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Case Number

L.P.A No. 9 of 1985 arising from the judgment in F.A No. 26 of 1975

Attorney(S)

K.J Abhyankar
A.V Bandiwadekar

Judges

A.M Bhattacharjee, C.J
A.P Shah, J.

Acts

SECTION 41 TRANSFER OF PROPERTY ACT 1882
provisions of Benami Transactions (Prohibition) Act, 1988.
Order 20, Rule 12(1)(c) of Code of Civil Procedure.4.

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Smart Summary

Structured Summary of the Opinion (A.P. Shah, J.)

Factual and Procedural Background

The plaintiff sued to recover possession of a house property, claiming title. He alleged that on May 19, 1970 he purchased the suit property from the 1st defendant for Rs. 12,000/-. The 2nd defendant (deceased Laxman Sakharam Salvi) was the 1st defendant's brother but had been given in adoption to the Salvi family. Defendants Nos. 3 to 6 and 2A to 2D are legal representatives of the 2nd defendant.

The plaintiff pleaded that the 1st defendant had purchased the property benami in the name of the 2nd defendant on July 31, 1930; alternatively he asserted that if the 2nd defendant was the real owner then the 1st defendant was an ostensible owner and the plaintiff was a bona fide purchaser for value without notice; alternatively he claimed that if the property was jointly owned the portion purchased from the 1st defendant should be allotted to that defendant's share. The plaintiff sought possession and mesne profits.

At trial the 1st defendant supported the plaintiff's claim; the legal representatives of the 2nd defendant denied that the 1st defendant had any ownership and contended the property was self-acquired by the 2nd defendant.

The trial Court found there was no evidence that the 1st defendant was the real purchaser who bought benami in the name of the 2nd defendant, but held that the 1st defendant was an ostensible owner with the consent of the 2nd defendant and that the plaintiff was a bona fide purchaser for value without notice entitled to protection under section 41 of the Transfer of Property Act, 1882; accordingly it passed a decree for possession and liberty to apply for future mesne profits.

The defendants (Nos. 3–6 and 2A–2D) appealed; the learned single Judge confirmed the trial Court's findings. The present proceeding is a Letters Patent Appeal by those defendants against the confirmation. The court of A.P. Shah, J., after hearing arguments, disposed of the appeal (see Holding and Implications below).

Legal Issues Presented

Whether the plaintiff was a bona fide purchaser for value without notice of the existing rights of the 2nd defendant and therefore entitled to protection under section 41 of the Transfer of Property Act, 1882.
Whether the defence of the defendants is barred by the Benami Transactions (Prohibition) Act, 1988 — specifically whether the property was "held benami" so as to attract section 4(2) of that Act and prevent the defendants from setting up rights in the property.

Arguments of the Parties

Appellants' Arguments (Mr. Abhyankar)

The plaintiff abandoned his original case that the property was purchased benami in the name of the 2nd defendant and relied entirely on section 41 of the Transfer of Property Act.
Section 41 is an exception to the general nemo dat rule; if the purchaser had knowledge that the transferor's title was in dispute and took a risk in purchasing, he cannot be said to have acted in good faith.
Reply Exhibit 96 (dated May 19, 1970) from the 2nd defendant put the prospective purchaser on notice; having been forewarned, the plea of good faith fails.
There is no material to show the plaintiff exercised reasonable care before purchasing; therefore the plaintiff failed to satisfy the ingredients of section 41 and is not entitled to relief.

Respondent / Plaintiff's Arguments (Mr. Bandiwadekar)

