Is property sale through power of attorney legal?

Historically, real estate has been one of the preferred asset classes to park unaccounted money. Over time, numerous ways were invented to make the investment appear legal, including sale and purchase of property through power of attorney (PoA). In cities like Delhi, in fact, property sale through power of attorney has been quite common for the past several decades.

How property is sold using power of attorney?

Property sale through power of attorney is an arrangement, which primarily is entered into by two parties with an aim to short-change the law. The increasing use of this method coincided with the growth in the property market, starting in the 1990s. So much so, that the Supreme Court (SC) was forced to take cognisance of the matter, and eventually passed a landmark verdict in 2011, declaring property sale through power of attorney illegal. While stating that property transactions done through general power of attorney (GPA) had no legal sanctity, the Supreme Court (SC) ruled that only registered sale deeds provide any legal holding to such transactions.

See also: How to become co-owner of property?

 

What is power of attorney?

The concept of POA has been discussed under two laws in India – the Powers of Attorney Act, 1882, and the Indian Stamp Act, 1899. These laws defined POA as an instrument empowering a specified person to act on behalf of the person executing the transaction.

Basically, a person gives another person the legal right to present himself as his representative, to perform specific tasks on his behalf.

This instrument is commonly used by non-resident Indians (NRIs), as it may not be possible for the NRI to visit his country of origin at a given time, because of his/her businesses or personal work. Owing to the convenience it provides, a POA is also handy for extremely busy people, such as businessmen and people who cannot perform various personal and professional tasks.

See also: How to remove illegal possession from your property?

Types of power of attorney

General power of attorney (GPA): Gives an agent the rights to perform routine tasks on one’s behalf

Special power of attorney (SPA): Gives an agent power to perform specific tasks .

“While a GPA grants broad powers to a representative, an SPA talks about a specific act that the representative can carry out, on the behalf of the principal. If you grant someone a GPA, they can pay your utility bills, collect rent on your behalf, manage and settle disputes, or carry out all bank-related work, while acting as your representative,” says Himanshu Yadav, a lawyer at the Supreme Court. On the other hand, if an NRI has to sell his property in India, they would get it done through an agent here, by way of an SPA, he adds.

The registration of both, GPA and SPA, is a must for it to be legally valid. An SPA loses its effect, as soon as the task it is intended for, is completed. A GPA can be revoked by the executor as and when they like, in their lifetime. In case of their demise, the GPA loses its legal validity.

Also read about Deemed conveyance

How property sales through GPA happened?

A buyer is supposed to pay stamp duty and registration charge on the transaction, while a seller has to pay capital gains tax. Also, once a sale deed is registered, the information is public and could be used any time to unearth benami transactions.

Often, with the intention to short-change the law and evade taxes on property transactions, buyers and sellers entered into an elaborate three-step plan, to carry out the sale transaction. First, an agreement for sale was created (not to be confused with a sale deed), laying own the rules for the sale. Following this, the seller would create an irrevocable PoA, putting the buyer in absolute charge of managing the property. As the third and final step, the seller would bequeath this property to the buyer through a will.

“To avoid the cumbersome procedure in obtaining permissions and to avoid payment of a huge part of the price to the Delhi Development Authority (DDA) as unearned increase, a hybrid system was evolved, whereby the holder of the flat, on receiving the agreed consideration, would deliver the possession of the flat to the purchaser and execute the following document,” the SC was informed in 2009, when the Suraj Lamp & Industries Pvt Limited vs the State of Haryana case came into the limelight.

This kind of ownership transfer became increasingly popular among people who were allocated units from the lotteries for the DDA’s various housing schemes and then sold them at exorbitant prices to interested parties.

SC order in Suraj Lamp Industries versus State of Haryana case and its impact 

While delivering its judgment in the Suraj Lamp & Industries versus the State of Haryana case, the Supreme Court in 2011 ruled that property transactions carried out by way of PoA do not hold legal validity.

“A PoA is not an instrument of transfer in regard to any right, title or interest in an immovable property,” a three-judge bench, headed by justice RV Raveendran, said, adding that property can legally be transferred only through a registered sale deed.

The judgment, which came after interpreting various provisions of the law concerning property sales and became effective retrospectively, said it would not affect the validity of sale agreements and PoAs executed in genuine transactions.

The top court cited specific examples to elaborate on genuine cases. “For example, a person may give a PoA to his spouse, son, daughter, brother, sister or a relative, to manage his affairs or to execute a deed of conveyance,” it said. While stating that municipal bodies should not entertain mutation requests for properties that changed hands through GPAs, it clarified that existing records should not be disturbed, because of the verdict.

