FINAL DRAFT PROPERTY LAW-I
Doctrine of Holding Out SUBMITTED TO-
Dr. Manish Singh (Asst. Prof. of Law) SUBMITTED BY-
Saurav Singh B.A LL. B (Hons.) V Semester-150101119 Semester-150101119
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CONTENTS ACKNOWLEDGMENT: ............................................................................................................... 3 INTRODUCTION .......................................................................................................................... 4 HISTORY AND MEANING OF THE DOCTRINE...................................................................... 6 IN INDIA .................................................................................................................................... 6 OSTENSIBLE OWNER.......................................................................................................... 7 ESSENTIALS OF THE DOCTRINE...................................................................................... 8 BENAMI TRANSACTIONS ............................................... ................................................... 8 OTHER ASPECTS OF THE PROVISION............................................................................. 9 IN ENGLAND .......................................................................................................................... 12 CONCLUSION ................................................. ............................................................................ 16 BIBLIOGRAPHY ............................................. ............................................................................ 17
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ACKNOWLEDGMENT:
I would like to extend special thanks and gratitude to my subject teacher Dr. Manish Singh who gave me the golden opportunity to work on this wonderful research topic Holding
out”
“The Doctrine of
which has helped me gain a lot of standpoint regarding relevant provisions of the
Constitution of India as well as the vast growing dynamics of Special Leave Petitions in the country. Throughout the research period I have been time and again guided by my teachers whenever I faced any hurdles or was in a state of stupor not being able to figure out the intricacies of the subject. I would like to thank my university Dr. Ram Manohar Lohiya National Law University for giving me the chance to be a part of a unique research oriented curriculum which indeed boosts the understanding of the subject. I would also like to thank my parents, mentors and well-wishers who have been a constant support and have time and again reviewed my work and have provided their insights on the matter. -
Saurav Singh
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INTRODUCTION
Doctrine of Holding Out as defined in various legislations namely The Partnership Act1932, The Limited Liability Partnership Act 2008, but mainly it derives its existence from the provision of The Transfer of Property Act. If we look the dictionary meaning of the word holding-out means: “conduct by a person leading another to believe that he possesses an authority that in reality, he does not. Such conduct in effect amounts to a representation such that he will be prevented by ESTOPPEL from denying that the authority exists1. So after reading the definition from the dictionary its quite clear that the ostensible owner is no the real owner of the property, he holds out the property to shoe\w the buyer that he holds it which can be gainful to him but not to the buyer, so if someone brings action against the ostensible owner he has to face lethal legal consequences. Section 41: -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 authorized to make it. Proviso: that
the transferee, after taking reasonable care to ascertain that the transferor had
power to make the transfer, has acted in good faith. The section lays down certain requirements to avail the benefit of this section. They are:
The primary condition is that the person who is transferring the property should be ostensible owner.
There should be consent form the real owner, which can be implied or express form.
The ostensible owner should get some consideration in return of the property.
Reasonable care has to be taken by the transferee about the authority of transferor to the property and the transferee had acted in good faith.
It goes without saying that this section is applicable only to transfer of immovable property and not in case of movable property. 4e g
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http://legal-dictionary.thefreedictionary.com/holding+out P
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Moving further with the Introduction, the research paper will contain the History of this Doctrine, how this doctrine came into existence in Common Law Countries namely England and India. What the meaning this doctrine holds in different areas as interpreted by the courts will be defined in the subsequent sections of this paper and if any exceptions and essentials as defined above would be discussed and after that the conclusion will conclude the research paper. Various other statutes also deal with this doctrine like The Indian Partnership Act, The Limited Liability Act. These statutes define the liability of the transferor in terms of corporate affairs.
