Do you own a property with a disputed title or one that is located in a restricted area? Are you thinking about buying a house or land with a shaky title? You might want to know more because the sale of such properties brings forth a new set of challenges.
Overview
It isn’t uncommon for unforeseen circumstances – such as being out of town, illness, or even just being too infirm – to arise those cause persons who own assets, properties, bank accounts, and the like to be unable to properly execute their duties. As a result, in such scenarios where a transaction requires the presence of a titleholder who is unable to be present, the only legal solution is for that titleholder to get someone else to act on their behalf.
This procedure of delegation of power is known as Power of Attorney (PoA), and it is used when the rightful owner of the power is unable to wield it. Giving one’s powers to a trustworthy and honourable person to conduct operations such as sales, rentals, and registrations is a common practice.
However, The Supreme Court ruled in 2019 that property transfers made through a Power of Attorney (PoA) are not valid. As a result, if you buy a property from someone who has a PoA, the previous owner will still be considered the titleholder. The Supreme Court has also ruled that sales conducted under a general power of attorney are not protected by the law.
What is a Power of Attorney?
A power of attorney is merely a document that allows the principal to a transaction to appoint another to serve as their agent, conferring authority on that agent to perform certain acts or functions on their behalf and generally at their behest. Such powers are routinely granted to allow the agent to take care of all manner of transactions in place of the principal, such as executing a stock, responding to a tax audit, or operating a safe deposit box or bank account.
A power of attorney can be written to be either broad (full) or narrow (limited) in scope. A power of attorney is usually terminated when the principal dies or becomes incapacitated.
How Property is Sold Using Power of Attorney?
Selling property can be a complex and daunting process, even more so when done through a Power of Attorney (POA). This document grants another person the authority to act on your behalf in legal and financial matters, including the sale of property. While POAs can be useful tools, there are important considerations and legal nuances to understand before proceeding with a property sale.
How Property Sales Through GPA Happened?
Traditionally, a General Power of Attorney (GPA) was used to sell property. The GPA would grant the agent broad powers to handle all aspects of the sale, including finding a buyer, negotiating the price, and signing the sale deed. However, this method lacked transparency and accountability, leading to potential misuse and fraudulent activities.
In 2013, the Delhi High Court, in a landmark judgment, ruled that a GPA alone is not sufficient to transfer property ownership. The court emphasized the need for a registered sale deed to be executed by the principal (property owner) or their authorized representative specifically for the sale transaction. This ruling aimed to bring greater transparency and safeguard the rights of property owners.
Delhi High Court order of 2013 on POA
In 2013, the Delhi High Court addressed the impact of the Delhi government’s circular on property transactions using the General Power of Attorney (GPA) in the National Capital Region (NCR). The circular had raised concerns among property holders, prompting numerous applications for relief in the Delhi High Court. The court’s ruling emphasized that the Supreme Court’s verdict did not categorically prohibit the registration of transactions through GPA in genuine cases.
The High Court clarified that the Supreme Court did not outrightly disallow the registration of conveyances through GPA, especially in cases where the transaction is bona fide. According to the court, if a transaction is genuine, it must be registered by the sub-registrar. The court also acknowledged scenarios where individuals may enter into development agreements with land developers, allowing for the execution of sale agreements through a Power of Attorney (POA).
Additionally, in 2019, the Delhi government took steps to provide legal legitimacy to unauthorized constructions that had been previously transferred through Power of Attorney, further influencing the legal landscape, as noted by Pranjal Kishore, a lawyer at the Supreme Court.
Power of Attorney Holder Without Authorization: SC Verdict
In 2022, the Supreme Court further strengthened the position of the Delhi High Court. It ruled that a power of attorney holder cannot sell a property unless explicitly authorized to do so within the document. This means:
- Even a GPA holder cannot sell property if the specific power to do so is not explicitly mentioned in the document.
- The Supreme Court herein emphasized the need for clear and unambiguous language in the GPA to avoid disputes and potential misuse.
- This ruling provides further clarity and protects property owners from unauthorized sales.
Why Oral Cancellation of POA Has No Validity?
It is crucial to note that oral cancellations of a POA have no legal validity. The cancellation must be communicated in writing and delivered to the concerned parties, including the agent and any relevant authorities. This ensures that the agent’s authority is formally revoked, preventing potential misuse after cancellation.
| In January 2022, the SC said verbal cancellation of power of attorney was not valid. |
When Should a Power of Attorney be Used?
