This project is related is related to Bonafide Purchaser of the Property of The Transfer of Property Act of 1882 The Project Consist of a doctrinal research on the topic & therefore the title of the project is- “Critical Analysis on Bonafide Purchaser of A Property: With Reference To Sec 41”.

During a transfer of property, or conveyance of property by one person to another, one who transfers the property is known as transferor and the one who purchases that property or to whom the property is being transferred is known as the Purchaser or the Transferee. In general term Bona fide is a Latin Term meaning “In Good faith”. Thus, a Bona fide Person means the person having a good or sincere or an honest intention or belief. A Bona fide Purchaser is a term used in the law of property to refer to an innocent party who purchases property without notice of any other party’s claim to the title of that property.

Transfer of Property Act, 1882 enacted with a view to ‘define and amend certain parts of law relating to transfer of properties by acts of parties’. This is not a consolidating Act, nor does it purport to be a complete code dealing with the transfer of properties. It only deals with the transfer of immovable property including certain incorporeal rights by one living person to another living person by voluntary acts. It is based on the English law of real property and many of its provisions are borrowed from various enactments which it repeals and supersedes.

Although the Act applies to the transfer of properties between living persons, the ambit of the words ‘living person’, by an amendment in 1925, has been enlarged to include artificial or legal person such as a company or an association of individuals. It includes current as well as future transfer transactions

• Aims & Object of the Research

The aims that the researcher would precede the research with are: The nature of the research carried is Doctrinal or analytical. The researcher would firstly deal with the history of the concept then further the researcher would go with the explanation of the concept with the help of bare text & explaining it with the help of case laws. The researcher would then deal with analytical aspects & critically analyze it & further followed with the conclusion.

The Object of my research mainly it is to analyze to what rights a bona fide purchaser, to what extent…. The research conducted also deals with a wider aspect in the same & has also critically analyzed it….

The Research carried is to examine the following:

Ø Critically analyze position & rights of a purchaser who acted in bona fide interest

Ø Illustrating various case laws

• Hypothesis

The researcher had following assumptions on which the findings are based:

Ø The researcher assumed that interest of a purchaser is only protected if the particular person acted in bona fide or good faith.

Ø Assumed that protection as a bona-fide purchaser is to be examined on the merits of the case.

Ø Assumed that the plea of good faith is taken in court by the transferee illustrating various case laws.

• Importance

The importance & application of this section of this principle is based on the law of estoppel to the effect that if a man has represented that the transferor consents to an act which has been done & that he would not offer any opposition, although the same could not have been lawfully done without his consent and he thereby induces others to do that from which they might have abstained he could not question the legality of the act, to the prejudice of those who has given faith to his words or to the fair inference to be drawn from his conduct. Therefore, it is important to protect the interest of a Bonafide purchaser of a property.

• Scope of the Research

The scope of my research is limited to India, The Transfer of Property Act, 1882 although a few English Cases and English Jurist’s view has been cited in this project just for passing reference to the case law and principle but has not been dealt with in detail. Section 41 is limited & does not apply to cases arising in states to which the act does not apply but even in these states the principles underlying the above section are applicable.

Bona Fide Purchaser Of Property: Concept & Principle

• A Bonafide Purchaser

During a transfer of property, or conveyance of property by one person to another, one who transfers the property is known as transferor and the one who purchases that property or to whom the property is being transferred is known as the Purchaser or the Transferee. In general term Bona fide is a Latin Term meaning “In Good faith”. Thus, a Bona fide Person means the person having a good or sincere or an honest intention or belief. A Bona fide Purchaser is a term used in the law of property to refer to an innocent party who purchases property without notice of any other party’s claim to the title of that property. He is a person who purchases the property for value that is must pay for it or must give considerations rather than simply be the beneficiary of a gift. Even when a party, fraudulently conveys property to a bona fide purchaser, may be by any way that is by transferring or selling to the bona fide purchaser property that has already been conveyed or transferred to someone else, that bona fide purchaser will, get a valid title or a good title to the property despite the competing claims of the other party. However, parties who are claiming for the real ownership in the property will retain a cause of action (a right to sue) against the party who made the fraudulent conveyance. Thus, a Bona fide purchaser is a person , who acts in good faith , without any notice of the real title over the purchased property, purchases that property from a person , who himself not having a good title over that property, Here 3 things must be noticed that – 1) He is acting in good faith, 2) He must be honestly in his intentions , 3) he purchased the property with a false notice of false title over the purchased property but as he is the bona fide purchaser his rights and interests are protected under the laws. Thus, here we see that Bonafide Purchasers act in good faith and has no notice of the good title over the property even after a reasonable care and investigation. But, final thing is that, they are ultimately Bonafide and were not aware of the real title over the property even after a reasonable enquiry. Thus TP Act provides them some Rights and Immunities so that their interest, over the property, though purchased under a defective/bad Title must be protected. This concept is an exception to the rule contained in the maxim Nemo dat quo non hobet and also of Section 27 of Sales of Goods Act 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”.

