NATIONAL LAW UNIVERSITY JODHPUR

SUBJECT: TRANSFER OF PROPERTY ACT

TOPIC: OSTENSIBLE OWNERSHIP AND BENAMI TRANSACTION

(PROHOBITION) ACT

SUBMITTED BY:
DISHA KARAMCHANDANI (1777)
AND
DEEPIKA DHAWANIYA (1772)
SUBMITTED TO:
MR. ANIRUDDH PANICKER

WINTER SEMESTER – III

JANUARY-MAY 2021

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 TABLE OF CONTENTS

ABSTRACT......................................................................................................................... 4

INTRODUCTION ............................................................................................................... 5

TRANSFER UNDER § 41 AND BENAMI TRANSACTIONS ......................................... 6

PROHIBITING THE BENAMI TRANSACTIONS: ACT AND SHORTCOMINGS ..... 7

THE AMENDMENT ACT OF 2016 .................................................................................. 8

CONCLUSION ................................................................................................................. 10

BIBLIOGRAPHY ............................................................................................................. 11

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 ABSTRACT
This project deals with § 41 of the Transfer of property Act, 1882 which discusses the law of
Ostensible ownership and benami transactions as it previously stood. The author tries to draw
a nexus between § 41 i.e. Ostensible ownership and benami transaction and creates a
distinction between benami and sham transactions. Further, this project discusses The Benami
Transactions (Prohibition) Act, which was enacted after recommendations made by the 57th
Law Commission of India in order to restrict and regulate Benami transactions in India. It is
highlighted how the law fall short of fulfilling the purpose for which it was enacted due to
lack of some necessary provisions. These shortcomings were also highlighted in the 130th
Report of Law Commission of India and a need of full-proof and extensive legislation was
proposed. This project further evaluates the amendments introduced in the law in 2016 which
provides a mechanism to deal with the benami transactions by establishing proper authority
to adjudicate, attach and confiscate property which is found to be benami. The author has
highlighted and concluded the paper by making a point as to how political desire to enact and
executive will to implement the legislation is required in order to attain desirable goals.

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 INTRODUCTION
The term Ostensible owner has been provided in § 41 of the Transfer of Property Act which
states:

“Where, a person who is ostensible owner, with the consent of persons interested in
immovable property, transfers such property for some consideration, such transfer shall
not be voidable for the fact that transferor was not authorised to do so”. 1

As per the meaning of this section an ostensible owner is a person who despite not being the
real owner, has the necessary indicia of ownership.2The pre-requisite for the operation of this
section is that the transferee acted in good faith and took reasonable care to ascertain the
transferor’s power to make the transfer.This section draws its inspiration from the doctrine of
estoppel and natural equity. It was observed in Ramcoomar v. Mac-queen that, any third
person who has gained title of property in good faith must be protected and the onus is on the
real owner to prevent such transfer. 3 Due to natural equity, this section stands in contradiction
to the rule of Nemo dat quod non habet which essentially means that ‘a person cannot transfer
a better title than he himself has’. 4

Under Benami transactions, a benamidar, who does not pay consideration but merely allows
his name to be used is an ostensible owner.5Such transactions are undertaken, generally, to
avoid taxes, dodge creditors and escape different kinds of social risks. 6 It was in 1988, when
the Parliament, after realising the need to curb such unethical practices, enacted the Benami
Transactions (Prohibition) Act which invalidated all suits which were in respect of a benami
property. 7 The intention was that real title would remain with the person under whose identity
the transfer was made and hence people will avoid getting into benami transactions.
However, there remained certain loopholes in the legislation which were being used to bypass
the provisions of law and hence in 2016 the law was amended to rectify them and contain the
drawbacks to make it full proof.

1
The Transfer of Property Act, 1882, § 41.
2
Kannashi Vershi v. Ratanshi Nenshi AIR 1952 Kutch 85.
3
Ramcoomar v. Mac-queen (1872) 11 Beng LR 46; Seshumull M Shah v. Sayed Abdul Rashid & Ors, 1990
SCC Online Kar 392.
4
Seshumull M Shah v. Sayed Abdul Rashid & Ors, 1990 SCC Online Kar 392.
5
S.V. JOGA RAO, BENAMI TRANSACTIONS LAW 2 (1st ed., 2004).
6
Law Commission of India, Benami Transactions, Report No. 57 (August 1973).
7
The Benami Transactions (Prohibition) Act, 1988.

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This project is an attempt to understand the position of ostensible ownership after the
enactment and amendment in legislation and further critically analyse other relevant
provisions.

TRANSFER UNDER § 41 AND BENAMI TRANSACTIONS

The prerequisite for valid application of § 41 is that the transfer should have been made by an
ostensible owner.8Ostensible ownership of property is when despite not having real
ownership, the transferor has the ‘necessary indicia of ownership’ and this is apparent
through words or conduct.9 Further, application of § 41 requires following other conditions to
be fulfilled10-

a. Ostensible ownership should be assumed with express or implied consent of true

owner.
b. The transfer must have been made in lieu of some consideration.
c. The transferee must have acted in good faith and should have taken reasonable care to
ensure that the transferor has the authority to make such transfer.

