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. However, the Supreme Court’s 2019 ruling asked questions on the validity of the sale of property using a General Power of Attorney (GPA), thus, making the entire process complex. In this guide, we will talk in detail about power of attorney, its power with respect to property transactions and the safety measures to be followed.
In this guide, we will talk in detail about power of attorney and its power with respect to property transactions.
What is power of attorney?
A power of attorney (PoA) is an instrument that allows the principal person of a transaction to legally empower another person who will perform the required functions on his behalf. A PoA can be of elaborate scope or limited scope and is terminated if the principal dies.
The concept of POA has been discussed under two laws in India – the Powers of Attorney Act, 1882, and the Indian Stamp Act, 1899.
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. 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.
What are the functions that a power of attorney can do?
| Can | Cannot |
| With a POA you can purchase, sell or rent a property. | Take a decision without consulting guarantor. |
| Repair and renovate guarantor’s house | Mix guarantor’s fund and his fund. |
| Manage bank accounts and pay utility bills | Misusing POA status for personal interest |
See also: How to remove illegal possession from your property?
When should a power of attorney be used?
Some of the circumstances where a PoA can be used are mentioned below:
- If the principal is an NRI and is unable to come to the country for transaction purposes.
- If the principal is bed-ridden and can’t travel.
- If the principal mentions a valid reason that is accepted on why he can’t personally execute the transaction.
Types of power of attorney
There different types of power of attorney are
- General Power of Attorney: Also known as the conventional power of attorney, this comes with specific responsibility and is valid for a specific duration of time. Thus, under a GPA, an agent has the rights to perform routine tasks on one’s behalf. Note that GPA should be registered for legal validity.
The GPA is a flexible instrument that allows the agent ( holder of the attorney) to handle many aspects of the owner’s estate. However, because of this very reason, a high level of trust has to be bestowed on the attorney holder so that the general power of attorney is not misused.
- Special Power of Attorney: Gives an agent power to perform specific tasks. Note that SPA should be registered for legal validity.
- Durable Power of Attorney: This is valid lifelong. The person holding this power of attorney is granted the right to take decisions on behalf of the grantor. This is generally issued when the grantor is not capable of making sound decisions. Note that the durable power of attorney will expire if the grantor dies or the grantor cancels the POA.
- Springing Power of Attorney: This is used for a specific date, event or a purpose. This is also invoked when the grantor is not sound to take decisions on his own.
- Medical Power of Attorney: This falls under durable Power of Attorney and Springing Power of Attorney and is used to take medical related decisions.
Difference between GPA and SPA
| General Power of Attorney | Special Power of Attorney |
| Grants broad powers to a representative. | Talks about a specific act that the representative can carry out, on the behalf of the principal. |
| Using a GPA, a person can pay your utility bills, collect rent on your behalf, manage and settle disputes, or carry out all bank-related work. | If an NRI wants to sell a house, he has to invoke a SPA for this purpose. |
| 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. | An SPA loses its effect, as soon as the task it is intended for, is completed. |
Also read about Deemed conveyance
Who is eligible to be chosen as the Power of Attorney (PoA) and what is the process?
- A person who is above 18 years of age with a sound mind is eligible for being given a power of attorney.
- However, It is advised to look at the person’s value system and intent while choosing someone.
- You can take the help of a lawyer and draft the POA according to your requirements.
- There are many POA templates available. It is recommended to choose one which fits your bill and also is under the regulations of your state government.
- Next, sign the POA applications and property documents.
- Get the documents checked once again by the lawyer before executing it.
Can multiple power of attorney be appointed?
Yes, a person can invoke multiple power of attorney and also decide on if all of them should work independently or together. This is beneficial when an important decision has to be made and more minds can work. However, this can also lead to disagreements.
What is the format of a power of attorney?
A power of attorney should include:
Grantor identification: The person who will be giving the power of attorney.
Agent identification: The person who will be given the power of attorney.
Scope of work/authority: The authority which the POA will cover- like will it be used for paying the utility bills, sell the property etc.
Duration for which POA is valid: The duration for which the POA is valid.
Signature: Signatures of the people involved
Revoking of POA: It should have details on what situations the POA will be revoked etc.
Once the POA is set, you can notarise it.
What is the stamp duty to be paid for POA?
| General POA | Registered in name of father, mother, sister, brother, wife, husband, grandson, granddaughter | Without any consideration stamp duty of Rs 500 for registration | Rs 100 |
| General POA | In other people’s name | Stamp duty is as per market value or consideration value of the property whichever is more. | Rs 10 per Rs 1,000 with Rs 100 being minimum and Rs 30,000 is the maximum on the market value or consideration value whichever is more.
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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
How can NRI use POA to buy property in India?
An NRI can invoke a PRI by the following methods:
- Legalisation: In this method, signature if the judge/notary has to be verified by the Indian embassy or consulate. This has to be stamped within three months of its receipt in India.
- Apostillisation: The POA executed outside India is through Apostillisation that is governed by the Hague Convention, 1961.
Can you revoke a power of attorney?
Yes, a power of attorney can be revoked by sending an official written letter by the grantor to the agent mentioning about the revoke. Additionally all third parties involved should be informed. If the POA was executed in a recorder’s office, then it has to be revoked also in a recorder’s office.
Note that according to a January 2022 Supreme Court ruling, oral cancellations of the PoA have no legal holding. A PoA can be revoked by only communicating in writing and delivering it to all stakeholders.
How was power of attorney misused to execute sale of property?
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.
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 down 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.
See also: Know all about Transfer of Property Act
Things that agent should and should not do with power of attorney
- An agent cannot control the owner (principal person of the property) to more than what he is given power to according to the POA.
- A principal cannot be sued for any fraud that has been committed by the agent.
- The agent cannot sublet his powers to other agents.
- The agent should not take undue advantage of the power he has been given.
- The agent should not take any secret commission.
- The money that the agent receives for his property should be kept separately from what the agent earns and the funds should not be mixed.
- Finally, all accounts should be given by the POA agent to the principal person.
Problems a buyer can face if he buys property through Power of Attorney
Mentioned below are problems that a buyer can face.
- A person buying property with PoA will possess the property but in case there is no proper sale deed registered done, then he will not be considered the rightful owner. This is a tricky situation where
- Since the buyer buys property through PoA, there cannot be any mutation done in the local body records because the PoA doesn’t give the buyer ownership rights. Because of this utility bills like electricity bill, Property Tax receipt etc. may come in the name of the original owner from whom the property was bought.
- In case of a non-cooperative seller, a buyer may face a problem where after buying property through PoA, once he tries to register by paying stamp duty, the owner may ask for a commission/fee to cooperate with the legal process.
- Most banks and non-banking financial companies (NBFCs) do not offer loans to people buying houses with PoA. Even if they give the conditions are very strict.
Housing.com POV
The Power of Attorney is a very valuable tool that is used in the right sense. While drafting a POA, take the help of an expert lawyer who will help navigate you through what you really want. The POA should be drafted in clear and distinct language so that there is no room for disputes and any misuse. Note that misuse of the POA is a punishable offence.
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.
| Got any questions or point of view on our article? We would love to hear from you. Write to our Editor-in-Chief Jhumur Ghosh at jhumur.ghosh1@housing.com |