GUJARAT NATIONAL LAW UNIVERSITY

The Implications of Benami Transactions on Transfer of Property

Act

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 TABLE OF CONTENTS

Introduction……………………………………………………………………………3
Research Hypothesis
…………………………………………………………………...4
Objective of the
study…………………………………………………………………..4
Scope and Limitations of the
Study……………………………………………………..4
Research Methodology………………………………………………………...
……… ..4
Research Questions………………………………………………………………
…….5
Significance of the
Study………………………………………………………………..5
Chapter 1 : Transfer by an Ostensible Owner…………………………………….
……..6
Essentials of Section 41………………….……………………..
………………..7
Burden of
Proof………………………………………………………………...8
Chapter 2 : What is benami
Transaction ?....................................................................................9
Benami Transactions (Prohibitions) Act
2019..............................................................9
Judicial Interpretations – The Benami Transactions (Prohibition) Act,
2016……10
Chapter 3 : Reasons behind Regulations of Benami Transactions and
Penalties……….12
Brief History of Benami Law in India…………………………………………
12
Penalties under the Revised Legislation…………………….
…………………..14
Conclusion and Recommendations……………………………………………………
16
Bibliography…………………………………………………………………………...1
8

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 Introduction

The Transfer of Property law was introduced in India to make the conveyance of immovable
property easier and accessible to the public at large. The Act of 1882 lays down general
principles to be followed in the transaction of a transfer of property. Under Section 41 1 of the
Act, the concept of transfer by an ostensible owner is recognised. The objective behind the
incorporation of this provision is to protect the legitimate rights of third party vis-à-vis the
real owners of the property. The present study involves the analysis of benami transactions in
perspective of Transfer of Property Act. The objective herein is to bring out the provisions
such as Section 41 of the Act which provides legitimacy to the transfer by an ostensible
owner. The analysis would deal with question such as the objective behind adding this
provision and to prevent its misuse therein. The analysis also discusses the reasons as to the
increase in people entering benami transactions and the problems arising due to the intention
of parties to hide the true ownership of the benami property from their creditors. As this
aspect of Property law affects even the common people as the major impact comes on the real
estate sector wherein there is a need to have an increased clarity with respect to the title of the
property which brings this study into perspective.
The concept of ostensible ownership allows a member of the family to buy property in the
name of family member. Ostensible, in the literal sense, means “apparent” or “seeming”. An
ostensible owner is a person who is not really an owner but he seems or appears to be one. 2
An ostensible owner should not be confused with a trespasser or a person who has unlawfully
occupied the property as the conduct and behaviour of the ostensible owner is warranted by
the consent, whether express or implied, of the real owner.
The principle of ostensible ownership was first discussed in the landmark case of
Ramcoomar Koondo v. John and Maria McQueen3.
In this case, the plaintiff had inherited a portion of immovable property through a will.
Thereafter, she came to know that a third person had bought the said property in their name
and later sold it to somebody else by enabling the person to believe that they were the real

1
Transfer of Property Ac 1882, s. 41
2
Dr.SaxenaPoonam Pradhan, Property Law, (2ndedn, Lexis Nexis 2011) 178
3
RamcoomarKoondo v. John and Maria McQueen (1872) 11 Beng LR 46

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owners of the property. The transfer was, in fact, a benami transfer, and nobody but the
person who sold the property was aware of the same. Aggrieved by the act of the seller, the
plaintiff filed a suit for recovery of possession of the property. This case came before the
Judicial Committee and it made the following observations:
Following the principles of natural equity, if it is found that a person permits another to
represent himself as the owner of the property, and a third person buys the property under the
mistaken belief that the ostensible owner is the real owner of the property, then the real
owner, who has consented to such an act of holding out shall be abstained from recovering
the title and possession of the property unless he can prove that the final purchaser had actual
or constructive notice of the real title or that the purchaser would have easily discovered the
same had he made a reasonable enquiry.4
In light of the principle stated above, the Committee ruled against the plaintiff and denied the
plea of recovery of possession of the property.

Research Hypothesis
The hypothesis is:
The issue of benami transactions have reached unprecedented levels and requires
consideration as to the discrepancies in the law which are not able to curb this menace.
Hence, there is a need to regulate the relevant laws and a careful analysis of the Transfer of
Property act and a thorough understanding of the concept of Ostensible ownership might
prove to be a stepping stone for protection of third party rights in property transactions.

Objectives Of The Study

- To study and identify the issues pertaining to Benami Transactions and its
implications on Property Law.
- To critically analyse the impact of benami transactions in the real estate sector and
the current legislations
- To understand the adequacy of current Indian framework governing the relevant
aspects of property law vis-à-vis the benami transactions.
- To critically analyse the impact of the amendments in the law relating to Benami
Transactions and the aspects pertaining to Property Law

Scope & Limitation Of The Study

The object of the study is to address the aspect of legislature and policy formulation
concerning the governance of social media content moderation and at the same time strike a
balance with an individual’s right of speech and expression. Given the volatile nature of the
real estate market, it’s very difficult for law to keep pace with the ever evolving mechanism
of real estate sector. The fact that most of the analysis will be based on incidents and case to
case basis is with a very less availability and reliance on case Laws because of the dearth of
landmark cases that enunciate the intricacies of this aspect. Keeping in mind the vastness of
the topic researcher would limit the study on the aspect of Benami transaction with specific
reference to Transfer of Property Act. The study will not be an empirical research.

