Rights Available To A Bona Fide Purchaser

Applicable Law

The Transfer of Property Act, 1882 (���TP Act�۝) regulates matters pertaining to transfer / conveyance of immovable property in India. The basic tenet of the TP Act is that a person can transfer to another person a right and/or title which he himself possesses. The natural corollary is that a person cannot transfer what he does not have. The TP Act, however, provides an exception to the aforesaid tenet, in the case of a ���bona fide purchaser�۪. This note briefly examines the rights and protection available to a ���bona fide purchaser�۪ under the TP Act, and other relevant legislation.

The TP Act does not specifically define a ���bona fide purchaser�۪. However, as held in various judicial pronouncements, a ���bona fide purchaser�۪ is a person who purchases property (a) in good faith and with honest intention, after carrying out reasonable due diligence, (b) for consideration or value, and (c) without notice of claims of a third party with respect to title to such property.

Section 41 of the TP Act

Section 41 of the TP Act deals with transfers by an ���ostensible owner�۪[1] and reads as follows:

���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 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.�۝

For application of Section 41 of the TP Act, the following conditions need to be satisfied[2]:

• the transferor is the ostensible owner;
• he is so by the consent, express or implied, of the real owner;
• the transfer is for consideration; and
• the transferee has acted in good faith, taking reasonable care to ascertain that the transferor had power to transfer.

Section 41 of the TP Act has been enacted to give statutory effect to the following principle of equity:

���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 who 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 inquiry that, if prosecuted would have led to a discovery of it.[3]�۝

It is pertinent to note that for Section 41 of the TP Act to apply, it is not necessary that the transfer of property to the bona fide purchaser should take place with the consent of the party that claims rights/interest in the property. As held by the Court in Ramjanam Ahir Versus Beyas Singh[4]:

���The words used in Section 41��of the Act are clear enough to indicate that the section does not require that the transaction to be binding on the real owner must have been entered into by the ostensible owner with the consent of the real owner. For the application of this section, it is no doubt true that with the consent of the true owner, the possession of the ostensible owner must continue up to the date of the transfer; but it is not at all necessary that the transfer itself should be with the consent of the owner.�۝

The consent required under Section 41 of the TP Act may be evidenced by conduct. In instances where the party that claims rights/interest in the property knew that another person is dealing with his property as if it were his own, and did not take any action to protect his rights, such inaction could imply consent[5].

Consent requirements under Section 41 of the TP Act may not be applicable in case of a benami transaction[6]. In Niranjan Kaur Versus The Financial Commissioner[7] the Court observed as under:

���Therefore, in order to attract the provisions of Section 41 of the Property Act, it is immaterial whether the true owner is the Government or any other person, specially when after the declaration of benami transaction as illegal in view of coming into force of the Benani Transactions (Prohibition) Act, 1988, the consent of true owner has lost importance, as for all intents and purposes the person registered as owner of the property is to be treated as true owner of the property and the true owner is otherwise debarred from claiming any interest or right in property. The right of vendee cannot be taken away to claim the protection under Section 41 of the Property Act.�۝

��It is pertinent to note that a benami transaction is one of the many instances in which Section 41 of the TP Act can be applied.

Other Relevant Provisions of the TP Act

• Section 43:

1. This section deals with ���transfer by unauthorised person who subsequently acquires interest in property transferred�۪, and reads as follows: ���Where a person fraudulently or erroneously represents that he is authorised to transfer certain immoveable property and professes to transfer such property for consideration, such transfer shall, at the option of the transferee, operates on any interest which the transferor may acquire in such property at any time during which the contract of transfer subsists.�۝
2. As per Section 43, in case a person either fraudulently or erroneously represents that he is authorised to transfer a property and transfers such property for consideration, then such a transfer will continue to operate in future, on any interest which the transferor may acquire in such property.��

• Section 51:

1. This section deals with ���improvements made by bona fide holders under defective title�۪, and reads as follows: ���When the transferee of immoveable property makes any improvement on the property, believing in good faith that he is absolutely entitled thereto, and he is subsequently evicted there from by any person having a better title, the transferee has a right to require the person causing the eviction either to have the value of the improvement estimated and paid or secured to the transferee, or to sell his interest in the property to the transferee at the then market-value thereof, irrespective of the value of such improvement.�۪
2. As per Section 51, where transferee of a property has undertaken improvements on the property under a wrong assumption that he has a good title over the property, he is entitled to claim compensation for the improvements made over the property if he is evicted by the person having a good title over that property.

• Section 53:

1. This section deals with ���fraudulent transfer�۪, and reads as follows: "(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. Nothing in this sub-section shall affect any law for the time being in force relating to insolvency. A suit instituted by a creditor (which term includes a decree-holder whether he has or has not applied for execution of his decree) to avoid a transfer on the ground that it has been made with intent to defeat or delay the creditors of the transferor shall be instituted on behalf of, or for the benefit of, all the creditors. (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. For the purposes of this sub-section, no transfer made without consideration shall be deemed to have been made with intent to defraud by reason only that a subsequent transfer for consideration was made."
2. As per Section 53, any transfer of a property made with an intent to defeat or delay the rights of creditors of the transferor is voidable at the option of the creditors. However, the rights of a bona fide purchaser are superior to those of the creditors and the creditor cannot prejudice the rights of a bona fide purchaser.

Specific Performance

The Specific Relief Act 1963 (���SR Act�۝) provides inter alia for specific performance of contracts. ��Section 19 of the SR Act deals with ���relief against parties and persons claiming under them by subsequent title�۪ and reads as follows:

���Except as otherwise provided by this Chapter, specific performance of a contract may be enforced against ����� (a) either party thereto; (b)��any other person claiming under him by a title arising subsequently to the contract, except a transferee for value who has paid his money in good faith and without notice of the original contract;�۝

In view of Section 19(b) of the SR Act, any agreement that has been entered into by a transferor agreeing to transfer a property cannot be enforced against a bona fide purchaser.�� The rights of a bona fide purchaser are superior to those of an agreement holder, even if such agreement has been entered into prior in point of time.

Conclusion

In view of the above, a person (or an entity) who fulfils all requirements of a bona fide purchaser, having carried out a due diligence exercise on all the properties and having issued public notices calling for objections from any interested parties, would be entitled to claim all the benefits that are available to a bona fide purchaser under the provisions of the TP Act and the SR Act, as mentioned herein above.

The views and opinions expressed in this article belong solely to the author and do not reflect the position of Tatva Legal Hyderabad.

[1] The term ���ostensible�۪ means apparent or seeming. An ostensible owner is a person who has all indication of genuine and real ownership to the property.

[2] �� D. Ramakrishna Versus�� D. Balakrishna, 2015 (5) KarLJ 478

[3] �� Ramcoomar Versus Macqueen, (1872) 52 Ind App Sup 40

[4] �� AIR 1958 Pat 537

[5] �� Mst. Shams-un-nissa Bibi Versus Sh. Ali Asghar,�� AIR 1936 Oudh 87 ; Mulchand��Hazarimal Versus Hassomal��Bachomal, AIR 1937 Sindh 177

[6] �ʉ��Benami transaction�۪ is defined to mean ���any transaction in which property is transferred to one person for a consideration paid or provided by another person�۝

[7] �� AIR 2011 P&H 1