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HISTORY AND MEANING OF THE DOCTRINE
History of this doctrine is vividly described by various courts all over the world but in this research paper we would discuss the history relating to the countries of England and India. In India the Transfer of Property Act governs the matter whereas in England Law of Property Act, 1925 governs with the matter of the property. IN INDIA
Transfer of Property Act is one of the oldest legislations in India and the provision mentioned in the Introduction of this research paper governs the Transfer by Ostensible owner and the Doctrine of Holding Out is not as such defined in the provision, it could not be deciphered by the bare reading of the provision, we come to the knowledge about the doctrine from various cases decided by various high courts in India. The foundation of the provision is the following well-known passage from the judgment of the Judicial Committee in Ramcoomar vs Mac-queen:2 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 have direct notice4, 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 discovery of it. So reading this case the doctrine of holding out came out as an aspect of the provision of section 41. In another decision by House of Lords in the case of Cairncross vs Lorimer. 3 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
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(1872) 11 Beng LR 46, p 52, followed in Seshumull M Shah vs Sayed Abdul Rashid & ors AIR 1991 Kant 273, p278. 3 (1860) 3 Macq 827, p 829 P
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lawfully done without his consent, and he thereby inducts others to do that from which they might have abstained — he cannot question the legality of the act had so sanctioned — to the prejudice of those who have so given faith to this words or the fair inference to be drawn from his conduct. The law of estoppels is enacted in s 115 of the Indian Evidence Act 1872 and Shepherd and Brown point out that the leading case on that section falls equally under s 41 of the TP Act. In that case,4 the owner transferred property to his wife as benamdari and after his death she mortgaged the property, her son assisting in the transaction and receiving the mortgage property money. The son was held to be estopped from disputing the mortgage, while if this section had been applied, the case would have been decided on the ground that by the consent of the son, the motherwas the ostensible owner. In the case of Laxman Shankhram Salvi v Balkrishna Balwant Ghatage5 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. What is reasonable care, depends upon the facts and circumstances of each case, and no hard and fast rule can be laid down. An important point to note here is that the provision only applies to voluntary transfers, and had no application to court sales.6 OSTENSIBLE OWNER
‘Ostensible’ literally means ‘apparent’ or ‘seeming’. An ostensible owner is a person who apparently or seemingly appears to be the owner, though in reality, he is not. He is a person having all indices of ownership having being real ownership.7he is different from mere trespasser or a person in unlawful occupation of the property. His behavior and conduct appears to be that of the owner of the property with the consent or conduct of the real owner. For instance, a woman owns the property and per mits her husband to deal it as if the owner. The husband’s name is entered into the revenue records for the purposes of paying taxes, it is he who finalizes whether and who should be inducted as a tenant in the property and the wife does not object to it. He can be called an ostensible owner, while the real owner is the wife. Similarly, on the death of the father, the son and daughter inherit the property. The daughter being married is living away and allows her brother to take decision\s with the property including that of payment of taxes, 4
Sarat Chunder v Gopal Chinder (1893) ILR 20 Cal 296, 19 IA 203. AIR 1995 Bom 190, (1995) 2 Bom CR 678 6 Varman Pandu v Tikaram (1927) 29 Bom LR 471, 102 IC 64 7 Kannashi Verhsi v. Ratanshi Nenshi, AIR 1952 Kutch 85.
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carrying major repairs etc. in such a case, the brother would be the ostensible owner and the sister is the real owner. ESSENTIALS OF THE DOCTRINE
This section enacts a rule of estoppel as against the real owner of the property who: (i)
By his conduct or consent or otherwise makes the other believe that a particular person has all the powers over the property as that of the owner; including that of alienation
(ii)
Such person in fact is not authorized to alienate the property;
(iii) He alienates it as an ostensible owner; (iv) The transfer is for value or consideration, i.e., it is not a gift; (v)
The transferee acts bona fide and has taken reasonable care to ascertain that he is competent to transfer, i.e. the transferee doesn’t have actual or constructive notice so the real facts; and
(vi) The real owner would be prevented from disputing the validity of the transfer on the ground that the transferor, in fact competent to do so. If any one of these elements is wanting, the transferee is not entitled to the benefit of the section. The basis of the rule is some representation or act or conduct on the part of the true owner. The question is whether the section applies to a given set of facts is a question of law. This is on the principle that ‘the proper effect of a proved fact is necessarily a question of law. The principle underlying this section is that if two innocent persons are defrauded or cheated by one, who, after transferring the property of one without his consent, to another, is no longer present, and the two persons enter into litigation with respect to the property transferred, then out of these two persons enter into litigation with respect to the property transferred, then out of these two apparently innocent persons, the one who, by his conduct or consent enabled the fraud to take place, will suffer. BENAMI TRANSACTIONS
The Act defines a benami transaction as a transaction where a property is held by or transferred to a person, but has been provided for or paid by another person. The Bill amends this definition to add other transactions which qualify as benami, such as property transactions where: (i) the transaction is made in a fictitious name, (ii) the owner is not aware of denies knowledge of the ownership of the property, or (iii) the person providing the consideration for the property is not traceable. Many statutes besides the transfer of property act provides for the transfer by ostensible P
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owner, one of such statues is the Benami Transaction (Prohibition) Act 1988, prohibiting benami transactions under s 3(1), and making them punishable under s. 3(3). The prohibition does not, however, apply to the purchase of property by any person in the name of his wife or unmarried daughters and it shall be presumed, unless the contrary is proved, that the said property had been purchased for the benefit of the wife or the unmarried daughters. Benami transaction is defined under section 2(1) so as to mean any transaction in which property is transferred to one person for consideration paid or provided by another person. Nothing in the Benami Transactions (Prohibition) Act shall affect the provisions of s 53 of the TP Act as laid down in s.6. The Supreme Court has held Benami transaction act is prohibitory legislation, and ir prohibits benami transactions subject to stated exceptions and makes such transactions punishable, and also prohibits the right to defences against recovery against recover y of benami transactions as defined in s. 2(a) of that Act. ILLUSTRATIONS:
A benamidar, a wife when the husband purchases property in her name, or allows her to control it is an owner a brother in possession of sister’s share as well his own for 25 years with the revenue records showing his name as the owner with respect to the whole property, would be illustrations of ostensible owners. Similarly, where a widow was in sole p ossession of property, the real owners of which lived in another village and allowed her to treat the property as her own; a cousin of the widow to deal with the property as an exclusive owner.