4
Ibid.

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Research Methodology
The methodology adopted for this research is Doctrinal in nature. It includes the analyses of
precedents, reported incidents in field of Property Law and Benami Transactions. Maximum
utilisation of all the available resources online & offline is ensured to the maximum extent
possible. Considering that there are a variety of cases and is a very recent phenomenon
therefore more emphasis has been laid on online resources including articles and journal to
provide a comprehensive picture of the current situation along with latest developments. The
study involves ample discussion with regard to Indian jurisdiction and governance of the
recent issues under foreign jurisdictions which would include adopting the cross sectional
method of research to compare the legal position of India with other jurisdiction

Research Questions
The paper seeks to explore the following propositions:  
- What is the meaning of transfer of an ostensible owner under the Transfer of Property
Act?
- How was the law developed pertaining to Benami Transactions in India and its
interplay with Transfer of Property Act?
- Whether the phenomenon of the Benami Transactions affect the Indian Real Estate
Market and analyse the discrepancies in the law pertaining to the same?
- Whether adequate Regulation of aspects pertaining to Benami Transactions and
ostensible ownership are in place with regard to the Indian Legal Framework ?

Significance Of The Study

The study comes into perspective as the rising level of Benami Transactions is causing
various unprecedented changes in the Real Estate Market. The current law in place has some
loopholes which are discussed herein this study. There have been discussion in the law
relating to Transfer by an ostensible owner and the provisions under the act. As the recent
amendments have not been able to help the same issue certain reasonable restrictions are
herein put forth with special reference to Property Laws.

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 Chapter 1: Transfer by an ostensible owner

The ratio of the Ramcoomar Koondoo v. John and Maria McQueen has been taken
inspiration from in order to draft the wording of Section 41 of the Transfer of Property Act,
1882. The Section provides for the following:
“41. 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.”5

I. Essentials Of Section 41 Of The Act

A plain reading of the above mentioned provision helps one identify the following essentials
in order to invoke Section 416-
1) The transferor must be an ostensible owner.
2) The transfer should be made with the expressed or implied consent of the original
owner.
3) The transferee must pay consideration to effectuate the transfer.
4) The transferee must act in good faith and should take reasonable care to ensure that
the transferor has the capacity of transferring the property.

1. Transferor must be an ostensible owner

As previously mentioned, an ostensible owner is not the true owner. Instead, he only behaves
as the true owner when dealing with third parties. It should be noted, however, that a person
cannot be considered an ostensible owner simply because the real owner has entrusted him
with impermanent control of the property for a specific reason, or when he is in charge of the
property as an agent, or when he is the guardian of a minor's property, or in another fiduciary

5
Transfer of Property Ac 1882, s. 41
6
Vishwas Shridhar Sohoni, Transfer of Property Act (4thedn, Premier Publishing Company 2012) 184

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capacity. For instance, in the case of Muhammad Sulaiman v. SakinaBibi7, the Court opined
that a manager cannot be considered as an ostensible owner merely by reason of his fiduciary
duty, notwithstanding the fact that his name was recorded in the Municipal register as the real
owner. Similarly, the Karta of a Joint Hindu Family ought not to be treated as an ostensible
owner.8
Ascertaining whether the transferor is an ostensible owner or not is a difficult task because he
possesses all the features of a real owner but for the intention to own the property.
In the case of Jaydayal v. BibiHazra9, The Supreme Court addressed the above issue in great
detail. It was noted that determining ostensible ownership is a subjective issue that must be
determined on a case-by-case basis. Nonetheless, the Court stated that the following factors
must be considered when deciding a person's title of ostensible possession :
a) Source of purchase
b) Nature of possession after the purchase
c) Motive for the transaction
d) Relationship between the parties
e) Conduct of the parties in their dealings
f) Custody of the title deeds
2. Expressed or implied consent of the real owner
Before a person is treated as the ostensible owner, it is required to be established that the
person has received express or implied consent of the real owner enabling him to be
represented as such while dealing with third parties.10 Consent is said to be conveyed when
the real owner expressly grants the ostensible owner the title of ostensible possession. In
contrast, the real owner's behaviour and manner may be used to determine implied consent.
In light of this, the Calcutta High Court, in the case of Sara Chunder v. Gopal Chunder11,
held that where another person is dealing with the property of the real owner, as if the
property was his own, and the real owner knows about it, then it will said to be implied
consent on the part of the real owner.
In another case of Gurucharan Singh v. Punjab State Electricity Board Patiala 12, The land in
dispute had been transferred to someone else, who had perfected his right to the property by
paying the money. The new owner, who is the true owner, had not taken ownership of the
property, and the former owner, after 12 years of waiting, sold the land to a third party. The
real owner then comes forward to assert his right to the property, and the court rules that
since the real owner was a minor at the time of the transfer of land, he could not take
ownership of the land, and therefore his absence does not amount to silence on his part
because he could never have consented to the transfer. As a result, the subsequent move was
ruled invalid.
Furthermore, the consent must be free and obtained without the use of deception or improper
control over the true owner. In the case of Smt. Niranjan Kaur and others v. The Financial
Commissioner13, the Court opined that the plea of a bona fide purchase cannot be invoked in