Following the SC’s ruling, the Delhi government, in 2012, came up with a circular banning the sale of property through GPA, a will and agreement to sell, collectively or separately.

See also: Know all about Transfer of Property Act

 

Delhi High Court order of 2013 on power of attorney

The Delhi government’s circular affected many property holders in the national capital region (NCR), where sales through GPA had become rampant. Following the notification, various applications were moved in the Delhi High Court, seeking relief. The HC ruled that the SC verdict clearly mentioned that registration cannot be barred in genuine cases.

“The SC has not said that in no case a conveyance can be registered by taking recourse to a GPA. As long as the transaction is genuine, the same will have to be registered by the sub-registrar,” the HC said “A person may enter into a development agreement with a land developer, for development of a parcel of land or for construction of apartments in a building and for this purpose, a POA to execute sale agreements can be executed,” it added.

“In 2019, the Delhi government also provided legal sanctity to unauthorised constructions that had previously been transferred by PoA,” points out Pranjal Kishore, a lawyer at the SC.

See also: Dos and don’ts for NRIs investing in Indian realty

 

Registration of power of attorney

According to the SC, registration of a PoA is mandatory, if it is executed for the sale of a property. Also note that a notarised PoA would be admissible as proof in the court of law. However, the rules may vary, depending on the state where the instrument is being drafted. In Gujarat, for example, the registration of notarised power of attorney documents has been made mandatory in the state under the provisions of the Gujarat Registration (Amendment) Bill.

See also: Know all about encumbrance certificate

 

Latest news on power of attorney

 

UP passed law to curb use of power of attorney for property sale

February 10, 2024: The Indian Stamp (Uttar Pradesh Amendment) Bill-2024, which was passed with the Uttar Pradesh Assembly on February 9, has a provision to curb the use of power of attorney for sale and purchase of properties in the state.

According to UP finance minister Suresh Khanna, the state exchequer was suffering loss due to the use of power of attorney as an instrument of sale and purchase of land and property. As against 7% stamp duty on sale deed, the state charges only Rs 100 on registration of general power of attorney and Rs 10-100 on special power of attorney.

“The business of selling land worth crores of rupees by making ‘power of attorney’ at a nominal fee was going on in full swing, but as per the new provision people outside blood relations will have to pay a stamp duty of seven per cent of the circle rate on the power of attorney,” the minister said.

 

Property title can’t be transferred with unregistered sale agreement, GPA: SC 

An unregistered agreement to sell or an unregistered general power of attorney (GPA) can’t be used to transfer the title of an immovable property, the Supreme Court has ruled in an order dated November 1, 2023.

While delivering its order in the Shakeel Ahmad vrs. Syed Akhlaq Hussain case, a two-judge bench of Justice Vikram Nath and Justice Rajesh Bindal, said: “”No title could be transferred with respect to immovable properties on the basis of an unregistered agreement to sell or on the basis of an unregistered general power of attorney. The Registration Act, 1908, clearly provides that a document which requires compulsory registration under the Act, would not confer any right, much less a legally enforceable right to approach a court of law on its basis.”

PoA of no consequence if sale deed is not executed, action not taken by holder: SC

June 4, 2023: A power of attorney does not confer property title if a sale deed is not executed and registered to validate the PoA, and no action is taken by its holder, the Supreme Court court has said. “Non-execution of any document by the general power of attorney holder consequent to it renders the said general power of attorney useless,” the top court stated while giving its verdict in the Ghanshyam versus Yogendra Rathi case.

Read full coverage here.

Power of attorney holder can’t sell property unless authorised to do so: SC

April 22, 2022: Those with a power of attorney of a property cannot sell it unless there is a specific provision in the document giving them the power to do so, the Supreme Court has ruled.  While passing its order on an appeal filed by one , Umadevi Nambiar, a Bench of Justices Hemant Gupta and V Ramasubramanian said the power to sell the property was the subject matter of the power of attorney document and it could not be inferred. The order will have far-reaching implications affecting NRIs and invalids selling property.

Oral cancellation of PoA has no validity: SC

In January 2022, the SC said verbal cancellation of power of attorney was not valid. While delivering its order, where the PoA-holder went ahead with the sale of property despite the property owner cancelling the PoA verbally, the apex court said that the PoA-holder could sell and register the property by producing a copy of the PoA and he was not required to submit the original copy.

FAQs

What is GPA?

GPA is the general power of attorney, executed by a person, for the purpose of getting generic works performed by his representative.

What is SPA?

SPA is a special power of attorney, which is executed by a person for getting a specific task performed by his representative.

Which law governs power of attorney in India?

Power of attorney is mentioned in the Powers of Attorney Act, 1882 and the Indian Stamp Act, 1899.

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