OTHER ASPECTS OF THE PROVISION
Burden of Proof:
The burden of proving that the transferor was an ostensible owner is on the transferee who seeks the protection of this section. He has to prove that the transferor is an ostensible owner, or that it is a benami transaction. Besides this, he must also prove that he took reasonable care to protect his interest. However, the burden of proof shifts on the other person if he alleges the existence of facts leading to a starting point of inquiry, which if pursued or investigated, would have led to the discovery of truth. In case there is an allegation by a person that the property conveyed to another person belongs to him, then it is he who has to prove it. 9e
Transfer not Voidable P
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Where the osensible owner transfers the property, this section provides that the transfer shall not be voidable on the ground that the transferor was not authorized to make it; provided that the transferee had acted in good faith after taking reasonable care. The principle applies where the whole transaction is not voidable. The purchaser acquires a title, which is voidable at the instances of the real owner, and until his purchase is avoided, he can deal with the property. Latest Cases: Baby Rani Deb D/o Late Benu Mohan Deb and others v Manik Dey
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Summary: Land & Property - Transfer of Property Act, 1882, s. 41 - Assam Land and Revenue
Regulation - Suit for permanent injunction - Dismissal - Legality - Plaintiffs/appellants instituted suit before Trial Court for declaration of title, interest and confirmation of possession and permanent injunction over suit land - Trial Court dismissed said suit - Aggrieved appellant appealed to Lower Appellate Court - Appellate Court dismissed the appeal affirming decree passed by Trial Court - Hence instant appeal - Whether Appellate Court erred in law in rejecting, sale deed holding that same could not confer valid title on plaintiff - Held, there was absolutely no pleading, not even whisper, that 'B' was ostensible owner, that he was so by consent, express or implied, of real owner, and that plaintiff had acted in good faith, taking reasonable care to ascertain that 'B' had power to transfer, so as to get benefit of s. 41 of the Act - In absence of pleadings no amount of evidence, even if available on record, could be read, while deciding suit or appeal - From evidence of appellant it appeared that his deposition he did not claim that he was entitled to benefit of s. 41 of the Act - His consistent stand was that 'B' had title, who had transferred land by executing sale deed and hence he acquired right, title and interest over suit land - In revenue record name of 'B' was not been recorded but name of grand-father of defendant no. 1 and 2 was recorded at time when sale deed was executed - Appellant did not take reasonable care to ascertain that 'B' had power to transfer - It was evident from judgments and decrees passed by Courts below that appellant was found to be permissive occupier of land - Such concurrent finding of fact could not be disturbed in second appeal, in absence of demonstration of any perversity in recording such finding - Permissive possession in respect of annual patta land was also permissible, which, would be till annual patta was cancelled, under provisions of Revenue Regulation, by initiating non-renewal proceeding, as without such proceeding annual patta could 0
not be cancelled - HC did not find any merit in appeal - Appeal dismissed. g
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AIR 2014 GAU 56 P
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Padam Chand and another v Lakshmi Devi (Since Deceased) and another 9 Summary: Land & Property - Family & Personal - Rent Control - Delhi Rent Control Act, 1959,
s.14(i)(a) - Code of Civil Procedure, 1908, O. 22 r.10 - Partition - Gift deed - Sale of Property Possession - 'M' married 'A' and had three sons and two daughters - Oral partition had taken place between wife and children of 'M' - Disputed premises fell to share of 'A' by virtue of gift deed executed by 'M' - Plaintiff/daughter of 'M' was in occupation of entire disputed portion Appellants/purchasers of disputed portion from 'S'/daughter of 'M' attempted to dispossess plaintiff from premises - Eviction petitions filed against husband of plaintiff u/s.14(i)(a) of 1959 Act were dismissed - Suits filed by plaintiff for injunction, declaration was dismissed by Trial Court - First Appellate Court reversed order of Trial Court - Hence instant appeals - Whether order of First Appellate Court reversing order of Trial Court was sustainable - Held, 'S' acquired legal title to suit property in terms of registered gift deed executed by 'M'/late father in favour of 'S' - Document was attested by mother of 'S' - Rights of 'A' in suit property were disclaimed by mother of plaintiff by subsequent registered document - 'S' being legal owner of property had sold property to appellants under valid registered sale deed - Plaintiff was left with no other status in suit property except that of trespasser - Plaintiff could not had filed suit either for injunction or for declaration - Suits were rightly dismissed by Trial court - Appellants were substituted in place of 'S' on application under O.22 r. 10 of CPC - Appellants had validly and legally stepped into shoes of 'S' - Title of 'S' was established and 'S' had rightfully passed title on to appellants through sale deed - Finding of First Appellate Court were set aside - Appeals disposed of.
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2010 (173) DLT 604 P
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IN ENGLAND After the first case registered in India in the decade of 1870’s, basically there is no tern in the statute, the disputes arose mainly in the partnership bu sinesses, a similar dispute arose in a case of Scarf vs Jardine 10 which laid the foundation of the doctrine in England, the facts and judgment of the case are as follows: FACTS: A firm consisted of two partners, Scarf and Rodgers. Scarf retired and Beach joined in
his place. The business was carried on as before and no public notice about the change of partners was given to the customers of the firm. Jardine was an old supplier to the firm. He supplied the goods ordered without any idea about the change. He came to know about the change when the firm failed to pay the dues and he was considering a legal action against the firm. He preferred to sue the new firm which subsequently went bankrupt. Then he sued the earlier partner, Scarf. HELD: He had a right against Scarf provided he had proceeded against the old firm and partners
in the first instance itself. Now he had acknowledged the new firm, he could not reject its identity and sue Scarf. It was held that novation might involve either a change of parties with the contract remaining the same or a change in the contract between the same parties. An implied agreement is presumed from the fact that the creditor, after the knowledge of the change, has brought a suit against the new firm. Jardine knew of the change of the constitution of the firm when he sued and he chose to sue the new firm. Now he could not sue the older firm for the same cause of action as it is against principles of natural justice as well as Partnership Act. There are exceptions to the rule established in the SCARF vs. JARDINE case as given below: a)
b)
Death of a partner constitutes sufficient notice by itself.
Insolvency of a partner is also sufficient notice and attracts Section 42 of the Indian
Partnership Act.
c)
If one has been a dormant or sleeping from beginning to end, notice can be dispensed with
as neither the customers nor the clients know of his participation in the firm. 1e
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(1882)7 AC 345 P
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In English law, Partnership by holding out is referred to as apparent partnership instead and the legal provisions in both countries are very similar. In SMITH vs. BAILEY 11 , it was decided that the liability on the principle of Estoppel extends only on account of credit given to the firm and not to torts or civil wrongs committed on behalf of the firm. Discussed cases throw a light on how this Doctrine came into existence in the British Empire, now below are some latest cases from the same country depicting the present scenario of the doctrine in England. Wendover Developments Ltd v Fish 12
The court was required to determine preliminary issues in the claim of the first claimant developer (W) for damages arising from alleged design defects in premises in the course of a development on which the first and second defendants (F and X) had worked. F was a sole trader, trading as a firm of structural engineers. He was not a structural engineer himself, but had engaged X and another man as consultant structural engineers. Their names appeared on the firm's headed notepaper. W engaged the firm to work on the development. Three years after that, X informed W that he was not a partner in the firm. The issue to be decided was whether X was potentially liable as a person who had held himself out as a partner under either the common law or the Partnership Act 1890 s.14. Held: Preliminary issues determined in favor of claimant.