7
Muhammad Sulaiman v. Sakina Bibi AIR 1922 All 392
8
Vibha Sirothiya, ‘Position of ostensible owner under Indian Property Law vis a vis Benami Transactions,
accessed at <http://www.goforthelaw.com/articles/fromlawstu/article28.htm> accessed 4 May 2021
9
Jaydayal v. Bibi Hazra AIR 1974 SC 171
10
VishwasShridharSohoni, Transfer of Property Act (4th edn, Premier Publishing Company 2012) 185
11
Sara Chunder v. Gopal Chunder (1893) ILR 20 Cal 296
12
Gurucharan Singh v. Punjab State Electricity Board Patiala 1989 AIR 127 (P&H)
13
Smt. Niranjan Kaur and others v. The Financial Commissioner AIR 2011 P&H 1

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case the transfer is secured by means of misrepresentation and fraud for the reason that “fraud
vitiates everything.”
3. Consideration paid to effectuate the transfer
Any contract must include consideration. As a contract for the conveyance of land, a legal
transfer allows the transferee to pay a consideration. Gifts and gratuitous transfers are not
covered by Section 41.
4. Duty to act in good faith and take reasonable care
The proviso appended to the Section imposes a duty to act in good faith and to take
reasonable care upon the transferee. A breach of this duty can negate the effect of Section 41
of the Act. It is to be noted that both the conditions need to be satisfied, and they are not so in
the alternative.14
5. Duty to act in good faith
It's critical that the transferee is acting in good faith.  That is, he should buy the property in
good faith, believing that the actual owner has the authority to transfer it. When a transferee
is aware that the transferor is not the true owner of the property but nevertheless sells it, he is
behaving in poor conscience. As a result, Section 41 confers protection only to such buyers
who have acted in an equitable and just manner.
In the case of Rai Sunil Kumar v. Thakur Singh15, the parties entered into a sham transaction.
Accordingly, the Court observed that since the transferee would be having knowledge of the
reality, he cannot claim the protection of Section 41.
Further, it is to be noted that due enquiry without good faith, i.e. when the buyer purchases
the property with dishonest intentions, he cannot avail the protection of this Section.
6. Duty to take reasonable care
Reasonable care implies a care that a prudent or a reasonable man would have taken while
enquiring the title of the property. 16 There is no general rule to determine the degree of
reasonable care that is expected of the transferee and hence, the standard of care required
depends on the facts and circumstances of each individual case.17
In the case of Nageshar Prasad v. Raja Pataeshri18, there was an error with respect to the
name of the real owner in the revenue records. The name given was of a person who was not
the real owner and the real owner had already filed an application to rectify the same.
Meanwhile, the property was sold to a third party by the person who was named as such in
the revenue record. The Court held that the transfer was invalid as the purchaser should have
taken reasonable care while enquiring about the title of the owner.

II. Burden Of Proof

The onus of proof is on the transferee to prove that the transferor is the ostensible owner of
the immovable property and that he had taken reasonable care in enquiring about the title of
the owner. Further, he has transacted in good faith. 19 This is to show that the transferee made

14
Khwaja Afzal v. .Md. Saheb AIR (1936) Nag 214
15
Rai Sunil Kumar v.Thakur Singh AIR (1984) Pat 80
16
KanhuLal v. PaluSahu, [1920] 5 Pat LJ 521
17
Beyas Singh v. Ram JanamAhir AIR 1961
18
Nageshar Prasad v. Raja Pataeshri (1915) 265 (20 Cal WN)
19
GurbakshSingh v. Nikka AIR (1963) SC 1917

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no fault on his own, and thus shifting the burden on the transferee to prove otherwise. The
transferee can also plead that the real owner supressed material facts or did not the transferee
privy to them.

Chapter 2- What is a benami transaction?

The Benami Property Transactions (Prohibition) Act, which repealed the older 1988 act on
Benami transactions, went into effect in 2016. The act went into effect to ban transactions
that are “benami” in nature. A benami transaction is a transaction or agreement in which an
individual transfers or holds property and the compensation for such property is given or paid
by another person, and the property is kept for the immediate or future gain, direct or indirect,
of the person who provided the consideration. A benamidar, on the other hand, is a person on
whose name the property is displayed, with or without his/her permission. Any property that
is the target of a benami transaction is referred to as a benami property. It may take any
shape, for example, immovable or movable. Intangible, visible, corporeal, incorporeal, and
transformed land, as well as proceeds from the property This includes not only plots,
properties, and homes, but also benami investments in stocks, other financial instruments,
jewellery, and so on.

