Property Sale through Power of Attorney!!

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Is sale of Immovable Property through General Power of Attorney (GPA) Safe . 

This question has haunted the legal experts since long time. However, the controversy has been set at rest recently by the Honble Supreme Court vide its judgment rendered in case titled as Suraj Lamp and Pvt. Ltd. v/s State of Haryana and another.

Honble Apex Court dealt with is whether immovable property can be legally transferred or conveyed through a General Power of Attorney, Agreement to Sell and a Will? Before we embark upon this question, it is very essential to know as to why such kind of indirect sales came into existence. The most dominant reasons for such kind of Indirect Sales were to avoid prohibitions/ conditions regarding certain transfers (as some deeds of conveyance contain the clauses that the property can only be sold after 15 years from the date of construction of some building on the plot/property), to avoid payment of stamp duty and registration charges on deeds of conveyance, to avoid payment of capital gains on transfers, to invest black money etc. The seller of the immovable property in these indirect sales after receiving the agreed consideration, deliver the possession of the said property and executes some or all of the following documents:

(1) An agreement of sale (containing the terms which would be similar to terms of sale) by the seller in favor of the purchaser and undertaking to execute any document as and when required in future.

(2) An agreement of sale agreeing to sell the property with the separate affidavit confirming receipt of full price and delivery of possession and undertaking to execute sale deed whenever required.

(3) An Irrevocable General Power of Attorney in favor of the purchaser or his nominee.

(4) A Special Power of Attorney either to sell or to manage the property.

(5) A Will bequeathing the property to the purchaser (as a safeguard against the consequences of death of the vendor before transfer is effected).

The Honble Apex Court noted that such kind of Indirect Sales adversely affected the economy, civil society and law and order. Firstly, it enables large scale evasion of income tax, wealth tax, stamp duty and registration fees thereby denying the benefit of such revenue to the Government and Public. Secondly, such transactions enable persons with undisclosed wealth/income to invest their black money and also earn profit/income, thereby encouraging circulation of black money and corruption.

Legal provisions which deals with the matter in hand either expressly or impliedly:

Section 5 of the Transfer of Property Act (hereinafter called as TPA) defines transfer of property as: In the following sections transfer of property means an act by which a living person conveys property, in present or in future, to one or more other living persons, or to himself [or to himself] and one or more other living persons and to transfer property is to perform such act.

Section 54 of the TPA defines sales thus: Sales is a transfer of ownership in exchange for a price paid or promised or part-paid and part-promised.

Sale how made: Such transfer, in the case of tangible immoveable property of the value of one hundred rupees or upwards or in the case of reversion or other intangible thing can be made only by a registered instrument.

Contract for Sale: A contract for the sale of immoveable property is a contract that a sale of such property shall take place on terms settled between the parties.

It does not of itself, create any interest in or charge on such property.

Validity of Agreement of Sale or Agreement to Sell:

As per Section 54 of Transfer of Property Act, a contract of sale, that is, an agreement of sale does not, of itself, create any interest in or charge on such property. The Honble Apex Court in many earlier judgments after recognizing various provisions of law has held that a contract of sale at the most creates a fiduciary character of the personal obligation and is annexed to ownership but does not in any way amounts to an interest or easement therein. Therefore, transfer of immovable property by way of sale can only be by a deed of conveyance (sale deed). In the absence of deed of conveyance (duly stamped and registered as required by law), no right, title or interest in an immovable property can be transferred. Any contract of sale (agreement to sell) which is not a registered deed of conveyance (deed of sale) would fall short of the requirements of sections 54 and 55 of TPA and will not confer any title nor transfer any interest in an immovable property. According to TPA, an agreement of sale, whether with possession or without possession, is not a conveyance. Section 54 of TP Act enacts that sale of immovable 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.

Validity and scope of Power of Attorney:

A power of attorney is not an instrument of transfer in regard to any right, title or interest in an immovable property. The power of attorney is creation of an agency whereby the grantor authorizes the grantee to do certain acts specified therein, on behalf of grantor, which when executed will be binding on the grantor as if done by him. It is revocable or terminable at any time unless made irrevocable in a manner known to law. Even an irrevocable attorney does not have the effect of transferring title to the grantee. So, power of attorney does not convey ownership. 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-vivos. A Will 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. So, even a Will cannot transfer title or ownership in an immovable property.

 

CONCLUSION

Last but not least it is further pertinent to mention herein that in the said judgment the Honble Bench has merely drawn attention to the legal position that SA/GPA/WILL transactions are not transfers or sales and those transactions cannot be treated as completed transfers or conveyances. But they can still be treated as existing agreement of sale. Nothing prevents affected parties from getting registered deeds of conveyance to complete their title.

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