(1) W had to establish: holding out; knowledge or approval of the holding out by X; no knowledge by W that X was not in fact a partner; reliance on the holding out; and the consequent giving of credit to the firm, Nationwide Anglia Building Society v Lewis [1998] Ch. 482 followed. The knowledge referred to had to be objective: only if it had been reasonable for X to conclude that reasonable steps had been taken to put a stop to the relevant holding out could he avoid liability. Any requirement of knowledge imported by a statute was always taken to be objective unless the statute expressly stated to the contrary. 11
2 QB 432 1999 WL 34854714
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(2) There had been holding out. The objective reader of the notepaper would reasonably take its style as saying that the firm was a partnership comprising three partners including X. (3) X had knowingly allowed himself to be held out as a partner. He had signed important letters written on the notepaper despite his name appearing clearly as partner on the head of them. Although he had asked F to ensure that no-one should mistake him for a partner, he had not challenged the notepaper during the relevant period, and he would have known that the notepaper would be shown to third parties who had no knowledge of his internal disclaimers. Thus, X had not done all that he reasonably could to prevent the holding out. (4) On the evidence, W had not been aware that F was a sole trader and that X was not F's partner despite the statement to the contrary on the notepaper. W had only known that after X had told it. (5) The necessary reliance had been established. There was evidence from W that it had relied on the fact that the firm appeared to be a partnership with three partners, two of whom were structural engineers. The holding out had made a material difference to the decision by W to engage the firm; had the sole trader status of the firm been drawn to its attention, it would not have engaged the firm at all. (6) Although the expression "given credit to the firm" in s.14 arguably did not extend to the entering into of a professional engagement to undertake engineering designs for a client, that question did not need to be decided since such an engagement undoubtedly constituted sufficient detriment for a common law estoppel. (7) Accordingly, X was potentially liable as a partner of F up to the time that X told W of the true position.
Walsh v Needleman Treon (A Firm) 13 Summary: The judge below had been entitled to find that the claimants, who were pursuing a
claim against a firm of solicitors and its partners, had no real prospect of showing that one of the firm's solicitors had been a partner as opposed to an employee. The judge had also been justified in concluding that an alternative claim, namely that the solicitor concerned had held himself out as a partner so as to be liable under the Partnership Act 1890 s.14, had no real prospect of success. 4 1e g
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[2014] EWHC 2554 (Ch ) P
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Abstract: The appellants (W) appealed against a judge's decision to grant an application by the
respondent (P) for summary judgment in respect of the claim issued against him by W. W's claim was based on an alleged agreement which had been reached in 2005 with a firm of solicitors and its then partners (N and T), pursuant to which the firm was to act for them in relation to short-term bridging finance transactions. W alleged that pursuant to that agreement they provided funds to the firm which had not been repaid, in circumstances which rendered the firm, N, T and P liable. N and T were at the material times equity partners in the firm. P maintained that he had never been such a partner, and that he was at all times an employee of the firm, albeit a "salaried partner" and head of the firm's property department from the time of his joining in October 2008 until August 2009, when he resigned as a salaried partner. After resigning from that post, he continued to work as a solicitor at the firm until January 2010, when he resigned with immediate effect. He subsequently brought a claim for constructive dismissal against the firm in the employment tribunal, resulting in an award in his favour; in those proceedings, N and T accepted that P had been an employee of the firm. The issue before the judge was whether W's pleaded case that P was a partner as opposed to an employee of the firm had a real prospect of success. The judge also determined a second issue (not currently the subject of any pleading), namely whether there was a real prospect that W would succeed at trial on an alternative claim that P had held himself out, or knowingly allowed himself to be held out, as a partner in the firm, so as to be liable to W under the Partnership Act 1890 s.14. The judge decided both points in P's favour. Held: Appeal dismissed.
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CONCLUSION
The conclusion to this research paper is not that difficult to comprehend. it is the possession and ostensible ownership must be with the consent of the real owner of the property. The real owner must also be capable of giving consent to the transfer and should have given in free will. It would include a consent given on a mistake of fact but not one given in misapprehension of a legal status. The transferor should be shown to ha ve been the ostensible owner with the express or implied consent of the true owner but the transfer itself need not be with the consent of the true owner.
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BIBLIOGRAPHY
PRIMARY SOURCES: 1. SCC ONLINE 2. MANUPATRA 3. WESTLAW 4. INDIAN KANOON
SECONDARY SOURCES 1. THE TRANSFER OF PROPERTY ACT (MULLA) 2. POONAM PRADHAN SAXENA ON PROPERTY ACT
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