ostensible transaction

8/17/2019 ostensible transaction

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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 day‘s 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 research-

1. To study the concept of Ostensible owner Vis a Vis Benami Transaction

2. To critically analyse the benami Transaction Act

3.

To make recommendations


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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 H azra 5 ., 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.

5 AIR (1974) S.C.171


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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.

6 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

http://www.saarclaw.com/http://www.saarclaw.com/http://www.saarclaw.com/http://www.saarclaw.com/


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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.

8 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


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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 benamitransaction.

3) There is need to provide a mechanism and procedure for confiscation of property heldbenami-

Mechanism:-

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 level3. 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


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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.


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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

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