A benamidar, who does not pay consideration for the property is an ostensible owner. Under
benami transactions, the interest in such property vests with the person who pays the
consideration while the benamidar, under whose name property is transferred, does not get
any right or title over the property. 11 Time and again courts in India have reiterated the
principles to determine benami transactions. They are12

i. The onus to proof a transaction as benami is on the person making such claim.
ii. Unless contrary is proven, the transfer is assumed in favour of person who paid
the consideration.
iii. Intention of person paying the consideration is a relevant enquiry while
determining the nature of transaction.

8
Supra, note 1; Ballu Mal v. Ram Kishan, AIR 1923 All 583; B. Sitaram Rao and Ors v. Bibhisano Pradhan,
MANU/OR/0063/1978.
9
BLACK’s LAW DICTIONARY (6thedn, 1994).
10
Gholam Siddique v. Jogendra Nath, AIR 1926 Cal 916;B Sitaram Rao v. Bibhushana, AIR 1978 Ori 222;
Delhi Development Authority v. Joginder Kaur & Ors, MANU/ DE/1708/2009.
11
DF MULLA, The Transfer of Property Act, 1882 (10th ed. 2006).
12
Thakur Bhim Singh v. Thakur Kan Singh, AIR 1980 SC 727; P. Leelavathi (D) by L.Rs. v. V.
Shankarnarayana Rao (D) by L.Rs., MANU/SC/0497/2019.

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It is important here to distinguish between a benami and sham transaction as the two may
appear similar but vary in essence. Hon’ble Supreme Court in Meenakshi Mills Case has
clarified that under a benami transaction the transfer is actual and the transferee is vested with
real title, though the person in whose name it is transferred does not hold a right and interest
whereas under a sham transaction the property remains with the transferor despite execution
of deed of transfer.13

PROHIBITING THE BENAMI TRANSACTIONS: ACT AND

SHORTCOMINGS
In 1973, after considering all the aspects surrounding benami transactions, the Law
Commission in its 57th report recommended the need to regulate and moreover restrict
benami transactions in India. The commission in its recommendation noted the urgency to i)
make entering into benami transactions offence; ii)freeze out the claims made for
enforcement of rights against benamidar; iii)displace the then, presumption of resulting trust
from the doctrine of advancement. 14However, the commission also recommended that an
exception should be created for any acquisition made by the manager of a joint Hindu family,
if it is made in the name of coparceners or similar cases.

Considering the recommendations, the parliament in 1988 enacted the Benami Transactions
(Prohibition) Act which prohibited the benami transactions by making it punishable
offence.15 The act under § 2 stated that “any transaction in which property is transferred to
one person in lieu of consideration paid by another”is benami transaction. 16However the act
did not cover under its ambit, transactions made under the name of unmarried daughter or
wife as it was supposed to be made for their benefit.17 Further, as per the recommendation of
Law Commission, transaction made for the benefit of coparceners of Hindu undivided family
was also exempted.18

Unfortunately, the legislation could not effectively fulfil the desired legislative intent due to
certain inherent lacunas. The provisions of the act were grossly insufficient due to reasons
such as-

13
Meenakshi Mills, Madurai v. The Commissioner of Income Tax, Madras, AIR 1957 SC 49.
14
Law Commission of India, Benami Transactions, Report No. 57 (August 1973).
15
The Benami Transactions (Prohibition) Act, 1988, §3.
16
The Benami Transactions (Prohibition) Act, 1988, §2.
17
Ammaponnammal v. Shanmugam Pillai, AIR 1971 Mad 370.
18
The Benami Transactions (Prohibition) Act, 1988, § 4(3)a.

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 i. No provisions were made to grant the property identified as benami to the central
government.
ii. No appellate mechanism was provided for the aggrieved party to contest the
decision made by authorities.
iii. The authorities were not conferred the required powers similar powers to that of
civil courts in order to ensure proper enforcement of legislation.

Apart from the above mentioned reasons, even the Law Commission in its 130th report
highlighted that the existing legislation provided a very limited scope to curb benami
transactions by refusing the assistance of judicial system in recovery of benami property. 19 It
was stated in the report that, the current legislation is merely ‘paper tiger’ and ineffective in
every manner as generally, the real and ostensible owners are in close and friendly relations
and in such cases judicial assistance is not even sought.20 Also the current legislation ignored
the fact that both real owner and benamidar have same fraudulent intent to enter into an
activity which is tainted with criminality. 21 The legislation provides an undeserved and unjust
advantage to one of two parties’ i.e the benamidar. In light of above mentioned reasons the
need to have a more stringent legislation was felt and actually done.

