I have been dealing
with queries/ cases related to property and property disputes and often come
across queries /cases which involves transfer/ sell of immovable property
through an ‘alternate mechanism’ [a) a General Power of Attorney (GPA, in
short), b) an Agreement to Sell and c) a Will], instead of the execution of
a proper and valid conveyance deed, i.e. Registered Sale Deed.
The dispute/s arises
when the owner with title of the property presents a suit terming the GPA
holder as illegal occupant or various GPA holders fight for their right over
the property.
The law only recognises the title over the immovable property via ‘registered
conveyance deed’. In other words, a transfer of immoveable property by way
of sale can only be done by a deed of conveyance, i.e. sale deed. In the
absence of a deed of conveyance, duly stamped and registered as required by
law, no right, title or interest in an immoveable property can be transferred.
These transactions via
‘alternate mechanism’ are not to be confused or equated with ‘genuine
transactions’ where the owner of a property grants a power of Attorney in
favour of a family member or friend to manage or sell his property, as he is
not able to manage the property or execute the sale, personally. These are
transactions, where a purchaser pays the full price, but instead of getting a
deed of conveyance gets a SA/GPA/WILL as a mode of transfer, either at the
instance of the vendor or at his own instance.
Thus, through this paper I am making an attempt to educate the readers about
the pros and cons of the so called ‘GPA Sale’.
TRANSFER
OF IMMOVABLE PROPERTY IS DONE THROUGH FOLLOWING TWO MODES:
A)
Through
a sale deed executed between the buyer and seller. (This mode attracts Approx.
5% to 13% of the sale consideration towards the registration in the form of
stamp duty, etc.); and
B)
Through execution of a) a GPA, b) an Agreement to Sell and c) a Will by the
seller in favour of the buyer. (This mode attracts alluringly much lesser
amount towards stamp duty only).
Before I go into the
nitty-gritty of the GPA Sale, it is pertinent to outlay what exactly a Power of
Attorney, an Agreement to Sale and a Will is?
1. POWER
OF ATTORNEY – A power
of attorney is an instrument by way of which one can confer such authority on
someone to legally act on his/ her behalf. “Power of Attorney” include any
instrument empowering a specified person to act for and in the name of the
person executing it. (Se Section 1A of the Power of Attorney Act, 1882.)
However, it is strictly not an instrument of transfer in regard to any right,
title or interest in an immovable property. It is therefore correct to say that
a power of attorney holder may however execute a conveyance deed in exercise of
the power granted under the power of attorney and convey the title on behalf of
the grantor.
TYPES
OF POWER OF ATTORNEY
A)
Special
Power of Attorney (SPA):
this instrument can be used to transfer ‘a specific right’ to a
person on whom it is conferred; and
B)
General
Power of Attorney (GPA):
this instrument can be used to transfer ‘all the rights’ to
a person.
Thus, with regards to an immovable property, a
GPA authorises its holder to do anything with the subject (which here is
immovable property) which includes the right to further transfer all the rights
to someone else. This means a GPA holder can sale the immovable property to
someone else by executing another GPA.
It is very important to note that Power of
Attorney does not confer any title on its holder with regards to the immovable
property involved, it merely authorises the holder to act as grantor’s ‘lawful
attorney’ thus it is not incorrect to say that the title of the property vests
with the original owner or the 1st grantor of the Power of
Attorney. Secondly, with the death of the 1st grantor, the
Power of Attorney (and the subsequent ones) comes to an end; therefore, the
authority to deal with the immovable property given by the grantor also ceases
to exist.
2.AGREEMENT
TO SALE – A
contract of sale, that is, an agreement of sale does not, of itself, create any
interest in or charge on such property. Such contract for sale merely created a
fiduciary character of a personal obligation which is annexed to the ownership
of property, but does not amount to an interest or easement therein.Any
contract of sale (i.e., agreement to sell) which is not a registered deed of
conveyance (i.e., deed of sale) fall short of the requirements the law and will
not confer any title nor transfer any interest in an immovable property.
According to Transfer of Property Act, an agreement of sale, whether with
possession or without possession, is not a conveyance. Section 54 of TP Act
enacts that 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.
3. 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. 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. If the
testator, who is not married, marries after making the will, by operation of
law, the will stands revoked. (see sections 69 and 70 of Indian Succession
Act, 1925). Registration of a will does not make it any more effective
RELEVANT
LEGAL PROVISIONS
Before starting with
the subject, its relevant to have a bird’s eye view on the relevant laws
governing transfer of property in India.