• Principle Laid Down

The foundation of this section is the following well-known passage from the judgment of the Judicial Committee in Ramcoomar v. Mac-queen.

It is a principle of natural equity which must be universally applicable that where one man allows another to hold himself out as the owner of an estate and a third person purchases it, for value from the apparent owner in the belief that he is the real owner, the man so allows the other to hold himself out shall not be permitted to recover upon his secret title, unless he can overthrow that of the purchaser by showing either that he had direct notice or something which amounts to constructive notice of the real title or that there existed circumstances which ought to have put him upon an enquiry that, if prosecuted would have led to a discovery of it.

The section is a statutory application of the law of estoppel the general principle of which is stated by the House of Lords in Carincross v. Lorimer

If a man either by words or by conduct, has initiated that he consents to an act which has been done, and that he will offer no opposition to it, although it could not have been lawfully done without his consent, and he thereby induces others to do that from which they might have abstained he cannot question the legality of the act he had so sanctioned to the prejudice of those who have so given faith to his words or to the fair inference to be drawn from his conduct.

The transferee will be protected only if he has acted in good faith after taking reasonable care to ascertain that the transferor has power to make the transfer. The transferee who willfully 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. The Bombay H.C. in Laxman Sakhram Salvi v Balkrishna Balwant Ghatage held that what is reasonable care depends upon the facts and circumstances of each case, and no hard and fast rules can be laid down.

The principle of this section applies to the territory of Delhi. This section makes an exception to the rule that a person cannot confer a better title then he has.

• Court Sale

The Bombay H.C. in Vaman Pandu v Tikaram held that the section only applies to voluntary transfers and has no application to court sales. The provision of Sec. 41 & 43 logically get engaged in voluntary transfers, & not in involuntary transfers like auction sales.

• Section 41 & 43

1. Transfer by unauthorized person (Sec. 43) - Is the person who subsequently acquires interest in property transferred. Where a person fraudulently or erroneously represents that he is authorized to transfer certain immoveable property and professes to transfer such property for consideration, such transfer shall, at the option of the transferee, operate on any interest which the transferor may acquire in such property at any time during which the contract of transfer subsists. Nothing in this section shall impair the right of transferee’s in good faith for consideration without notice of the existence of the said option.”The distinction between the said two provisions is apparent.

2. Application of Section 41 – Sec 41 of the Act is based on the law of estoppel to the effect that if a man has represented that the transferor consents to an act which has been done and that he would not offer any opposition thereto, although the same could not have been lawfully done without his consent and he thereby induces others to do that from which they might have abstained he could not question the legality of the act he had so sanctioned to the prejudice of those who have so given faith to his words or to the fair inference to be drawn from his conduct.

3. Ingredients of Section 41

The ingredients of Section 41 of the Act are :
1) the transferor is the ostensible owner
2) he is so by the consent, express or implied, of the real owner
3) the transfer is for consideration
4) the transferee has acted in good faith, taking reasonable care to ascertain that the transferor had power to transfer.

In Ballu Mal v. Ram Kishan it was held that if anyone of these elements is needed, the transferee is not entitled to the benefit of this Section. In Ramrao v. State of Bombayit was held that the basis of the rule is some representation or act or conduct on the part of the true owner. In Sheogobind Ram v. Anwar Ali Patna court held that in order to get benefit of this section, the transferee must plead it & set out the relevant facts in his pleadings.

