Validity Of Sale Agreement Cum General Power Of Attorney

There has been a hue and cry from various quarters, that henceforth a person cannot execute a power of attorney to sell immovable property and all such transactions are invalid. The aforesaid wild interpretation was based on the judgment delivered by the Honourable Supreme Court in Suraj Lamp And Industries (P) Ltd., Vs State of Haryana and another. The alarm is unwarranted and the fear is uncalled for. The Honourable Supreme Court had reiterated the legal position with respect to sale agreement and power of attorney.

At the outset it would be essential to peruse certain statues governing power of attorney. The Powers of Attorney Act, 1882 is a short enactment containing five sections. As per section 2 of the said Act, any act done by the power of attorney shall have the same effect, in law, as if it had been executed or done by the principal in his own name, signature and seal. Section 3 of the act would state that any act or payment done in good faith by a person pursuant to a power of attorney, shall not be liable in respect of the said payment of the act for the reason that before the payment or the act, the principal had died or had become of unsound mind or insolvent or had revoked the power, and he was not aware of the same. Section 4 would deal with the deposit of original instruments creating power of attorney and finally section 5 deals with execution of a power of attorney by married women.

The power of attorney is presumed to be executed as per Section 85 of the Indian Evidence Act 1870,  when the document purported to be a power of attorney has been executed before or authenticated by a Notary Public or any Court, Judge, Magistrate, Indian consul or Vice consul or representative of the Central government.

Section 2 (21) of the Indian Stamp Act, 1899 defines power of attorney as “"power of attorney” includes any instrument (not chargeable with a fee under the law relating to Court fees for the time being in force) empowering specified person to act for and in the name of the person executing it.” Article 48 of the said act enumerates the stamp duty payable for a power of attorney. The article further makes a distinction with respect to power of attorney executed after receiving consideration and authorising the attorney to sell any immovable property, in such cases the article enumerates the duty equal to  conveyance. Finally, chapter X of the Indian contract act, deals with agency which would substantially apply to a power of attorney.

Interestingly, the Indian Registration Act 1908 does not make the registration of a power of attorney pertaining to immovable property as compulsorily registrable.

Having the above-mentioned statutory provisions in mind one can conclude the nature and extent of a power of attorney. The power agent acts as a servant of the principal and a power of attorney by itself does not create any right over immovable property which an agent can enforce. All acts done or purported to be done by an agent are deemed to be the acts and deeds done by the principal himself. The power of attorney shall not be revocable merely by its nomenclature “ irrevocable power of attorney”. The power of attorney becomes irrevocable only when it is coupled with interest namely consideration. Where a power of attorney is coupled with interest, as stated above the stamp duty would be equal to conveyance. All other power of attorneys are revocable.  The myth that exists among the people ignorant of law, that the power agent becomes the owner of the property and that the principal is not entitled to revoke the power or act on his own accord is totally erroneous. The people advocating the said myth are the root cause for all confusions that has arisen. Which, the Supreme Court has now clarified.

An agreement to sell the property expresses the intention of the vendor to sell and the purchaser to purchase the property on the terms and conditions usually agreed upon between the parties. Non-compliance of the terms and conditions in an agreement to sell only leads to a claim for specific performance of the agreement or a claim for damages. The title in the property passes only by a deed of the conveyance. It is only after the execution of the sale deed does purchaser gains title over the immovable property. An agreement to sell concludes itself in a document of conveyance.

It is true, that in most of the transactions relating to development of immovable property by way of plotting the same or putting a construction and selling the same to various persons, the module adopted would be to enter into a development agreement and execute a general power of attorney. Factually, the owner of the land does not sell the land to the developer. The owner only permits the developer to develop his property and thereafter the property is sold to various allottees. In a genuine transaction of this nature there is no evasion of stamp duty. The core intention of the owner and the developer is not to convey the property in favour of the developer but to sell them to the prospective purchasers. Hence the fear that the revenue is affected by transactions in the module of development agreement cum power of attorney is unwarranted.

Coming to the judgement passed by the Supreme Court in Suraj Lamp And Industries (P) Ltd., Vs State of Haryana and another it is eminent to first understand the background of the case in which the above judgment was passed. While the apex court was considering the said litigation it had the opportunity to come across the misuse of the power of attorney and the sale agreement. In states like Delhi there seems to be a practice among the government authorities to mutate the revenue records based on a sale agreement executed along with a general power of attorney empowering the agent to sell the immovable property. Such transactions where erroneously considered as transactions, wherein, the immovable property is presumed to have been conveyed to the agreement holder/power agent. As seen above the title in the property is not transferred by execution of a sale agreement/general power of attorney. As such the agreement holder/power agent does not become the owner of the property. Since the aforesaid abnormal interpretation that agreement holder/power agent becomes the owner of the property has been recognised by the authorities, the Supreme Court had cautiously in order to avoid utter confusion upon the existing transaction         had laid down that a transaction following the module of sale agreement/general power of attorney would not confer title in future transactions. The Supreme Court has clarified that a person would be entitled to obtain specific performance based on the sale agreement and the same could also be used to establish their rights under section 53A of the Transfer of Property Act.

Thus the perspective of the judgment rendered by the Supreme Court can be arrayed as follows:-

a) There cannot be a transfer of title in an immovable property by execution of a sale agreement/general power of attorney.  Any presumption  of transfer of title by execution of a sale agreement/general power of attorney is not legally valid.

b) The execution of sale agreement/general power of attorney is not transfer or sale and that such transaction cannot be treated as completed transfer or conveyance.

c) The development authorities, municipal authorities, revenue authorities are not to henceforth effect mutation of revenue records based on the sale agreement/general power of attorney

d) A person can enter into a development agreement, agreement of sale, power of attorney empowering the developer to execute the sale in favour of the prospective purchasers and such transactions would be valid.

e) The observations made by the Supreme Court in the said judgment regarding the sale agreement/general power of attorney shall not apply to bonafide and genuine transaction

His Lordship Hon’ble Mr.Justice V.Ramasubramanian had recently in open court said that we should not only know the law but also understand the law. Thus a proper reading, understanding and appreciation of the said judgment would not create chaos and the issue would be put to rest.

By

G.Ashokapathy

Partner

M/s.PASS Associates

Advocates

ashokapathy@gmail.com