THE AMENDMENT ACT OF 2016

It was reiterated time and again by the Law Commission that restraint must be put on
concentration of wealth as power of wealth, if not curbed, is likely to corrupt the power of
office.22 Benami properties represent a mode of wealth it is in the interest of society and
nation to curb and punish benami transactions.The commission recommended that it is in
larger interest that instead of granting unjust benefit to the benamidar, he should be called
upon, inquired about the funds used for acquiring the property and if he doesn’t present his
case satisfactorily, the property can be confiscated and the benamidar need not be given
something for which he didn’t pay at all.23

The ineffectiveness of the 1988 legislation was realised and finally in 2016 a compendious
legislation in form of amendment, The Benami Transactions (Prohibition) Amendment Act,
2016was enacted. Under §53 of the act, strict provision for rigorous imprisonment upto 7

19
Law Commission of India, On Benami Transactions: A Continuum, Report No. 130, (August 1988).
20
Id, at ⁋ 5.2.
21
Id, at ⁋ 5.5.
22
Id, at ⁋ 5.9.
23
Id, at ⁋ 5.7.

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years is provided for those who indulge in benami transactions. 24 Primarily the amendment
provided for authorities to discover, inspect, adjudicate, and seize the benami properties
namely- The initiating officer, the approving authority, The Administrator and The
adjudicating authority.25The aforementioned authorities have been provided wide powers,
ranging from asking for relevant documents to issuing notice, attaching and confiscating
property e.tc. Further, the amendment also granted the same power to the deciding authorities
as to the civil courts under Code of Civil Procedure. The amendment also created a
competent appellate authority to hear the grievance of an aggrieved person from the order of
the deciding authority.26

24
The Benami Transactions (Prohibition) Amendment Act, 2016, § 53.
25
Id., at § 18(1).
26
Id., at § 30.

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 CONCLUSION
It is very imperative that benami transactions must be accounted and prohibited in order to
ensure economic prosperity and eradication of poverty as well as income inequality. The
2016 amendment depicts the intention of government to curb benami transactions at any cost.
In this regard it has been provided in the legislation that regardless of the intention of transfer
the provisions of benami transactions would apply as such transactions with honest intention
are very rare. However, it is important here to note that the Hon’ble Supreme Court in its
landmark judgement Jaydayal Poddar (Deceased). & Anr v. Bibi Hazra & Ors (reiterated in
multiple other judgements)has observed that a watertight formula cannot be laid down in this
context and factual enquiry of circumstances in every case, to determine benami transaction,
is of utmost importance.27 Therefore due care needs to be given on this aspect of the
legislation. Concerns have also been raised against the exemption granted to Hindu undivided
family as the same can be misused to defeat the purpose of law.

This being said it is important here to acknowledge that the amendment act is a promising
step towards ensuring the removal of this evil. The law with its provisions and penalty causes
deterrent for people to enter into benami transaction and on the other hand the scheme of
exemption for those who declare their benami assets provides scope of rectifying the error as
well. It is important to ensure that the amended law does not suffer from lack of
implementation with fairness and impartiality. It is only with strong implementation that the
long sought goal of achieving economic prosperity can be achieved.

Other limitations of the legislation will also come to light once implementation begins.
However, faith can be vested in judiciary that with subsequent developments loopholes will
be covered and the actual legislative intent behind the legislation will be realised.

27
Jaydayal Poddar (Deceased). & Anr v. Bibi Hazra & Ors, MANU/SC/0332/1973; Mangathai Ammal (D)
through L.Rs. & Ors v. Rajeshwari & Ors, MANU/SC/0772/2019.

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 BIBLIOGRAPHY
Cases:

1. Kannashi Vershi v. Ratanshi Nenshi, AIR 1952 Kutch 85.

2. Ramcoomar v. Mac-queen, (1872) 11 Beng LR 46

3. Seshumull M Shah v. Sayed Abdul Rashid & Ors, 1990 SCC Online Kar 392.
4. Ballu Mal v. Ram Kishan, AIR 1923 All 583
5. B. Sitaram Rao and Ors v. Bibhisano Pradhan, MANU/OR/0063/1978.
6. Gholam Siddique v. Jogendra Nath, AIR 1926 Cal 916.
7. Delhi Development Authority v. Joginder Kaur & Ors, MANU/ DE/1708/2009.
8. Thakur Bhim Singh v. Thakur Kan Singh, AIR 1980 SC 727.
9. P. Leelavathi (D) by L.Rs. v. V. Shankarnarayana Rao (D) by L.Rs.
MANU/SC/0497/2019.
10. Meenakshi Mills, Madurai v. The Commissioner of Income Tax, Madras, AIR 1957
SC 49.
11. Ammaponnammal v. Shanmugam Pillai, AIR 1971 Mad 370.
12. Jaydayal Poddar (Deceased). & Anr v. Bibi Hazra & Ors, MANU/SC/0332/1973.
13. Mangathai Ammal (D) through L.Rs. & Ors v. Rajeshwari & Ors,
MANU/SC/0772/2019.

Statutes:
1. The Transfer of Property Act, 1882.
2. The Benami Transactions (Prohibition) Act, 1988.
3. The Benami Transactions (Prohibition) Amendment Act, 2016.

Books:
1. S.V. Joga Rao, Benami Transactions law 2 (1st ed., 2004).
2. DF MULLA, The Transfer of Property Act, 1882 (10th ed. 2006).

Reports:
1. Law Commission of India, Benami Transactions, Report No. 57 (August 1973).
2. Law Commission of India, On Benami Transactions: A Continuum, Report No. 130,
(August 1988).

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