In Ved Kumari v. U.O.I. it was held that an alienee from an ostensible owner is protected under Sec. 41, if the alienee can establish that the sale was with the consent express or implied of the true owner & that it was for consideration & that the alienee had taken reasonable care to ascertain that the transferor had power to make the transfer & has acted in good faith.

In Jumma Masjid, Mercara v. Kodimaniandra Deviah it was held that Section 43, on the other hand, embodies a ‘rule of feeding the estoppel’ and enacts that a person who makes a representation shall not be heard to allege the contrary as against a person who acts thereupon and it is immaterial whether the transferor acts bona fide or fraudulently in making the representation.

In order to get the benefit of the said provision, the conditions which must be satisfied are:
(1) the contract of transfer was made by a person who was competent to contract; and
(2) the contract would be subsisting at the time when a claim for recovery of the property is made.

However, the provisions would have no application if the transfer was invalid as being forbidden by law or contrary to public policy, as envisaged under Section 23 or transfer made was not by free consent similar to what Sec. 14 of the Indian Contract Act 1872 respectively requires. Thus, no estoppel can be pleaded contrary to the provisions of a statute. The ‘rule of feeding the estoppel’ shall apply in absence thereof. The doctrine of feeding the estoppel envisages that ‘where a grantor has purported to grant an interest in land which he did not at the time possess, but subsequently acquires, the benefit of his subsequent acquisition, goes automatically to the earlier grantee, or as it is usually expressed, feeds the estoppel’.

The principle is based on an equitable doctrine that a person who promised to perform more than he can perform must make good his contract when he acquires the power of performance. The difference between the ambit of Section 41 and 43 of the Act is apparent. Whereas Section 41 provides that a transfer by an ostensible owner cannot be avoided on the ground that the transferor was not authorized therefore, subject to the condition that the transferee should take reasonable care to ascertain that the transferor had power to make the transfer and to act in good faith before a benefit thereof is claimed by him. In Jumma Masjid, Mercara v. Kodimaniandra Deviah it was said that Section 43 enables the transferee to whom a transferor has made a fraudulent or erroneous representation to lay hold, at his option, of any interest which the transferor may subsequently acquire in the property, unless the right of any subsequent purchaser for value without notice is in effect.

• Ostensible Owner

An ostensible owner is one who has all the indicia of ownership without being the real owner. In Crystal Developers v. Asha Lata Gosh it was held that it must be shown that with the consent of the true owner, the ostensible owner was able to represent himself as the owner of the property to the purchaser for value without notice. In Jokhu v. Mehdi it was held that a benamidar is an ostensible owner and if a person purchases from a benamidar, the real owner cannot recover unless he shows that the purchaser had actual or constructive notice of the real title.

• Scope of The Principle Involved

One of the general principles of the law of transfer of property is enunciated by the maxim nemo plus juris alium transfere potest, quam ipse habet- no man can transfer to another a right or title greater than what he himself possesses. Another maxim enunciating the same principle in another form is non dat qui non habet- he gives not who hath not. To this general principle, however there are several exceptions. Thus under the law merchant as to negotiable instruments a transferee bona fide of an instrument may get a better title than that of the transferor. Similarly, a bona fide purchaser of chattels at a sale in market overt in England may get better title to the chattels than that of the seller. Again if the true owner of property permits another to hold himself out as the real owner, as 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 a good title to the property as against the true owner. Section 41 is intended to protect third party transferees who bona fide and after due care and caution purchase the property from an ostensible owner taking him to be the real owner.  The ground of this last exception was stated by their Lordships of the Privy Council in Ramcoomar v. McQueen. “It is a principle of natural equity which must be universally applicable that where one man allows another to hold himself out as the owner of an estate & the third person purchases it from the apparent owner in the belief that he is the real owner, the man who so allows the other to hold himself out shall not be entitled to recover upon his secret title unless he can overthrow that of the purchaser by showing either that he had direct notice or something which amounts to constructive notice of the real title or that there existed certain circumstances which ought to have put him upon an enquiry that if prosecuted would led to a discovery of it. The principle so stated is form of an equitable doctrine of estoppels & this section is legislative enactment of the principle stated in Ramcoomar’s case. Thus it is an exception to the rule that a man cannot confer a better title than he has. The conditions must be mandatorily followed before availing its benefits. The principle of estoppels here operates between the Bonafide purchaser & the real owner & not between the ostensible owner & the purchaser, ostensible owner cannot avail benefits under this section.

