Prachurya Sahu | Symbiosis Law School, Pune |17th June, 2020
Introduction
Transfer of Property Act of 1882 governs transactions involving the transfer of movable and immovable property between two or more people. Apart from chapter II of the Act dealing with Sections 5 to 37 which apply to transactions for transfer of both movable and immovable property, the rest of the Act deals with procedures, methods, approval of transfers and conveyance of title of immovable property. The scope of this Act is restricted to transfer of property by the explicit conduct of the parties, i.e. by virtue of sale, gift, exchange, actionable claim, mortgage and lease. It does not attempt to govern all transfers which occur by operation of law such as inheritance, insolvency or forfeiture.
The Act itself defines a transfer as an “act by which a living person conveys property, in present or in future, to one or more living person or to himself and one or more other living persons”[1] The person who transfers property is known as the “transferor” and one who receives such property is referred to as the “transferee.” “Living person” not only refers to individuals but also includes juristic persons such as a company or association or body of individuals[2], whether incorporated or not, without affecting any law made specifically for transfer of property within these groups.[3] Another element of a valid transfer is competency. The Act lays down that a person can transfer property only if he is competent to contract and has a valid title to the property or authority to transfer.[4] Competency to contract manifests with a person who is of majority in age, has a sound mind and is not otherwise disqualified under any law.[5]
Bona Fide Transfers
The Latin term “bona fides” literally translates to “good faith” in English.[6] In Property Law, a Bona Fide Transferee or Purchaser refers to an innocent party who purchases a particular property for a valid consideration without knowing of another person’s claim to the title of the property. Such a transaction is also referred to as Bona fide Transfer for value without notice. The Transfer of Property Act lays down rights for such bona fide transferees to accommodate them and protect them from any loss due to the misrepresentation or fraudulent conduct of the transferor.
Section 41 of The Transfer Of Property Act, 1882
Section 41 of the TPA is a primary right that protects the interest of a bona fide transferee who makes a transfer for value without notice. It lays down that: –
“Transfer by Ostensible Owner- 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.”
This section is the statutory application of the Principle of Estoppels[7]. The principle, first propounded in the case of Cairncross v Lorimer[8], essentially prevents a man from questioning the legality of an act, which he has consented to and based on that consent or inference of consent from conduct, others have done the act which they could not have been done without such consent. While this principle manifests in the Section 115 of the Indian Evidence Act, 1872, in the case of Sarat Chunder v Gopal Chunder,[9] it has been held to be applicable to the present Section too.
Such protection to is derived from the Principle of Equity as propounded in the judgement of Ramcoomar v. Mac-queen.[10] This principle lays down that in cases where a person has allowed another to hold himself as the owner of an estate and a third person purchases it for a consideration, from the apparent owner, believing in good faith for him to be the real owner, the actual owner who has allowed another to hold himself out will not be allowed to recover his title. The only time such a claim will be allowed is when the such a person can show that the purchaser had direct or constructive notice of the real title or could have led to the discovery of it.
Consent of real owner
The actual owner of a property is not held liable, unless the apparent ownership of the transferor has been created by him. Such a situation occurs not only when the owner allows another to represent such ownership by express words of consent but also when it is implied in conduct. Therefore, in a case where the real owner was aware of another person dealing with his property and misrepresenting it to be his own, and he willingly allows it, his inaction or silence will imply consent.[11] This is based on the principle that “when one of two innocent persons must suffer from the fraud of a third, he shall suffer who, by his indiscretion, has enabled such third person to commit the fraud”[12]
Ostensible Owners
One of the important considerations to avail the protection under this clause is the categorization of ostensible owners. In the Supreme Court judgement of Binapani Paul v. Pratima Ghosh,[13] an ostensible person has been defined as “one who has all the indicia of ownership without being the real owner.” Such a person must be actively able to represent himself as actual owner of the property. A series of cases have confirmed which positions would not constitute ostensible ownership, for example, that of a manager[14], professed agent[15], menial servant[16] or the trustee of an idol.[17]
Notice
Section 3 of the TPA lays down that “a person is said to have notice of a fact when he actually knows that fact, or when, but for wilful abstention from an enquiry or search which he ought to have made, or gross negligence, he would have known it.” This section envisions such notice to be of two types- direct and constructive.