The plaintiff published a public notice that made clear what property and from whom the purchase was to be made; the 2nd defendant's reply claimed non-exclusive ownership but did not press the matter further.
After receiving the 2nd defendant's reply the plaintiff sent a rejoinder asking the 2nd defendant to explain his connection with the property; the 2nd defendant did not respond, and this correspondence led the plaintiff to believe bona fide that the 1st defendant alone was the owner.
The plaintiff acted in good faith and took reasonable care to ascertain that the transferor had authority to transfer the property; the requirements of section 41 are satisfied.
Separately, Mr. Bandiwadekar contended that the defence was barred by the Benami Transactions (Prohibition) Act, 1988 — arguing that city survey inquiry entries showed the property was held benami in the name of the 1st defendant and relied on Mithilesh Kumari v. Prem Behari Khare for the proposition that the Act applies to proceedings pending on the Act's commencement date.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Mithilesh Kumari v. Prem Behari Khare, (1989) 2 SCC 95 : AIR 1989 SC 1247	Relied upon by counsel for the proposition that the Benami Transactions (Prohibition) Act, 1988 applies to all proceedings pending before courts on the date of commencement of the Act (including matters at second appellate stage).	The court noted that counsel relied on this Supreme Court decision but held the Benami Act did not apply on the facts because the statutory definition of a benami transaction was not satisfied (no transfer or consideration by another). Thus the reliance on this precedent did not alter the court's conclusion in the present case.
Ouseph Chacko v. Raman Nair, AIR 1989 Kerala 317	Authority for the proposition that the definition of benami transaction is connected with all provisions of the Act and that where a transfer is sham, nominal, or without consideration the provisions of the Benami Act are not attracted.	The court cited this decision to support the view that mere entry in city survey records without a real transfer (or possession by the benamidar) cannot be treated as a benami holding; it used the case to reject the contention that the Benami Act barred the defendants' defence.
B. Anasuya v. B. Rayudu, AIR 1989 A.P. 290	High Court decision adopting the same view as Ouseph Chacko regarding the non-attraction of the Benami Act where the transaction is nominal or without consideration.	The court treated this as corroborating authority and relied on it to support rejection of the submission that the Benami Act barred the defence in the present factual context.

Court's Reasoning and Analysis

The court structured its analysis around two principal questions: (a) whether the plaintiff was a bona fide purchaser for value without notice entitled to protection under section 41 of the Transfer of Property Act; and (b) whether the Benami Transactions (Prohibition) Act, 1988 barred the defendants' defence.

On section 41, the court began by stating the general nemo dat principle and the equitable exception embodied in section 41: where the true owner permits another to hold out as the real owner (for example by entrusting title documents) a bona fide transferee who deals with the ostensible owner may obtain good title as against the true owner, but only if the transferee acted in good faith and took reasonable care to ascertain that the transferor had power to transfer. The transferee must show good faith and reasonable inquiry; a transferee who willfully shuts his eyes and makes no inquiry is not protected.

Applying these legal principles to the facts, the court found the following relevant points in the plaintiff's evidence:

The plaintiff claimed to have seen documents such as a property card, a sanad, a certificate of tenure and municipal tax receipts before purchase; but the sanad was issued on November 17, 1970 (after the May 19, 1970 sale deed), so the plaintiff could not have seen it prior to purchase.
The plaintiff published a public notice on May 7, 1970, and the 2nd defendant replied on May 9, 1970 claiming ownership rights; the plaintiff sent a rejoinder on May 13, 1970 and proceeded to execute and register the sale deed on May 19, 1970. Thus the 2nd defendant had forewarned the plaintiff before purchase.
It was not disputed that the 2nd defendant was in possession of the suit property and that fact was within the plaintiff's knowledge before purchase. Under the definition in section 3 of the Transfer of Property Act, the transferee is deemed to have notice that the real title may lie with the person in possession.
Despite knowledge of the 2nd defendant's possession and the 2nd defendant's reply to the public notice, the plaintiff did not undertake further inquiry to ascertain the basis of the 2nd defendant's possession or his title; the court specifically noted that an inspection of the inquiry register maintained by the City Survey Officer would likely have disclosed that the property had been acquired by the 2nd defendant.

The court concluded that the plaintiff failed to take reasonable care to ascertain the transferor's title and failed to discharge the onus of establishing good faith and reasonable inquiry required by section 41. Consequently, the plaintiff was not entitled to the protection of section 41.

On the Benami Transactions (Prohibition) Act, 1988 point, the court examined the statutory definition of "benami transaction" in section 2(a): such a transaction requires (a) a transfer of property, and (b) the consideration for the transfer being paid or provided by a person other than the transferee. The court observed that in the present case there was no transfer by the 2nd defendant to the 1st defendant — only an entry in the city survey record in the name of the 1st defendant. The court held that an entry in the record cannot, by itself, be described as a transfer (benami or otherwise).

The court further considered section 4 of the Benami Act (which bars suits to enforce rights in respect of property "held benami") and analyzed the meaning of "held" (drawing on common law dictionary usage) as possession or occupation. Because the 1st defendant was not in possession (the 2nd defendant was in actual possession), the property was not "held" by the 1st defendant and the statutory bar could not apply.

The court relied on the reasoning in Ouseph Chacko v. Raman Nair and B. Anasuya v. B. Rayudu to the effect that where a transfer is a sham, nominal or without consideration the Benami Act is not attracted; applying that reasoning, the court rejected the contention that the defendants' defence was barred by the Benami Act. It therefore found Mr. Bandiwadekar's Benami Act argument misconceived on the facts.

