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.
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.
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:
- 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.
To summarise, a power of attorney is not an instrument of transfer in regard to 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.