Direct notice refers to explicit knowledge of the title of the property. The second part of the definition deals with constructive notice where the presence of “wilful abstention from an enquiry/search or gross negligence” has lead the belief that the transferor is the actual owner, then the transferee is fixed with the constructive notice of the fact of lack of good title of the transferor.
Therefore, for a transferee to benefit under Section 41, he/she must have taken all measures of enquiry to confirm the valid title of the transferee such as examination of title-deeds, registration papers etc. This proof of enquiry is essential to seek protection under this section[18] in the absence of which constructive notice will be assumed, rendering this Section inapplicable. Wilful omission of existing avenues of inquiry will disentitle such transferees from relief under this Section.[19]
Furthermore, measures taken to confirm the transferor’s title to the property must be adequate. Mere verification in the revenue or municipal records that the property was registered in the name of the transferor may not suffice.[20] Similarly, casual inspection of neighbours or tenants also does not qualify as adequate inquiry.[21]
Good Faith and Reasonable Care
As elucidated in Kashmir Singh v. Panchayat Samiti,[22]for a bona fide transferee to be protected under this Section, he must have acted in good faith and after taking reasonable care to ascertain that the transferor has the power to make the transfer.
A transferee who willingly ignores and undertakes the transfer without any enquiry is not protected. The quantum of reasonable care has not been defined; however, the Bombay High Court has clarified that it will depend on the facts and circumstances on a case-to-case basis.[23]
Therefore, this provision can only be used as a shelter only when a transferee has readily, acting in good faith, purchased a property for consideration, without notice of the real title of the property from person who isn’t the real owner. This section protects the right of unaware individuals who behave sincerely with honest intentions when buying property.
Fraudulent Transfers
The Supreme Court, in Dr. Vimla v. Delhi Administration[24] has observed that the term “defraud” involves two elements namely, deceit and injury to the person deceived. This injury is not limited to economic loss. It can also be construed as deprivation of property or money as well as harm caused to any person in body, mind or reputation. Fraudulent Transfers in general parlance, therefore, refer to transfers which are made with an intention to defraud.
Section 53 of The Transfer Of Property Act, 1882
The TPA Act deals with fraudulent transfers under Section 53: –
“Fraudulent Transfers– (1) Every transfer of immoveable property made with intent to defeat or delay the creditors of the transferor shall be voidable at the option of any creditor so defeated or delayed. Nothing in this sub-section shall impair the rights of a transferee in good faith and for consideration.
(2) Every transfer of immoveable property made without consideration with intent to defraud a subsequent transferee shall be voidable at the option of such transferee.”
The law stipulates that all cases of such fraudulent transfers, are voidable at the option of the party so defrauded(the creditors or the subsequent transferee). The Section incorporates the common law principle of equity, justice and good conscience as it attempts to prevent defeat of legitimate claims of creditors or transferees.
Since the Act makes all such cases voidable at the option of creditors/transferees, the burden to prove such fraudulent conduct or intent initially lies on the creditors.[25] Once, facts are proved sufficiently to show prima facie the intention of the debtor to defeat or delay the creditors, the debtor is required to make his case and explain the facts.[26]
Scope of “creditors”
“Creditor” refers to a person to whom a debt is owed. In common parlance, it implies a person who has lent money or sold goods which has not been repaid.
Furthermore, the section refers to “creditors” and not “creditor.” This nuance is quintessential to understand in order to prove a transfer to be fraudulent. The intention behind a fraudulent transfer must be to delay or defeat all creditors, generally i.e. it must be an attempt to escape repayment in general, and not simply to prefer one creditor over another.[27] Therefore, any proceedings instituted under Section 53 of the TPA are to benefit all the creditors of a particular transferor.[28]
In the judgement of Mina Kumari v. Bijoy Singh,[29] it has been held that “a debtor may pay his debts in any order that he pleases and may prefer any creditor he chooses.” Furthermore, it has been held by the Supreme Court that, just the existence of such a preference of creditor by the debtor is not enough to lead to the inference of an intention to defraud or defeat all creditors. [30]
Type of Transfers
The Section covers only those transactions which are binding between the parties and voidable only if proved within the provisions of this Section 53.[31] This is to say, the transfer must be lawful in all aspects until it is set aside. This Section does not cover benami or colourable transfers, which are void ab initio and inoperative between parties.[32] In benami or collusive transactions, there is no real transfer, the property is just put under a different, often false name, with the intention of defrauding creditors.
