Enforceable Unregistered Agreement

Registration of Agreement

Amendments to Registration Act, 1908 has been made by Tamil Nadu Government which makes the Agreements and Power of Attorney are to be compulsorily registered.

We shall discuss about its impact on real estate business, problems that may be faced by ethical and honest business men, innocent buyers and try to find solution to it.

Reasons behind the Amendment

The expenditure required for making an agreement or power of attorney is/ was very low. Moreover these were optionally registrable. It became the root cause for land grabbing and bogus registrations.

As the property disputes and frauds rose in an exponential degree, the government made the amendment to the Act by appending these documents in section 17 of the Act thus effecting compulsory registration.

Banks/Financial Institutions

Now, the banks and FIs advancing Housing Loans are at confusion whether to process HL application and advance money without unregistered agreement; if done so what will be its effects.

Moreover in Tamil Nadu, because of heavier power cut scanning of documents in SRO is getting delayed which will further delay the execution and registration of sale deed.

Builders & Promoters

On the other side, real estate business men are at problems. If their buyers planned to avail loan, the agreement for sale/ purchase has to be first registered and then HL application shall processed which may take a lead time of about 2 to 3 months; while the agreement period might be less than this time. This may frustrate the contract and thus the business.

Buyers

The buyers have to go to SRO more times which makes them uncomforted and sometimes may discourage the process of buying the property.

Effects of Non-Registration

Section-68 of Evidence Act says that a document shall not used as evidence until at least one attesting witness has given the testimony and Section-92 indirectly says that compulsorily registrable document  shall not used as evidence if it is not registered.

Section-49 of Registration Act says that the un-registered document, listed in Sec-17, shall not be received/ admissible in Courts.

That is to say, if the vendor does not ready to sell the property as agreed, the buyer cannot approach Court for specific performance of the agreement on the basis of unregistered agreement. In other words, the unregistered agreement cannot be enforced in a Court of Law as such it becomes invalid.

We see that the proviso helps the innocents from being cheated; On the other side, it strangles the honest builders, promoters, real estators who are doing business with ethics and buyers too.

Valid unregistered Agreement

In this circumstance, we shall discuss the possibility of having legally enforceable unregistered agreement and its validity.

Under Section-23 of Registration Act, an agreement can be registered within 4 months from the date of its signing. It means that it can be allowed to be in the condition of “Un-Registered” or “To be  Registered” and is valid. That is an unregistered agreement can be enforceable in any Court within 4 months.

If the period of agreement is less than 4 months, it can be enforced and as such does not require any registration. It safe guards all/ both the parties of agreement.

If Banks/ FI have good opinion about the promoter/ seller, it is at the discretion to advance the HL to buyer/ borrower keeping the agreement unregistered. To further safe guard the interest, the bank can get it affidavit and indemnified by the promoter/ seller. I have personally suggested the above to officials of two banks and as a result, HL have been disbursed.

Besides, a stringent scrutiny of documents is suggested. Regarding construction, a MoU can be made along with the agreement for sale of land. The Courts have considered the unregistered documents as a collateral evidences and the attesting witnesses shall prove its trueness.

Conclusion

It can be said that the agreement, even unregistered, shall be enforceable in Court of Law within four months by the amendment made by TN Government and after 4 months also valid as collateral evidence but is week in nature.

It is suggested to have a thorough and stringent scrutiny of all deeds and documents in all aspects and particularly with a view of probable disputes and challenges.

Promoters can execute Affidavit and Indemnity bond in favour of Banks.