A) The
Transfer of Property Act, 1882
i.
Section
5 defines ‘Transfer of Property’ as under:“xxx
xxx… … “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. … … xxx
xxx”
ii.
Section
54 defines ‘sales’
thus:”Sale” 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 and
upwards, or in the case of a reversion or other intangible thing, can
be made only by a registered instrument.
In the case of
tangible immoveable property of a value less than one hundred rupees, such
transfer may be made either by a registered instrument or by delivery of the
property.
Delivery of tangible immoveable property takes place when the seller places the
buyer, or such person as he directs, in possession of the property.
Contract
for sale:-A contract for the
sale of immovable 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.”
iii.
Section
53-A defines ‘part
performance’ thus :“Part Performance. – Where any person
contracts to transfer for consideration any immoveable property by writing
signed by him or on his behalf from which the terms necessary to constitute the
transfer can be ascertained with reasonable certainty, and the transferee has,
in part performance of the contract, taken possession of the property or any
part thereof, or the transferee, being already in possession, continues in
possession in part performance of the contract and has done some act in
furtherance of the contract, and the transferee has performed or is willing to
perform his part of the contract, then, notwithstanding that where there is an
instrument of transfer, that the transfer has not been completed in the manner
prescribed therefor by the law for the time being in force, the transferor or
any person claiming under him shall be debarred from enforcing against the
transferee and persons claiming under him any right in respect of the property
of which the transferee has taken or continued in possession, other than a
right expressly provided by the terms of the contract : Provided that nothing
in this section shall affect the rights of a transferee for consideration who
has no notice of the contract or of the part performance thereof.
B) Indian
Stamp Act, 1899
I.
Section
27 casts upon the
party, liable to pay stamp duty, an obligation to set forth in the instrument
all facts and circumstances which affect the chargeability of duty on that
instrument.
II.
Article
23 prescribes stamp
duty on ‘Conveyance’
III.
In many States
appropriate amendments have been made whereby agreements of sale acknowledging
delivery of possession or power of Attorney authorizes the attorney to ‘sell
any immovable property are charged with the same duty as leviable on
conveyance.
C) the
Registration Act, 1908
i.
Section
17 – Documents of which registration is compulsory- (1) The following documents shall
be registered, namely:—– xxx — xxx— i. other
non-testamentary instruments which purport or operate to create, declare,
assign, limit or extinguish, whether in present or in future, any right, title
or interest, whether vested or contingent, of the value of one hundred rupees
and upwards, to or in immovable property.—xxx—xxx— (1A) The documents
containing contracts to transfer for consideration, any immovable property for
the purpose of section 53A of the Transfer of Property Act, 1882 (4 of 1882)
shall be registered if they have been executed on or after the commencement of
the Registration and Other Related laws (Amendment) Act, 2001 and if such
documents are not registered on or after such commencement, then, they shall
have no effect for the purposes of the said section 53A.
THE
CONCEPT OF GPA SALE: Now,
I will focus on the concept of GPA Sale. I will explain the entire concept for
your better understanding. GPA based sales goes like this:
1.
‘A’ owns a
property ‘P’ that ‘B’ wants to purchase.
2.
‘B’ pays money
to buy ‘P’ from ‘A’ and takes ‘P’s’ possession.
3.
Now, there can be two
situations:
a.
‘B’ does not intend to keep the
property ‘P’ and will sell it on a higher price in future; and
b.
‘B’ wants to
keep the property.
In both the above situations ‘B’ is
required to get the property registered in his name but doing so would attract
the registration fee in the form of stamp duty, etc. If, for example, the sale
consideration of ‘P’ is Rs.1 Crore and the registration fee is 10% of
sale consideration, ‘B’ is required to pay Rs. 10 Lacs to get the
property ‘P’ registered in his name. Therefore, ‘B’ will not get
the ‘Sale Deed’ registered in his name and will save the cost towards
registration fees and stamp duty, etc.
4. Since ‘B’ has paid the sale
consideration to ‘A’ and has taken the possession of ‘P’ but the
property ‘P’ still stands registered in the name of ‘B’ (in the
absence of its registration). Therefore, ‘B’ will take a GPA in his name
from ‘A’, which would mean that ‘B’ is authorized by ‘A’
to act as ‘A’s’ ‘lawful attorney’ in both selling the property ‘P’
owned by ‘A’ and receiving money on ‘A’s ‘behalf.
5. When ‘B’ finds a buyer ‘C’, he
will execute another GPA in ‘C’s’ name saying that ‘C’ is his
representative (as ‘A’s’ lawful attorney) or execute a sale deed and got
it registered.