• Common & Indian Law

There is a difference between Common & Indian Law in regard to applicability of this section. The latter is a diversion from the former i.e. this principle in India only applies to Immovable property whereas in England it applies to transfer of goods e.g. transaction in Cole v. North Western Bank’s case.

• Sec 52 & Sec 41

“Where a suit is instituted by the person interested against the ostensible owner challenging the latter’s title to the property it is clear that the consent if any which might have been given by the plaintiff before the date of the suit to the ostensible ownership of the defendant is withdrawn by institution of the suit”. This is so because now if the defendant transfers after institution it cannot be said that defendant was the ostensible owner with due consent. Sec. 41 do not apply to protect such transfers whereas sec 52 will apply & will render the transfer ineffective against the right of the plaintiff under the decree or order that may be passed in the suit. Sec 52 overrides sec 41 of the act. Sec 41 is with reference to general application whilst Sec 52 deals with specific situations ? the latter prevails over the former. There is no confusion as to when the provisions applies, on the institution of the real owner challenging ostensible owner title Sec 41 ceases to apply & 52 begins. The principle in Sec 41 is an exception to the general rule & the results here can only be avoided under the equitable principle of estoppel whilst this principle must yield in Sec 52. to Doctrine of Les Pendis (rule of public policy), also binds a strange party not known to litigation otherwise it defeats the very purpose if such allegation is raised during  suit pendency.

Conclusion

Thus it can be concluded that the present project has clearly laid down the rights and remedies of the bona fide purchasers very much detail. One of the exceptions, mentioned in 41, to the general rule that a person who has no title to goods cannot confer a title upon a third party, is the case in which the owner is estopped from denying the validity of the sale. Estoppel may arise where the owner has so acted as to clothe another person with apparent or ostensible ownership, or it may arise where the owner has so acted as to clothe another person with apparent or ostensible agency for sale. If the ostensible owner or ostensible agent for sale, as the case may be, purports to sell to a buyer who takes for value in good faith and without notice, the original owner ought on principle to be estopped from disputing the validity of the sale.

At common law, a person in possession of goods could not confer on another, either by sale or by pledge, any better title to the goods than he himself had. To this general rule there was an exception of sales in market overt, and an apparent exception where the person in possession had a title defeasible on account of fraud. But the general rule was that, to make either a sale or a pledge valid against the owner of the goods sold or pledged, it must be shown that the seller or pledger had authority from the owner to sell or pledge, as the ease might be. If the owner of the goods had so acted as to clothe the seller or pledger with apparent authority to sell or pledge, he was at common law precluded, as against those who were induced bona fide to act on the faith of that apparent authority, from denying that he had given such authority, and the result as to them was the same as if he had really given it. But there was no such preclusion as against those who had notice that the real authority was limited. And the possession of bills of lading or other documents of title did not at common law confer on the holder of them any greater power than the possession of the goods themselves.

In Cole v. North Western Bank the court observed the same wherein A, the owner of goods, tells B that he has sold them to C. If B then buys the goods from C in good faith and without notice of the fact that C has not a good title, A is estopped from denying the validity of the sale. “The maxim nemo plus juris transferre potest quam se ipse habet has no application where the owner of goods has so lent himself to accredit the title to another person.”