A benami transaction is one in which the property is owned in the name of one person, but
the funds for acquisition are given by another person, for the benefit of whom the property is
held. As a result, the land is not owned in the name of the true owner, but in the name of
someone else.
Most people believe that these laws only apply to people attempting to conceal their assets,
not to legitimate properties purchased with revealed funds. That is not correct; even a
property purchased with disclosed funds in a legitimate transaction may be considered
benami. Many exceptions have been made, including “property owned by an individual on
behalf of his or her spouse or child, by a karta or member of a HUF (Hindu Undivided
Family) on behalf of the HUF, by a partner on behalf of the partnership business, by a
director on behalf of a corporation, and by a trustee on behalf of the beneficiaries of a Trust.” 

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The following are the exceptions to the transactions which are not considered as
“benami” under the benami transactions (Prohibition) Act, 2016-

1. Property is held by a member of the HUF for the benefit of the HUF and the
consideration is paid from the known sources of income of such HUF;
2. A person who holds the property in a fiduciary capacity for the other person – for
example, a trustee for the trust, a director for his company, a depository/depository
participant for a trader (holder of shares in demat form), etc.;
3. An individual holding property in the name of his spouse or child and where the
consideration is paid from the known sources of such individual ;
4. An individual holding property jointly with a brother, sister or lineal
ascendant/descendant and where the consideration is paid from the known sources of such
individual.

I. Benami Transactions (Prohibition) Act, 2016

The following are the changes that have been brought in the 2016 Act of Prohibition of
Benami Transactions in comparison to the 1988 act-
1. Under the old Benami rule, the government could only purchase benami property in
exchange for a monetary payment. However, under the new statute, if a property is
considered 'benami,' it vests in the government without any payment of consideration. In
addition to the loss of land, those who commit a benami transaction offence face a fine of up
to 25% of the fair market value of the property and stringent imprisonment for up to 7 years.
2. In India, considering the family tradition it is a common practice that property is often held
in the name of the father/mother as a mark of respect but the funds are provided by the child.
These types of transactions can now get covered under the new Benami law.
3. The new legislation, as an alteration to the old Act, has retroactive application, which is
perhaps the most critical point. Since the rules for acquiring property were not notified under
the old legislation, if the old Act had been repealed and a new Act had been passed, immunity
would have been granted to benami transactions completed between 1988 and 2016. Because
of changes made to the old statute, a property that could not be obtained prior to 2016 in the
absence of the laws can now be attached. Such punitive clauses of the new law will also
apply.
4. Furthermore, an unwitting buyer of a property could become entangled. Under the new
law, if an individual, say Mr. A, buys a property from a person 'B,' and the authorities later
discover that the property in question is a Benami property, which means that B was holding
the property as a benamidar of the person who had paid consideration to acquire the property
initially; the said property may be attached by the Government and even though 'A' has paid
consideration out of declared and known sources, A would be liable for penal consequences
under the Act.
Judicial Interpretations- The Benami Transaction (Prohibition) Act, 2016
In the case of Kirtikumar Dhanjibhai Shah v. Sudhalaxmi Mohanlal Jhaveri and Ors.,20 it was
held by the High court that under section 4(1)21 of the Benami Transactions (Prohibition) Act,
there was no express provision for giving retrospective effect to the prohibition contained in
Section 4, nor could such retrospective operation be held to be effective by implication.

20
Kirtikumar Dhanjibhai Shah v. Sudhalaxmi Mohanlal Jhaveri and Ors, 1998 (4) Bom CR 486.
21
Benami Transactions (Prohibition) Act 1988, s 4(2)