This Section also does not cover transfers for natural love and affection for want of consideration.[33]
Subsequent Transferees
The second sub-section involves a case when a subsequent transfer clashes with a prior transfer without consideration. In this case, a gratuitous transfer can be voided if it has been made with the intention to defeat a subsequent bona fide transferrer, thereby protecting the right of the subsequent transferee and invalidating a fraud agreement.
[1] Section 5, The Transfer of Property Act, 1882.
[2] Hindustan Lever v State of Maharashtra, (2004) 9 SCC 438, Shriomani Gurudwara Prabandhak Committee, Amritsar v. Som Nath Dass and Ors. (2000) 4 SCC 146.
[3] Ibid.
[4] Section 7, The Transfer of Property Act, 1882.
[5] Section 11, The Indian Contract Act, 1872.
[6] John Garger, Translating Arguendo and Bona Fide from Latin to English, Bright Hub Inc., 2012.
[7] Hoorbai v Aishabai, (1910) 12 Bom LR 457: 6 IC 898; Satyanarayan Murthi v Pydaya, (1943) 1 Mad LJ 219 : AIR 1943 Mad. 459 ; Lulsingh v Granth Saheb, AIR 1950 Pepsu 104 .
[8] Cairncross v Lorimer, (1860) 3 Macq 827, p 829.
[9] Sarat Chunder v Gopal Chunder, (1893) ILR 20 Cal 296 : 19 IA 203.
[10] Ramcoomar v Mac-queen, (1872) 11 Beng LR 46, p 52, Seshumull M Shah v Sayed Abdul Rashid, AIR 1991 Kant. 273, p 278.
[11] Sara Chunder v Gopal Chunder, (1893) ILR 20 Cal 296
[12] Baidya Nath v Alef Jan, (1922) 36 Cal LJ 9
[13] Binapani Paul v Pratima Ghosh, AIR 2008 SC 543
[14] Jamnadas v Uma Shankar, (1914) ILR 36 All 308: 25 IC 158
[15] Dambar Singh v Jawitri, (1907) ILR 29 All 292, Abdullah Khan v Bundi, (1912) ILR 34 All 22, p 24 : 11 IC 710, Maung Bya v Maung San, 10 IC 779.
[16] Chooni Lal v Nilmadhab, (1925) 41 Cal LJ 374 : 86 IC 734 : AIR 1925 Cal 1034 .
[17] Ratan Sen v Suraj Bhan, AIR 1944 All 1 ; Sri Thakur Krishna v Kanhayalal, AIR 1961 All 206
[18] Sheogobind v Anwar Ali, (1929) Pat 305.
[19] Sheotahal v Lal Narain, (1930) AIR 422
[20] C Sundarammal v Arunachala, AIR 1927 Mad 1138
[21] Amrita Lal v Pratap Chand, AIR 1931 Cal 144 .
[22] Kashmir Singh v Panchayat Samiti, (2004) 6 SCC 207 : AIR 2004 SC 2438
[23] Laxman Sakhram Salvi v Balkrishna Balwant Ghatage, AIR 1995 Bom 190
[24] Dr. Vimla v. Delhi Administration 1963 AIR 1572
[25] Kanchanbai v Motichand, AIR 1967 MP 145
[26] Abdul Shukoor v Arji Papa Rao AIR 1963 SC 1150
[27] Bhagwant v Kedari, (1901) ILR 25 Bom 202; Amarchand v Gokul, (1903) 5 Bom LR 142.
[28] Gopisetti Venkata Lakshmi Narasimharao v Sri Satya Financial Services, (2010) 93 AIC 658 : (2010) 4 Andh LD 312.
[29] Mina Kumari v Bijoy Singh, (1916) ILR 44 Cal 662
[30] Chogmal Bhandari v Deputy Commercial Tax Officer, Kurnool, AIR 1976 SC 656
[31] Krishna Kumar v Jai Krishna, (1917) 21 Cal WN 401.
[32] Purna Chandra v Sarojendra, AIR 1953 Cal 251
[33]Mohammad Ishaq v Mohammad Yusuf, (1927) ILR 8 Lah 544
Leave a Reply