There are some rights provided to the Bona fide Purchasers, who purchase the property under defective Title. These Rights are provided by the TPA, though not severally having a distinct chapter or section covering or defining it yet, these rights can be found; in many different sections of the TP Act mainly Sections form Sec. 38 to Sec. 53. This rights is dealt by Section 41 of Transfer of Property Act, 1882, which says that 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. This right is an exception to the rule of Latin maxim “nemo dat quo non habet” and Section 27 Sales of Goods Act, which says that a man who himself not possess a better title, cannot transfer a better title to other person. The present right is based on the principle that where two persons-Real Owner & Bonafide Purchaser, suffers from the fraud of a third person or party (ostensible Owner), the loss must fall on the person who has created or who was having the last opportunity to prevent the fraud, that is the real owner, and the ownership will pass to the innocent person trapped by the fraud (Bonafide Purchaser). Thus section 41 adds a big rider to the protection accorded by it. It is that if transferee has acted in good faith and has taken reasonable care as to ascertain what is real position is then transferee shall be protected against the rights of real owner. This right is based on the principles of equity that one, who allows another to hold himself out as the owner of a property and a third party purchased for value from the apparent owner in the belief that he was the real owner, the man, who , so allows the other to hold himself out, shall not be permitted to recover upon the secret title , unless he can overthrow that purchaser by showing either that he had direct notice or something which amounts to constructive notice of the real title , or that there existed circumstances which ought to have put him upon enquiry, which it prosecuted would led to the discovery of it . This right can only be exercised by the Bona fide Purchaser under a voluntary purchase- sale, not under any involuntary sale such as Auction- Purchaser. For this act a Mortgagor, manager of an idol or menial servant in the occupation of the property cannot be treated as the ostensible owner. Only that person will be entitled to claim protection by this right, who even after reasonable care and enquiry, were not able to find the real owner of the property and has full belief that the person making a transfer in this favour is the person really entitled to that property, taking the transfer from him. A mortgagee from an ostensible owner acting in good faith and with reasonable care has frequently been allowed the benefit of the section. The basic two ingredients which can be interpreted from this section to protect the rights of a bona fide transferee against the transferor are - a. Reasonable Care Reasonable Care means such care as an ordinary man of ordinary prudence will take. A Bona fide Purchaser is expected to have taken such reasonable care at the time of purchasing the property about the real ownership or title over the property. Reasonable care means such care as an ordinary man of business would take. Where there was absence of reasonable care and ordinary prudence on the part of transferee to ascertain the power of transferee or for the purposes of making a valid transfer, the transferee will not be protected under section 41. Only those transferee’s right are bona fide and can claim protection who, despite necessary inquiry, have not been able to discover who is the real owner of property is, and who have full believe that the person making a transfer in their favour is the person really entitled to that property, taking the transfer from him.  Good Faith Reasonable Care is not only enough, if there is absence of good faith. It is really required for a transferee to have acted in an honest manner and in the real belief that the ostensible owner is the real owner. So when a person purchased possessory title believing in good faith that his vendor was real owner and an inquiry that he could have made would only be confirmed him in that belief, then that person will be protected under this section.

Section 41 is limited & does not apply to cases arising in states to which the act does not apply but even in these states the principles underlying the above section are applicable from this the importance of the section can be easily inferred. It can be concluded from the above that legislature & court in order to protect the interest of a Bonafide purchaser of property has incorporated the above Section as an exception to the general rule & the applicability so far has been done on a fair basis. The researcher further suggests that the legislature should enact a separate provision for a Bonafide purchaser of a property describing various rights of a purchaser in good faith & clarifying the concept in a more apt manner in order to avoid confusion in this regard & which can also help & make a purchaser in good faith understand his rights & be aware in a better way.

Bibliography

Books Referred:

1. G.C. Bharuka, Mulla The Transfer of Property Act, Lexis Nexis Butterworths Wadhawa Nagpur, 10^th Edition 2006 Pg. 272
2. Maroha & Chitalay, The Transfer of Property Act, All India Reporter Nagpur, 2010 Edition. Vol. I Pg. 698
3. Avtar Singh, The Transfer of Property Act, Universal Law Publishing, 2^nd Edition.
4. B.B. Mitra & Sengupta, Transfer of Property Act, Kamal Law House, Kolkata, 19^th Edition, 2008

Websites Referred:

1. http://www.indiankanoon.org

2. http://www.vakilno1.com

Cases Referred:

· Jagannath Sakharam Sahale v. Vasudeo Vyankatesh Kanade 1987 (3) Bom CR 178

· Ramcoomar v. McQueen (1872) Ind app Sup Vol 40(43) (PC).