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Hence, it was held that the provisions of the aforesaid statute will not applicable to the suit
which was already pending on a date when the Benami Act came into force.
In another case of Narinder Kumar Jain and Ors. v. Munisubrat Dass Jain and Ors.,22 the
Punjab and Haryana High court in a case where appeal for dismissal of a suit against a
judgment whereby two suits, one for specific performance of agreement brought by
Appellant and others and the other for declaration, were dismissed was filed, held that the
Benami Transactions prohibition Act was retrospective and applicable to suits and appeals
pending and thus the claim of Appellants could not be decreed because by enforcement of
1988 Act, they were debarred from making claims on the ground that Respondent was a
benamidar acting on their behalf. Thus, different high courts have different stands on the
aspect that whether the act is retrospective or prospective in nature.
The Himachal Pradesh High court considered in a case the validity of sections 118 and 121-A
of H.P. Tenancy and Land Reforms Act, 1972 - Petitioner sought for reliefs that provisions of
Section 118 and 121-A of H.P. Tenancy and Land Reforms Act void because of the
explanation added to section 118(1) of Act had given recognition to a Benami transaction
against express provision of Benami Transactions (Prohibition) Act, 1988. A conflicting
stand had been created by Section 118 as against Sections 3 and 4 of Benami Transactions
(Prohibition) Act, 1988. The provision was held to be void because of violating the
provisions of the Benami Transactions (Prohibition) Act.23
The Bombay high court in the case of Gopal L. Raheja and Ors. v. Vijay B. Raheja and
Ors.,24 sections 88 and 94 of the Indian Trusts Act, 1882 and section 7 of the Benami
Transactions (Prohibition) Act, 1988 were involved. The honourable Bombay High court
held that recourse to doctrine of constructive trust, which evolved in English cases, is
statutorily impermissible in view of deletion of Section 94 of the Indian Trusts Act, 1882 by
Section 7 of the Benami Transactions (Prohibition) Act, 1988 only.
In another case of Meeradevi v. Chandramohan Dattajirao Jadhav,25 the court discussed the
definition of Benami transactions as provided under section 2(a) of the Benami transactions
Act and the exceptions where section 3 of the act is not applicable, i.e., in cases of nominal,
sham and other transactions which are without consideration. Additionally, the court held that
it cannot be held that transfer of the property without consideration is covered by Act No. 45
of 1988. In the case of Bathula Anasuya v. Bathula Rayudu,26 the High Court of Andhra
Pradesh held that the nominal transaction was not covered by the Ordinance No. 2 of 1988
act which was replaced by Act No. 45 of 1988. In this case, the High Court held that it was
clearly established that the Deed of Relinquishment was nominally executed. In view of this
finding, the Court held that the plaintiff was entitled to a decree for partition and the plaintiff
was not precluded from obtaining necessary relief from the Court by virtue of provisions
contained in Ordinance No. 2 of 1988 referred to hereinabove. It appears that the Act No. 45
of 1988 is applicable only in respect of transaction for consideration where consideration is
paid or provided by another person although the property is transferred in favour of one
person. Thus, the Act of 1988 is not at all applicable to the transfers without consideration or
nominal or sham transfers.
In the same decision, it was held by the court that where the payment of entire consideration
was made by the plaintiff and no payment was made by the mother of plaintiff, the agreement

22
Narinder Kumar Jain and Ors. v. Munisubrat Dass Jain and Ors, [1990] 181I TR305 (P&H).
23
Som Kirti alias Som K. Nath and others v. State of H.P. and others CWP No. 484 of 2006.
24
Gopal L. Raheja and Ors. v. Vijay B. Raheja and Ors 2007(1)ALL MR 138.
25
Meeradevi v. Chandramohan Dattajirao Jadhav AIR 1995 Bom 47.
26
Bathula Anasuya v. Bathula Rayudu, 1989 A.P. 290.

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pursuant to which transaction was made is not a benami transaction under section 4(2) of the
1988 act.

Chapter 3- Reasons Behind Regulation Of Benami Transactions And Penalties

Brief History Of Benami Law In India

Benami transactions are not an alien concept to the Indian legal diaspora. The history of
benami law in India paints an interesting picture. In this chapter, an effort has been made to
trace the reason for turning a practice which was duly recognized by the courts of the country
into a criminal wrong. Indeed benami transactions have been part of our society for quite
some time. The Privy Council once famously observed in the case of Sheikh Bahadur Ali v.
Sheikh Dhomuthat the idea to oppose such transactions was objectionable 27 and many other
courts repeatedly held benami transactions to be valid in light of their cultural importance. It
is pertinent to note that the developments in benami law are by no stretch of imagination
recent in nature. Save the changes made in the year 201628, the 1988 legislation29, a barebones
of a statute, was repeatedly being employed by the courts.
27
Sheikh Bahadur Ali v. Sheikh Dhomu, 1 Calcutta Sud. R. Diw. Rep. 250, 251, cited in Tyabji, Muslim Law
(1968), page 396, foot note 1- page 3, Law Commission of India, Fifty-seventh Report, Benami Transactions,
August, 1973, <http://lawcommissionofindia.nic.in/51-100/Report57.pdf>accessed 1 May 2021.
28
Benami Transactions (Prohibition) Amended Act, 2016.
29
Prohibition of Benami Property Transactions Act, 1988.