Holding and Implications

Final Disposition: Letters Patent Appeal allowed; the decree passed by the trial Court is set aside and the plaintiff's suit for possession is dismissed.

Implications and immediate consequences:

Direct effect on the parties: The plaintiff loses the suit for possession; the trial Court's decree in favour of the plaintiff is vacated. The defendants (legal representatives of the 2nd defendant) succeed in the Letters Patent Appeal.
Costs: The court ordered that, in the circumstances of the case, there shall be no order as to costs.
Precedential impact: The opinion applied established legal principles (notably the requirements of section 41 of the Transfer of Property Act and the statutory definition and scope of the Benami Transactions Act) to the facts, and it rejected the contention that the Benami Act barred the defence on the particular facts. The opinion does not purport to lay down a novel legal doctrine; it applied existing law to the facts and concluded that the plaintiff had not satisfied the statutory requirements for protection under section 41 and that the Benami Act did not apply in the factual scenario before the court.

Appeal allowed.

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Laxman Sakharam Salvi v. Balkrishna Balvant Ghatage

A.P Shah, J.:— Original defendants Nos. 3 to 6 and 2A to 2D have taken exception to a decree for possession of a house property by way of this Letters Patent Appeal. Briefly stated, the facts are that the plaintiff sued the defendants to recover possession of the suit property on the basis of his title. According to the plaintiff, on May 19, 1970, he purchased the suit property for a consideration of Rs. 12,000/- from the 1st defendant. The 2nd defendant, deceased Laxman Sakharam Salvi, was the brother of the 1st defendant, but given in adoption in Salvi family. The defendants 3 to 6 and 2A to 2D are the legal representatives of the 2nd defendant. According to the plaintiff, the suit property was purchased by the 1st defendant benami in the name of the 2nd defendant on July 31, 1930 from Chhatrapati Maharaja of Kolhapur. In the alternative the plaintiff alleged that if the 2nd defendant was the real owner then the 1st defendant was the ostensible owner of the suit property and that he purchased the same from the 1st respondent bona fide for valuable consideration without notice of the rights of the 2nd defendant. In the alternative the plaintiff also alleged that in case it is held that the suit property was of the joint ownership of the 1st and the 2nd defendants, the portion purchased by him from the 1st defendant be allotted to the share of the 1st defendant. On these allegations the plaintiff claimed possession of the property and past and future mesne profits.

2. The 1st defendant by his written statement (Exhibit 69) supported the suit claim of the plaintiff and contended that he alone was the owner of the property sold to the plaintiff. The legal representatives of the 2nd defendant by their written statements (Exhibits 26 and 40) contended that the suit property is self-acquired property of their father and that the 1st defendant has nothing to do with the ownership of the property and therefore the sale deed executed by the 1st defendant in favour of the plaintiff is not binding on them.

3. The trial Court, upon consideration of the material produced by the parties, held inter alia that there is no evidence to show that the 1st defendant was the real purchaser of the suit property and with his money purchased the same in the name of the 2nd defendant benami. The trial Court, however, held that the 1st defendant was the ostensible owner of the suit property with the consent of the 2nd defendant and that the plaintiff is bona fide purchaser of the property for value without notice and thus entitled to the protection afforded by section 41 of the Transfer of Property Act, 1882 (“Act” for short). In that view of the matter, the trial Court passed a decree for possession giving liberty to the plaintiff to apply for future mesne profit from the date of the suit till delivery of possession under Order 20, Rule 12(1)(c) of Code of Civil Procedure.

4. In appeal preferred by the defendants 3 to 6 and 2-A to 2-D, who are the present appellants, the learned single Judge was pleased to confirm the findings of the trial Court holding that all the ingredients of section 41 of the said Act, namely, an ostensible ownership with the consent of the real owner, the transfer for consideration and good faith as well as reasonable care to ascertain that the transferor has a power to transfer the property are satisfied.