Normally, a Power of Attorney is signed by someone who, for a variety of reasons, is unable to carry out their transactions in person. The following are some of the many reasons why someone would delegate their authority to someone else to perform a task:
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- If the principal lives in a foreign country and is unable to be present for the responsibility,
- Moreover, if the principal is ill and is bedridden,
- If the principal is a senior citizen with health problems, or
- If the principal has another valid reason for being unable to perform their duties on their own.
Relationship Between Power of Attorney (POA) and Real Estate in India
Now that we’ve learned what a power of attorney is and how the legal process works, we can move on to the next step.
- A power of attorney is not a valid instrument to transfer property titles when buying or selling a property. However, due to the financial benefits, it provides to both the buyer and the seller, selling a property through a general power of attorney has become common practice in Indian cities.
- To transfer property titles, a sale deed must be completed, after which the buyer must pay stamp duty and registration fees. On top of that, the seller will have to pay capital gains tax on the transaction.
- These charges can be avoided by transferring property title through a general power of attorney.
- A general power of attorney allows the sellers to complete the transaction even if they do not have a clear title to the property. From the buyer’s perspective, they can afford a property at significantly lower prices than those on the market price.
- Legally, agricultural land could not be sold for residential use without converting land use. The majority of landowners sell their land parcels through a general power of attorney to avoid what they refer to as the “legal hassle” of conversion.
Moreover, there is a specified gestation period in most housing schemes put forth by government authorities where units are allocated on a leasehold basis during which the supposed resident is disallowed from selling that property to another party, and in such cases, it is not uncommon for the owner to execute a power of attorney on their agent before going away.
To get around this, such units are frequently transferred through a general power of attorney, which was also seen as a way to invest accounted for funds in real estate. Members of a family can sometimes grant each other property rights through a general power of attorney. In many cases, unsuspecting homebuyers fall victim to scams and invest in properties without realising the illegality of the transaction.
What Did the Supreme Court Rule in 2011?
The Supreme Court of India in 2011 declared that “a power of attorney is not an instrument of transfer in regard to any right, title or interest in an immovable property”. Accordingly, the Indian Apex Court ordered municipal bodies not to mutate or register properties based on such documents. The Supreme Court, on the other hand, reinstated the legality of valid transactions carried out through GPA.
The court held that ‘Nothing prevents affected parties from getting registered deeds of conveyance to complete their title. The said transactions may also be used to obtain specific performance or to defend possession under Section 53 A of the Transfer of Property Act, 1882’.
As a result of the Supreme Court’s decision, many states in India have made it illegal to register properties sold through a GPA. Furthermore, the Supreme Court’s landmark decision has already aided in limiting the free flow of black money in India’s real estate sector, where property titles are manipulated far too frequently.
After this blanket ban on the registration of such properties was issued in 2012, the Delhi government did, however, proceed to allow registration in favour of spouses, sons, daughters, brothers, sisters, and any other relative or person of apparent trust by a registered owner.
Conclusion
To summarise, a power of attorney is not an instrument of transfer regarding any right, title, or interest in immovable property; however, any genuine transaction carried out through a general power of attorney is considered valid under the law.
How Can Vakilsearch Help with Registering a Sale Deed?
A sale deed must necessarily be registered in a sub-registrar’s office. Even if the buyer has paid the full amount upfront to the seller, an unregistered sale deed does not pass ownership to the buyer.
We at Vakilsearch can help you register your sale deed in 4 simple steps.
- We purchase a stamp paper based on the property value.
- Our experts will draft the sale deed for you.
- The registration date and draft will be shared with you within 4 days.
- Lastly, the buyer, seller, and two witnesses will only be required for the registration of such a sale deed.
FAQs
Is it legally permissible to appoint an attorney for the execution of a Sale Deed?
Yes, it is legally permissible to appoint an attorney for the execution of a Sale Deed through a Power of Attorney (POA).
What powers can be granted to the attorney in the context of Sale Deed execution?
The powers granted to the attorney can include the authority to represent, negotiate, and execute the Sale Deed on behalf of the property owner.
Do both parties need to be physically present for Sale Deed execution with a POA?
No, with a valid Power of Attorney, the appointed attorney can execute the Sale Deed without the physical presence of both parties.
What documentation is required to execute a Sale Deed through a Power of Attorney?
Required documentation includes a properly drafted Power of Attorney specifying the powers granted, along with other standard Sale Deed documents.
Are there any specific clauses or conditions that should be included in the POA for Sale Deed execution?
The POA should clearly outline the powers granted, the purpose (Sale Deed execution), and any specific conditions or limitations deemed necessary by the parties involved.
Can a Sale Deed be executed by an attorney if the property owner is abroad?
Yes, the appointed attorney can execute the Sale Deed on behalf of the property owner even if they are abroad, provided there is a valid and legally enforceable Power of Attorney in place.