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However, the various decisions of the courts including the Privy Council decision cited above
precede even the first benami prohibition act by a good number of years and custom being an
important source of law at that point of time, was give importance and was consistently
factored into judicial decisions in the absence of a concrete law. The Supreme Court in Smt.
Surasaibalini Debi vs. Phanindra Mohan Majumdar relied on Mayne's Hindu Law to uphold
the doctrine 'In pari delicto potiorest conditio possidentis'. The Court further held that it will
help neither party in cases of fraud and colourable grants and adjudicated that 'Let the estate
liewhere it falls'30Such a decision which dates back to 1965, highlights the damage which the
absence of a crystalized legislation caused.
No doubt that the legal provisions laid down in Surasaibalini in turn relied on previous
iterations by the Privy Council but had there been even a rudimentary statutory framework
for the court to rely on, the final decision would have been much more streamlined.
Further, some form of statutory legality was bestowed upon benami transactions. The most
important provisions giving a statutory sanction to Benami transaction were sections 81 31 and
82 of the Indian Trust Act 188232, which so provided that in case of any such transfer where
the beneficial owner did not intend to transfer the beneficial interest in the person holding the
title of the property, then such transferee must hold the property for the benefit of the person
paying or providing the consideration. Thus, the consequence of such Benami transactions
was that as per Trust Act there emerged a “Resulting Trust” whereas the benamidar held the
property in trust for and on behalf of the real/beneficial owner.
This discussion necessitates taking note of the Privy Council decision in the case of
Petherpermal Chetty v. MuniandiServai that it could not interfere if no illegal object could be
proved or alternatively if no fraudulent action had taken place.33
Keeping in mind the preceding case law as well as the provisions of the Trust Act, even such
transfer constituting a benami transaction, even if for an illegal purpose, still constituted a
Resulting Trust, and even the illegality of the purpose (if the illegal object is not carried out)
did not deprive the real/beneficial owner of his beneficial ownership in the property, and the
benamidar even in such a case.
Additionally, as per section 6(h) of the Transfer of Property Act, 188234 read with section 23
of the Indian Contract Act, 187235 any transfer for an unlawful object or consideration is void,
meaning thereby that again the ownership in the property on such unlawful transfer remains
with the transferor i.e. real/beneficial owner.
The first positive action against benami transactions came in the form of amendment to the
Income Tax Act in the year 1972. A new section 281A 36 was inserted in Income Tax Act,
1961 through Taxation Laws (Amendment) Act 197237. So far as this amendment is
concerned, it never prohibited benami transactions but only provided for, that the
real/beneficial owner will be debarred from instituting any suit in any court to enforce any
right in respect of any property held benami unless the income from such property or the
property itself has been disclosed in any return of income or net wealth by the claimant or a

30
Smt. Surasaibalini Debi vs. Phanindra Mohan Majumdar AIR 1965 SC 1364.
31
Indian Trust Act 1882, s. 81
32
Indian Trust Act 1882, s. 82
33
Petherpermal Chetty v. MuniandiServai [1908] L.R. 35 IndAp 98
34
Transfer of Property Act 1882, s. 6(h)
35
Indian Contract Act 1872 s. 23
36
Income Tax Act 1961 s. 281A
37
Taxation Laws (Amendment) Act, 1972

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notice in the prescribed form and containing the prescribed particulars in respect of the
property has been given by the claimant to the Income-tax Officer. Thus, with certain
reporting requirement to the income tax department, the legality of benami transaction was
kept intact.
However, gradually it was realised that Benami Transactions were also being employed for
various dishonourable motives, including but not limited to, money laundering and evasion of
taxes. It was also realized that these transactions could be mere facades and misused for
diverting one's assets in another's name and thereby defeating the lawful claims of creditors
and defrauding them. Slowly and gradually it dawned that, on a cost-benefit analysis, the
losses and mischief arising from allowing benami transactions to continue unabated far
outweighed their perceived advantages, leading to such transactions being forbidden by law.
It was in the case of Thakur Bhim Singh (Dead) by Lrs and Anr. v. Thakur Kan Singh that the
Supreme Court recognized the prevalent practice of benami transactions and concretely
defined and elaborated on the concept.38 It held that there are two facets to benami
transactions, firstly, when a person buys a property with his own money in the name of
another person without any intention to benefit such other person and secondly, when a
person who is owner of the property executes a conveyance in favour of another without the
intention of transferring the title to the property.
Staring from the report on the matter published by the 6 th Law Commission in the year
197339, it took a whopping decade and a half for a statute to be enacted on the subject
matter40. Yet, the end product of the 15 year long arduous journey did not live up to the hype.
The Act did not contain any specific provision for vesting of confiscated properties with the
Central Government, no appellate provision was provided and the power of authorities
administering the law were not detailed. Such legislative gaps could not have been filled by
delegated legislation of rule-making authority and therefore no Rules could have been
notified and thus the Benami Act of 1988 remained on paper.
An effort was made to operationalize the appallingly outdated legislation by way of a
proposed upgrading to the law in the year 201141 however the same did not pass before both
the houses and subsequently lapsed.
A few years post the unsuccessful 2011 amendment, the Standing Committee of Finance
headed by Dr. M VeerappaMoily, former Law Minister submitted its report on Benami
Transactions Prohibition (Amendment) Bill 201542 on 18th April 2016. The Benami
Transactions Prohibition (Amendment) Act 201643 got enacted w.e.f. 01.11.2016 and the title
of the Act was changed to “Prohibition of Benami Property Transaction Act 1988” giving it
the shape of the legislation we know it to be at present.