5. Mr. Abhyankar on behalf of the appellants urged at the bar that the plaintiff has given a go by to his original case of a benami purchase of the property in the name of the 2nd defendant and has based the case entirely on the provisions of section 41 of the said Act. Mr. Abhyankar, however, urged that section 41 of the said Act being an exception to the general rule, that a person cannot confer a better title than he has, if the purchaser had knowledge that the title of his transferor was in dispute and that he had taken a risk in purchasing the same, it is not possible to hold that he had purchased the property in good faith. Mr. Abhyankar further urged that reply Exhibit 96 given by the 2nd defendant on May 19, 1970 did put the prospective purchaser upon his guard and having been forewarned, the plea of good faith cannot be accepted. Mr. Abhyankar also urged that there is absolutely no material to show that the plaintiff has taken reasonable care before purchasing the property. According to Mr. Abhyankar, the plaintiff having failed to satisfy all the ingredients of section 41 of the said Act, is not entitled to any relief. Mr. Bandiwadekar countered the arguments of Mr. Abhyankar by contending that in the public notice the plaintiff had made it sufficiently clear as to what property he was purchasing and from whom he was purchasing the said property and to that notice the 2nd respondent sent a reply in which he has stated that the property sought to be purchased did not exclusively belong to the 1st defendant and that he has ownership rights in the property. After this reply was received by the plaintiff, the plaintiff by his rejoinder called upon the 2nd defendant to explain how he being Laxman Sakharam Salvi, was concerned with the property which the plaintiff was purchasing but the 2nd defendant did not respond at all. According to Mr. Bandiwadekar, this correspondence between the plaintiff and the 2nd defendant has led the plaintiff to believe bona fide that the 1st defendant alone was the owner and thus the plaintiff had acted in good faith and taken the reasonable care to ascertain that the transferor had power to transfer the property. Mr. Bandiwadekar contended that the requirements of section 41 are thus fully satisfied.

6. We shall now advert to the main question whether the plaintiff was the bona fide purchaser of the property for value without notice of the existing rights of the 2nd defendant and entitled to protection afforded by section 41 of the said Act. One of the general principles of law of transfer of property is that no man can transfer to another a right or title greater than what he himself possesses and he gives not who hath not. Exception to this general principle that if the true owner permits another to hold himself out as the real owner by entrusting him with the documents of title or in some other way a third person who bona fide deals with that, other may acquire good title to the property as against the true owner. This exception which is really a form of equitable doctrine of estoppel is embodied in section 41. The transferee will be protected only if he has acted in good faith after taking reasonable care to ascertain that the transferor had power to make the transfer. The transferee who wilfully shuts his eyes and takes the transfer without any inquiry is not protected. The transferee is also required to show that he had purchased the property after taking care to ascertain that the transferor had power to make the transfer. What is reasonable care depends upon the facts and circumstances of each case and no hard and fast rules can be laid down. We are required to examine the plaintiff's claim in the light of these established legal principles.

7. The plaintiff stated in his evidence that he purchased the suit property for his brother and that before purchasing it, there was an agreement of sale with the 1st defendant. The original agreement of sale is not produced, but from the recitals in the sale deed, it appears that the 1st defendant had entered into an agreement to sell with the plaintiff on April 29, 1970 and had received Rs. 5,500/- as earnest. The sale deed was executed on May 19, 1970. The plaintiff has stated that before purchasing the property he had seen the property card, sanad issued by Sarsubhe, Karvir Ilakha, Karvir, Kolhapur and the certificate of tenure issued by the Director of Town Planning and the municipal tax receipts. The sanad was issued on November 17, 1970 on application of the 1st defendant. The plaintiff could not have possibly seen this document. The plaintiff has stated that after the agreement of sale he issued a public notice in Daily Pudhari on May 7, 1970. The 2nd defendant sent a reply on May 9, 1970, claiming ownership rights to the property. He has further stated that to that reply he had sent a rejoinder on May 13, 1970 and as the 2nd defendant did not do anything in the matter, he got the sale deed executed and registered on May 19, 1970. Thus it is clear that before the plaintiff purchased the property the 2nd defendant put him on his guard and has forewarned about his claim in the suit property.

8. It is not disputed before us that the 2nd defendant was in possession of the suit property and this fact was within the knowledge of the plaintiff before he purchased the property from the 1st defendant. Where the disputed property was found not to be in possession of the transferor at the time of purchase, the transferee should take reasonable care to ascertain as to how and why the transferor was transferring the property of which he was not in possession. By virtue of definition of section 3 of the said Act, the transferee must be deemed to have given notice that the real title was in the person in actual possession. If with such statutory requirements the transferee did not make inquiry as to the factum of possession, he cannot be said to have acted in good faith taking reasonable care to ascertain the real owner. Mr. Bandiwadekar, however, submitted that after the reply given by the 2nd defendant was received by the plaintiff, the plaintiff by his rejoinder dated May 30, 1970 called upon the plaintiff how he being Laxman Sakharam Salvi was concerned with the property which the plaintiff was purchasing. The 2nd defendant did not care to take any further steps in the matter and therefore it cannot be said that the plaintiff has not taken care. The submission of the learned counsel is without any merit. On perusal of the sale deed it is clearly seen that the plaintiff was made aware of the 2nd defendant's relation with the 1st defendant and also the fact that the 2nd defendant is in possession of the property and in spite of this the plaintiff failed to make any further inquiry in the matter. The plaintiff failed to ascertain in what right or capacity the 2nd defendant was residing in the suit property especially when this fact was known to the plaintiff much prior to the purchase. Had the plaintiff taken inspection of the inquiry register maintained by the City Survey Officer, he could have easily discovered that the property has been acquired by the 2nd defendant. A transferee who does not make any inquiry into the title of the transferor, cannot be said to have taken the reasonable care required by section 41 of the said Act. The onus is upon the transferee to show that he acted in good faith and, in our opinion, the plaintiff has completely failed to discharge this onus. The plaintiff is, therefore, not entitled to protection of section 41.

