Apex Court's concern over power of attorney sales

The Apex Court has taken serious note of practice of transfer of property through power of attorney as a substitute to regular sale. In a  SPECIAL LEAVE PETITION (C) NO CC 5804/2009 Suraj Lamp & Industries (P) Ltd. Thru. DIR ...v.State of Haryana & Anr. while issuing notices the Apex Court has observed that  :                                     

“The matter involves an issue whose    seriousness     is    underestimated.     The    issue     to   be addressed is avoidance of execution and registration of deeds of conveyance as the mode of transfer of freehold immovable property by increasing tendency to adopt `Power of    Attorney Sales', that is execution of sale agreement/general power of attorney/will (for short `SA-GPA-Willtransactions') instead of execution and registration of regular       deeds     of    conveyance,    on     receiving full consideration. This    method   adopted    has    the    following variants:

     (i)Execution of an agreement of sale, one or two powers  of attorney, with or without a will, all unregistered.

  (ii)Execution of an agreement of sale, power/s of attorney and will, registering either all of them, or  any two of them, or any one of them.”

           The Apex Court has observed that    the    `Power    of    Attorney   Sales'    as    a     method     of `transfer' was evolved by lawyers and document writers in Delhi, to overcome certain restrictions on transfer of flats    by   the     Delhi   Development   Authority        (for   short`DDA'). DDA     had        undertaken           large        scale     development        by constructing            of   flats.      It     is    stated    that     when    DDA allotted      a    flat      to   an    allottee,       any    transfer    of    the assignment by the allottee required the permission of DDA and such permission was granted only on payment to DDA of the `unearned increase', that is the difference between the    market      value/sale          price    and    the    original    cost    of allotment. To avoid the cumbersome procedure in obtaining permission and to avoid payment of the huge part of the price to the DDA as unearned increase, a hybrid system was evolved whereby the allottee/holder of the flat, on receiving         the    agreed    consideration             would   deliver     the possession of the flat to the purchaser and execute the following documents :

(a)An Agreement of sale confirming the terms of the   sale, delivery of possession and payment of full consideration and undertaking to execute any document  when required in future.

  (b)An Irrevocable General Power of Attorney in favour   of the purchaser or his nominee authorizing him to  manage, deal with and dispose of the property without     reference to the vendor.

  (c)A will bequeathing the property to the purchaser as   safeguard against the consequences of death of the     vendor before transfer.

        The `Power of Attorney Sales', as noticed above was adopted       to    overcome       the        restrictions/prohibitions           in terms of allotment and the rules of allotment of DDA governing the allotment of flats. Such transactions were obviously     irregular     and   illegal     being        contrary      to    the rules and terms of allotment. Further, in the absence of a    registered     deed   of   conveyance,         no    right,       title    or interest in an immovable property could be transferred to the purchaser. However, the Delhi High Court in a few cases accepted such `Power of Attorney Sales' as creating an `interest' in the DDA flat which was so `transferred' and     consequently,       protected        such        interest       of     the purchaser by issuing injunctions or decrees preventing the vendor from further dealing with the property. This led to a general impression the `Power of Attorney Sales' were    valid     recognized    modes   of    transfer        and      the    very purpose      DDA      prohibiting       transfers           and        requiring permission on payment of certain difference in price was defeated by this process. We     are   not    presently     concerned         with     the       validity, propriety or wisdom of such judgments which virtually put the seal of approval of the court on transactions which were irregular and illegal. In fact, it is stated that DDA    itself      ultimately     recognizes        `Power        of    Attorney Sales' by accepting applications from purchasers under `Power of Attorney Sales' for conversion from leasehold to     freehold     and    conveyance    of     the        flats.      We     will therefore presently exclude the `power of attorney sales'of DDA flats from the purview of the present exercise.

        In instant case the supreme court is concerned with extension of the concept of such      `Power      of    Attorney       Sales'         by        execution    of SA/GPA/Will with reference to freehold properties. The supreme Court has observed that “ The   Registration         Act,    1908,    was     enacted       with   the intention of providing orderliness, discipline and public notice in regard to transactions relating to immovable property     and      protection         from    fraud     and        forgery   of documents       of   transfer.      This    is    achieved          by   requiring compulsory registration of certain types of documents andproviding for consequences of non-registration. Section 17   of   the     Registration      Act    clearly       provides        that   any document     (other        than    testamentary       instruments)           which purports or operates 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 Rs.100 and upwards to or in immovable property. Section 49 of the said Act provides that no document required by section 17 to be registered shall, affect any immovable       property     comprised          therein        or    received    as evidence     of      any    transaction         affected        such     property, unless it has been registered. 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.”