Penalties Under The Revised Legislation

38
Thakur Bhim Singh (Dead) by Lrs and Anr. v. Thakur Kan Singh [1980] 3 SCC 72
39
Law Commission of India, Fifty-seventh Report, Benami Transactions, August, 1973,
<http://lawcommissionofindia.nic.in/51-100/Report57.pdf > accessed on 7 May 2021
Benami Transactions (Prohibition) Amended Act, 2016
40
The first legislation being the Prohibition of Benami Property Transactions Act enacted in the year 1988
41
Benami Transactions (Prohibition) Bill 2011
42
Benami Transactions Prohibition (Amendment) Bill 2015
43
Benami Transactions Prohibition (Amendment) Act 2016

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The Act prescribes the different penalties and prosecutions for different defaults which are as
follows:

(i) Penalty for Benami Transactions:

Where any person enters into a Benami Transaction the beneficial
owner, benamidar  and any other person who supports any person to enter into
the benami transaction shall be guilty under the act and punishable with
rigorous imprisonment for a term between 1 year to 7 years and shall also be
liable to fine which may be extend up to 25% of the market value of the
Property.44

(ii) Penalty for False Information:

Any person who is required to furnish information under this Act knowingly gives
false information to any authority or furnishes any false document in any
proceeding under this Act, shall be punishable with rigorous imprisonment for a
term between 6 months to 5 years and shall also be liable to fine which may
extend up to 10% of the market value of the Property.45

(iii) Other Restrictions:

 Benami Property liable to Confiscation: Any Property, which is the subject

matter of Benami Transaction, shall be liable to be confiscated by Central
Govt. without payment of any compensation.46
 Prohibition on re-transfer of Property by Benamidar: Benamidar shall not
re-transfer the Benami Property held by him to the Beneficial Owner or Any
Other Person acting on his behalf. If, so transferred then such Transaction
would be null and void.47

(iv) What if the defaulter is a Company?

Where a company is contravening any provision of this Act, then the Company
itself and Every Person (including Director, manager, secretary, CEO etc.) who
was responsible for such Transaction shall be deemed to be guilty of the
contravention; and shall be liable to be proceeded against and punished
accordingly. But if such person proves that such transaction was made without
his/her knowledge then such a person would not be considered as guilty.48 

(v) Penalty under the Finance Act 2019.

Recently, a new penal provision has been inserted to the legislation by way of
finance act 2019, namely, Section 54A which prescribes penalties for failure on
part of any person to comply with notices or to furnish information. This latest
addition to the legislation provides that any person who either fails to comply with
the notice issued under Section 19 or fails to furnish information as required under
44
Prohibition of Benami Property Transaction Act 1988, s. 53
45
Prohibition of Benami Property Transaction Act 1988, s. 54
46
Prohibition of Benami Property Transaction Act 1988, s. 5
47
Prohibition of Benami Property Transaction Act 1988, s. 6
48
Prohibition of Benami Property Transaction Act 1988, s. 62

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 Section 21 shall be liable to pay penalty of Rs. Twenty-Five thousand for each of
such failures.

Thus, we can see that what was once an outdated and redundant statutory ordinance which
could not even be operationalized has now become a tour de force with the aim to tackle the
growing menace of these fraudulent transactions plaguing the economy. These far reaching
amendments have undoubtedly changed the regulatory framework for the better however,
although beyond the scope of this research project, it is worth mentioning that these far
reaching amendments might also crush the innocent bystanders. This is so because the new
legislation has an extended scope and not enough judicial intervention, yet, to reign it in.

Conclusion And Recommendations

This project focuses on the legal provision in the Transfer of Property Act of 1882 that
defines the powers of the apparent owner and discusses the essence of transactions entered
into by him. The authority granted by the owner of the property to enter transactions on his
behalf is the most prominent feature of the ostensible owner. The consent for this authority
may be express or implied, as defined by numerous landmark case laws. Consent, on the
other hand, does not imply a desire to cheat. Furthermore, once made, the transfer of property
is irreversible at the owner's discretion. This transition can also include partial transfers such
as mortgages and leases, as well as full transfers of rights such as sales and exchanges.
Furthermore, the transferee bears the responsibility of showing that the transferor is the
ostensible owner under the constitution. He must also behave honestly and in good faith,
making appropriate inquiries about the status of the move and remaining cautious.

Thus, after examining various cases and the principle of ostensible ownership, the inference
reached is that ostensible ownership derives its authority from concepts of equality and
natural justice, specifically the doctrine of estoppels. It is an exception to the doctrine of

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nemo dat quod non habet in that it allows ostensible owners to have delivered the rights of
true ownership to bona fide transferees for equitable purposes. Benami transactions are those
in which the actual ownership is held by someone who pays the consideration, while the
ostensible ownership is held by the benamidar, who only lends his name to the title deeds.
Except where he is a coparcener in a Hindu Undivided Family or a trustee, an ostensible
owner has become a real owner since the enactment of the Benami Transactions (Prohibition)
Act, 1988. So, obviously, the scope of operation of Section 41 has been very narrow since the
passage of the Benami Transactions Act. Finally, unless the ostensible owner is the real
owner's wife or unmarried daughter, the transferee who purchases the property from the
ostensible owner cannot profit from section 41.