9. Mr. Bandiwadekar lastly contended that the defence of the defendants is barred by the provisions of Benami Transactions (Prohibition) Act, 1988. Mr. Bandiwadekar urged that though the property was orginally purchased by the 2nd defendant on July 31, 1930, in the city survey inquiry, which seems to have been held sometime in 1938, both the defendants Nos. 1 and 2 appeared and the 2nd defendant stated that the property be entered in the name of the 1st defendant, his elder brother, and, accordingly, the property was entered in the name of the 1st defendant. According to Mr. Bandiwadekar, the property was thus held benami in the name of the 1st defendant and in view of the provisions of section 4(2) of the Act, no defence based on any right in respect of the said property, which was held benami, whether against the benamidar or against any other person, should be allowed. It was also urged by Mr. Bandiwadekar, that though this contention was not raised before the lower Courts, we are bound to take into account the provisions of the Act moulding the relief in appeal. Mr. Bandiwadekar placed reliance on the judgment of the Supreme Court in the case of Mithilesh Kumari v. Prem Behari Khare, 1989 Mh.L.J 210 (SC) : (1989) 2 SCC 95 : AIR 1989 SC 1247, in support of his plea that the Act applies to all proceedings pending before the Courts of law on the date of the commencement of the Act, even if they are at the second appellate stage.

10. We are afraid that the contention of Mr. Bandiwadekar is completely misconceived. The Act has provided in section 2(a) a definition for benami transaction. It means “any transaction in which property is transferred to one person for a consideration paid or provided by another.” It contemplates cases where (a) there is a transfer of property, and (b) the consideration is paid or provided not by the transferee, but by another. When there is no transfer of property or when there is no consideration for the transaction, the definition of benami transaction is certainly not satisfied.

11. In the facts of the present case there is no transfer of the property by the 2nd defendant to the 1st defendant. All that happened was that the property was entered in the city survey record in the name of the 1st defendant. By no stretch of imagination this can be described as transfer — benami or otherwise. Moreover, section 4 prevents any suit, claim or action to enforce any right in respect of any property “held benami”. “Hold”, according to Black's Dictionary means “to possess in virtue of a lawful title as in the expression, common in grants, “to have and to hold”, to possess; to occupy; to be in possession and administration of”. In the context and setting of section 4, the word “held” has to be understood as “possessed or occupied”. If the possession or occupation is not benami, section 4 can have no application. Admittedly, though the property stood in the name of the 1st defendant in the city survey record, it was occupied by the 2nd defendant and, therefore, it cannot be said that the property was held by the 1st defendant either benami or otherwise. A reference may be made to the judgment of Kerala High Court in the case of Ouseph Chacko v. Raman Nair, AIR 1989 Kerala 317, wherein it has been held that the definition of benami transaction is inextricably connected with all the provisions of the Act, as the Act is intended “to prohibit benami transactions and the right to recover property held benami” and, therefore, when the transfer is a sham or a nominal or a transfer without consideration, the provisions of the Act are not attracted. Same is the view taken by the Andhra Pradesh High Court in the case of B. Anasuya v. B. Rayudu, AIR 1989 A. P. 290. We have, therefore, no hesitation to reject the contention of Mr. Bandiwadekar that the defence is barred by the Act.

12. In the result, the Letters Patent Appeal succeeds. The decree passed by the trial Court is set aside. The plaintiff's suit for possession is dismissed. However, in the circumstances of the case there shall be no order as to costs.

Appeal allowed.

Laxman Sakharam Salvi v. Balkrishna Balvant Ghatage

Structured Summary of the Opinion (A.P. Shah, J.)

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Appellants' Arguments (Mr. Abhyankar)

Respondent / Plaintiff's Arguments (Mr. Bandiwadekar)

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Laxman Sakharam Salvi v. Balkrishna Balvant Ghatage

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