 The Court has further observed that:    “ Recourse to `SA/GPA/WILL' transactions is taken in regard to freehold properties, even when there is no bar or prohibition regarding transfer or conveyance of such property, by the following categories of persons :-

    (a)Vendors with imperfect title who cannot or do not  want to execute registered deeds of conveyance.

  (b)Purchasers   who   want    to  invest   undisclosed  wealth/income in immovable properties without any  public record of the transactions. The process enables  them to hold any number of properties without  disclosing them as assets held.

   (c)Purchasers who want to avoid the payment of stamp  duty and registration charges either deliberately or on  wrong advice. Persons who deal in real estate resort to    these     methods    to     avoid    multiple     stamp   duties/registration fees so as to increase their profit  margin.”

       “Whatever       be    the   intention,      the   consequences    are disturbing      and    far     reaching,    adversely      affecting    the economy, civil society and law and order. Firstly, it enables large scale evasion of income tax, wealth tax, stamp    duty   and        registration    fees    thereby   denying   the benefit of such revenue to the government and the public. Secondly,       such        transactions       enable     persons      with undisclosed wealth/income to invest their black money and also earn profit/income, thereby encouraging circulation of black money and corruption. This kind of transactions

has disastrous collateral effects also. For example, when themarket value increases, many vendors (who effected power of attorney sales without registration) are tempted to resell the property taking advantage of the fact that there is no registered instrument or record in any public office thereby cheating the purchaser. When the purchaser under such `power of attorney sales' comes to know about the vendors action, he invariably tries to take the help of musclemen to `sort out' the issue and protect his rights. On the other hand, real estate mafia many a time purchase properties which are already subject to power of attorney sale and then threaten the previous `Power of Attorney Sale' purchasers from asserting their rights. Either way, such power of attorney sales indirectly lead to growth of real estate mafia and criminalization of real estate transactions.

11.    Some states have made some efforts to control such `Power of    Attorney   Sales'     by   subjecting   agreements   of sale   involving   delivery   of    possession   and   irrevocable powers of attorney for consideration, to the same stamp duty as deeds of conveyance or by making such documents compulsorily registrable. But the steps taken are neither adequate nor properly implemented resulting in multiple transactions in regard to the same property by greedy and unscrupulous vendors and/or purchasers giving nightmares to bonafide purchasers      intending       to    buy       a       property      with        certainty regarding title. It also makes it difficult for lawyers in    tracing    and    certifying              title.         Any       process        which interferes       with     regular          transfers                under       deeds      of conveyance properly stamped, registered and recorded in the registers of the Registration Department, is to be discouraged and deprecated.”

    “The    present     case       is     a       typical          example       of     the consequences      of    not     obtaining           a     registered          sale      deed. There    is     apparently      no    reason             as    to     why     a    company registered under the Companies Act should resort to such a    transaction.       Execution         of    a       will    by       an   individual bequeathing an immovable property to a company, is also incongruous      and     absurd.      If        there         was    a    bar      and   the process was adopted to overcome such bar regarding sale of lands, then courts should not go to their assistance, as that       would    amount    to       perpetuating              illegalities.          If there was no bar, then the questions that arise are: why should a company hold a property in a state of suspended animation from 1991? How can a company `verbally' agree to sell a property to someone? What is the reason for the delay    in     lodging    the       complaints?               If     petitioner          had purchased      the    property       under          a    registered           sale      deed, numerous disputes, litigations and criminal proceedings could      have    been     avoided.     The    illegal       and     irregular process     of     `Power    of    Attorney      Sales'      spawns    several disputes     relating        to    possession     and     title,      and   also results in criminal complaints and cross complaints and extra-legal enforcement and forced settlements by land mafia.”

          The Apex Court has directed the Solicitor General to appear in the matter and give suggestions on behalf of Union of India and has also issued  notices to the States of Punjab, Haryana,   Delhi,      Uttar      Pradesh        and         Maharashtra (represented by their respective Chief Secretary/Revenue Secretary) to consider the following issues:

  (a)Whether   `power   of   attorney   sales'  (that   is  transactions     involving      execution    of     Sale  Agreement/GPA/Will)   instead  of   regular   sales   is  prevalent in their respective states?

  (b)What are the views of the respective state government in respect of such transactions?

(c)What steps have been taken and/or proposed to be  taken by the respective states to deal with the chaotic  situation and confusion arising from such transactions?