To summarise, The theory and concept of ostensible ownership is subjected to the provisions
of Benami Transactions Act, 1988 (Which is now, Benami Transactions Amendment Act,
2016). After analyzing different case laws and concept of ostensible ownership, I reach to the
conclusion that, Ostensible Ownership is a concept that derives its authenticity and
legitimacy from the ideas of equity and natural justice, meticulously the doctrine of estoppels.
It holds an exception to the doctrine, “nemo dat quod non habet” as it does, for reasons of
equity, allow ostensible owners to deliver the rights of true ownership to the bone fide
transferees. Ostensible ownership is irretrievably linked with the concept of Benami
transactions. Benami transactions are defined under the Benami Transactions Amendment
Act, 2016. The provisions of this Act do not apply, in usual bona fide transactions where
person purchases property in the name of his wife or unmarried daughter. Therefore, after the
passing of the Benami Transactions Act, the scope of application of Section 41 has become
very narrow.

As Section 41 of the Transfer of Property Act, 1882 is a deduction from the law of estoppel
articulated in Section 115 of the Indian Evidence Act, it is a rule of estoppel against the real
owner. Despite the fact that Section 41 of the Act protects the interests of the third innocent
party involved in the transaction. This section enacts the estoppel law against the true owner.
Except for a few exceptions, the 1988 law bans all Benami transactions. Such transactions
have now been made illegal. While the Benami Transactions Act has been applied
retroactively, it is intended to reduce the threat of tax evasion, borrower fraud, and evasion of
laws such as the “Abolition of Zimandari Act,” among other things.

The prevention and prohibition of benami transactions is critical for the country's healthy
economic development. It is essential that no one do an act indirectly that he cannot do
directly; in other words, no one should be able to use legal loopholes to destabilise the
administration of the Government authorities.

i) Although it is acknowledged that there are provisions in various legislations to deal with
tax evasion and hidden wealth, necessary changes to those provisions to prevent the stashing
of unaccounted investment under benami names will result in the achievement of the Act's
goal.

ii) The need for digitalisation of land records, which would necessitate amendments to the
Transfer of Property Act, 1882 and the Registration Act, 1908 to allow for the registration of
immovable assets, the linking of Aadhar Card and PAN numbers of parties who purchase the
property, and the provision of related registration data to tax authorities.

iii) The Act's scope must be expanded to all properties situated abroad.

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 Bibliography

I. Books
1. Dr.SaxenaPoonam Pradhan, Property Law, (2ndedn, Lexis Nexis 2011)
178
2. Vishwas Shridhar Sohoni, Transfer of Property Act (4thedn, Premier
Publishing Company 2012) 184

II. Cases
1. Bathula Anasuya v. Bathula Rayudu, 1989 A.P. 290

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 2. Beyas Singh v. Ram Janam Ahir AIR 1961
3. Gopal L. Raheja and Ors. v. Vijay B. Raheja and Ors 2007 (1) ALL
MR 138
4. Gurbaksh Singh v. Nikka AIR (1963) SC 1917
5. Gurucharan Singh v. Punjab State Electricity Board Patiala 1989 AIR
127 (P&H)
6. Jaydayal v. Bibi Hazra AIR 1974 SC 171
7. Kanhu Lal v. PaluSahu, [1920] 5 Pat LJ 521
8. Khwaja Afzal v. .Md. Saheb AIR (1936) Nag 214
9. Kirtikumar Dhanjibhai Shah v. Sudhalaxmi Mohanlal Jhaveri and Ors,
1998 (4) Bom CR 486
10. Meeradevi v. Chandramohan Dattajirao Jadhav AIR 1995 Bom 47
11. Muhammad Sulaiman v. Sakina Bibi AIR 1922 All 392
12. Nageshar Prasad v. Raja Pataeshri (1915) 265 (20 Cal WN)
13. Narinder Kumar Jain and Ors. v. Munisubrat Dass Jain and Ors,
[1990] 181I TR305 (P&H)
14. Petherpermal Chetty v. MuniandiServai [1908] L.R. 35 IndAp 98
15. Rai Sunil Kumar v. Thakur Singh AIR (1984) Pat 80
16. Ramcoomar Koondo v. John and Maria McQueen (1872) 11 Beng LR
46
17. Sara Chunder v. Gopal Chunder (1893) ILR 20 Cal 296
18. Smt. Niranjan Kaur and others v. The Financial Commissioner AIR
2011 P&H 1
19. Smt. Surasaibalini Debi vs. Phanindra Mohan Majumdar AIR 1965 SC
1364
20. Som Kirti alias Som K. Nath and others v. State of H.P. and others
CWP No. 484 of 2006
21. Thakur Bhim Singh (Dead) by Lrs and Anr. v. Thakur Kan Singh
[1980] 3 SCC 72

III. Statutes
1. Transfer of Property Act, 1882
2. Benami Transactions (Prohibition) Act, 198
3. Prohibition of Benami Property Transactions Act, 198
4. Indian Trust Act, 188
5. Taxation Laws (Amendment) Act, 1972

IV. E-Resources
1. Vibha Sirothiya, ‘Position of ostensible owner under Indian Property
Law vis a vis Benami Transactions, accessed at
<http://www.goforthelaw.com/articles/fromlawstu/article28.htm>
Accessed 4 May 2020
2. Law Commission of India, Fifty-seventh Report, Benami Transactions,
August, 1973, http://lawcommissionofindia.nic.in/51-100/Report57.pdf
Accessed 7 May 2020

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