Power of Attorney Sales

The `Power of Attorney Sales’ as a method of `transfer’ was evolved by lawyers and document writers in Delhi, to overcome certain restrictions on transfer of flats by the Delhi Development Authority (for short `DDA’).

The `Power of Attorney Sales’ as a method of `transfer’ was evolved by lawyers and document writers in Delhi, to overcome certain restrictions on transfer of flats by the Delhi Development Authority (for short `DDA’). The DDA on every transfer of flats insisted on payment of “unearned increase”, that is the difference between the market value/sale price and the original cost of allotment. To avoid the cumbersome procedure in obtaining permission and to avoid payment of the huge part of the price to the DDA as unearned increase, a hybrid system was evolved whereby the allottee/holder of the flat, on receiving the agreed consideration would deliver the possession of the flat to the purchaser and execute the following documents:(a) An Agreement of sale ( hereinafter referred to SA) confirming the terms of the sale, delivery of possession and payment of full consideration and undertaking to execute any document when required in future.(b) An Irrevocable General Power of Attorney (hereinafter referred to as POA) in favour of the purchaser or his nominee authorizing him to manage, deal with and dispose of the property without reference to the vendor.(c) A will bequeathing the property to the purchaser as safeguard against the consequences of death of the vendor before transfer. The malaise of “Power of Attorney Sales” through the combination of SA/POA/Will did not limit itself only to DDA property, however, continued to transfer of free hold properties as well, even when there was no bar or prohibition regarding transfer or conveyance of such property, by the following categories of persons: (a) Vendors with imperfect title who cannot or do not want to execute registered deeds of conveyance. (b) Purchasers who want to invest undisclosed wealth/income in immovable properties without any public record of the transactions. The process enables them to hold any number of properties without disclosing them as assets held. (c) Purchasers who want to avoid the payment of stamp duty and registration charges either deliberately or on wrong advice. This article will now examine the scope of each of the component of combination of SA/POA/Will. Agreement to Sell Any Agreement to sell would fall short of the requirements of a perfect Sale as defined in Sections 54 and 55 of Transfer of Property Act and will not confer any title nor transfer any interest in an immovable property (except to the limited right granted under Section 53A of Transfer of Property Act). The sale of immoveable property can be made only by a registered instrument and an agreement of sale does not create any interest or charge on its subject matter. Power of attorney A grant of power of attorney is essentially governed by Chapter X of the Contract Act. By reason of a deed of power of attorney, an agent is formally appointed to act for the principal in one transaction or a series of transactions or to manage the affairs of the principal generally conferring necessary authority upon another person. A power of attorney is a document of convenience and not a document of Conveyance. A power of attorney is usually revocable; it is irrevocable only in cases where the POA is coupled with interest. An attorney holder may however execute a deed of conveyance in exercise of the power granted under the power of attorney and convey title on behalf of the grantor. Scope of Will A will is the testament of the testator. It is a posthumous disposition of the estate of the testator directing distribution of his estate upon his death. It is not a transfer inter vivo. The two essential characteristics of a will are that it is intended to come into effect only after the death of the testator and is revocable at any time during the life time of the testator. It is said that so long as the testator is alive, a will is not be worth the paper on which it is written, as the testator can at any time revoke it. Registration of a will does not make it any more effective. Conclusion The Hon’ble Supreme Court in the matter of Suraj Lamp and Industries Private Limited had the occasion to discuss and elaborate the law on the subject of the transactions popularly known as GPA sales. The observations of the Supreme Court have been stated herein below: • An Agreement to Sell /GPA/WILL transaction does not convey any title nor create any interest in an immovable property. • An immovable property can be legally and lawfully transferred/conveyed only by a registered deed of conveyance. The courts will not treat SA/POA/WILL transactions as completed or concluded transfers or as conveyances as they neither convey title nor create any interest in an immovable property. • They cannot be recognized as deeds of title, except to the limited extent of Section 53A of the Transfer of Property Act. • Such transactions cannot be relied upon or made the basis for mutations in Municipal or Revenue Records. What is stated above will apply not only to deeds of conveyance in regard to freehold property but also to transfer of leasehold property. • It is time that an end is put to the pernicious practice of SA/GPA/WILL transactions known as GPA sales. • Agreement to sell can continue to be treated as existing agreement of sale. Nothing prevents affected parties from getting registered Deeds of Conveyance to complete their title. • The said ‘SA/GPA/WILL transactions’ may also be used to obtain specific performance or to defend possession under Section 53A of Transfer of Property Act. • If they are entered before the date of Judgement, they may be relied upon to apply for regularization of allotments/leases by Development Authorities. • if the documents relating to ‘SA/GPA/WILL transactions’ has been accepted acted upon by DDA or other developmental authorities or by the Municipal or revenue authorities to effect mutation, they need not be disturbed, merely on account of this decision. • This Judgement would not come in the way of genuine transactions like a person may give a power of attorney to his spouse, son, daughter, brother, sister or a relative to manage his affairs or to execute a deed of conveyance. • A person may enter into a development agreement with a land developer or builder for developing the land either by forming plots or by constructing apartment buildings and in that behalf execute an agreement of sale and grant a Power of Attorney empowering the developer to execute agreements of sale or conveyances in regard to individual plots of land or undivided shares in the land relating to apartments in favor of prospective purchasers. The Hon’ble Supreme Court in the much celebrated judgement of Suraj Lamp has only reiterated existing law on transfer of property, however, the effect of the Judgement has had the cascading effect on execution of sale documents. The office of Sub-registrar are more vigilant in registering documents, buyers of the property are more cautious in buying. I sincerely hope that sooner than later this judgment would put an end to evasion of stamp duty and generation of black money. The author of this Article is Anupam Srivastava who can be reached at anupam@tcl-india.net