In the above
transaction ‘A’ (the person wanting to sell) is the lawful owner of
property ‘P’, has granted a GPA to ‘B’ (the buyer) authorising ‘B’
to deal with the property ‘P’ as his lawful attorney and subsequently ‘B’
has executed a GPA to ‘C’ (the future buyer) transferring his authority
to ‘C’. Here, in the afore-stated sale transaction, the important thing
to notice is that the title over the property ‘P’ remains with ‘A’
and ‘A’ may revoke the Power of Attorney any time despite having
received the sale consideration. Therefore typically, the buyer ‘B’ will
insist upon owner ‘A’ that the GPA must be ‘irrevocable’ and the
transaction must be backed by an ‘Agreement to Sale’ since ‘B’ wants to
ensure that ‘A’ does not back out on the deal after the money has been
paid.
The other vital thing
to notice is the law governing Power of Attorney, according to which, a Power
of Attorney comes to an end with the death of its executor, therefore, acting
smartly, to fill this lacunas in the transaction, buyer ‘B’ will also
insist on ‘A’ for a Will and perhaps even on all legal heirs of the
seller ‘A’ submitting affidavits revoking their claim to the property ‘P’.
However, there is nothing in law which prevents a person from making numerous
wills, the law only recognises the last will and testament.
WHAT IS WRONG HERE?
There cannot be a sale
by execution of a power of attorney nor can there be a transfer by execution of
an agreement of sale and a power of attorney and will. These kinds of
transactions have been evolved to avoid prohibitions/conditions regarding
certain transfers, to avoid payment of stamp duty and registration charges on
deeds of conveyance, to avoid payment of capital gains on transfers, to invest
unaccounted money (‘black money’) and to avoid payment of ‘unearned increases’
due to Development Authorities on transfer.
Registration of a document gives notice to the world that such a document has
been executed.
Registration provides
safety and security to transactions relating to immovable property, even if the
document is lost or destroyed. It gives publicity and public exposure to
documents thereby preventing forgeries and frauds in regard to transactions and
execution of documents. Registration provides information to people who may
deal with a property, as to the nature and extent of the rights which persons
may have, affecting that property. In other words, it enables people to find
out whether any particular property with which they are concerned, has been
subjected to any legal obligation or liability and who is or are the person/s
presently having right, title, and interest in the property. It gives solemnity
of form and perpetuate documents which are of legal importance or relevance by
recording them, where people may see the record and enquire and ascertain what
the particulars are and as far as land is concerned what obligations exist with
regard to them. It ensures that every person dealing with immovable property
can rely with confidence upon the statements contained in the registers
(maintained under the said Act) as a full and complete account of all
transactions by which the title to the property may be affected and secure
extracts/copies duly certified. Thus, it is clear that registration of a
document makes the process of verification of title easier therefore reduces
the risk of dispute in future.
HOW GPA SALE IS VIEWED BY COURTS:
The Hon’ble Supreme
Court of India in Special Leave Petition (C) No. 13917 of
2009 titled as ‘Suraj Lamp & Industries V. State of Haryana’
has examined the validity and legality of GPA Sales (SA/GPA/Will transaction).
The Hon’ble Court has held that “… … … We therefore reiterate that
immovable property can be legally and lawfully transferred/ conveyed only by a
registered deed of conveyance. Transactions of the nature of ‘GPA
sales’ or ‘SA/GPA/WILL transfers’ do not convey title and do not
amount to transfer, nor can they be recognized or valid mode of transfer of
immoveable property. The courts will not treat such 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 title, except to the limited extent of section 53A of the TP
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. A lease can be validly transferred only under a registered Assignment
of Lease. It is time that an end is put to the pernicious practice of
SA/GPA/WILL transactions known as GPA sales.”
CONCLUSION
A SA/GPA/WILL
transaction does not convey any title nor create any interest in an immovable
property. The observations by the Delhi High Court, in Asha M. Jain v.
Canara Bank that the “concept of power of attorney sales
have been recognized as a mode of transaction” when dealing with
transactions by way of SA/GPA/WILL are unwarranted and not justified,
unintendedly misleading the general public into thinking that SA/GPA/WILL
transactions are some kind of a recognized or accepted mode of transfer
and that it can be a valid substitute for a sale deed. Such decisions to
the extent they recognize or accept SA/GPA/WILL transactions as concluded
transfers, as contrasted from an agreement to transfer, are not good law.