court.
4) Special Court
Any person who enters into benami transactions, or abets or induces another person to enter into
such transactions shall be punishable with an imprisonment for six months to two years, and
liable to a fine of up to 25 per cent of the fair market value of the property held in benami. In
addition, any person who wilfully gives false information shall be liable to an imprisonment of
three months to two years and a fine of up to 10 per cent of the market value of the property.
The Bill provides for Special Courts to try such cases.
The Central Government, in consultation with the Chief Justice of the High Court, shall for trial
(as per Cr.P.C) of an offence punishable under the Benami Transaction Act, by notification,
designate one or more Courts of Session as Special Court or Special Courts for such area or areas
or for such case or class or group of cases as may be specified in the notification.

References:1. Mulla D.F., The Transfer of Property Act, Butterworths, 9th edition, 2000
2. Saxena Poonam Pradhan, Property Law, Lexis Nexis Butterworths Wadhwa Nagpur, 2nd
Edition 2011
3. Tripathi G.P., The Transfer of Property Act, Central Law Publications, 11th edition 1999

Case Laws:1. Kanashi Vershi v. Ratanshi Nenshi, AIR 1952 Kutch 85

2. Ramjanam V. Beys, AIR 1958 Pat 537
3. Jaydayal v. Bibi Hazra, AIR (1974) S.C.171