Anil Kr Garg (Business) 16 September 2013

How come agreement to sell is treated as sale deed in mumbai

I am given to understand that the moment a developer collects 20% payment for a flat, he has to register an AGREEMENT TO SELL with lot of conditions for a flat under construction and to be handed over at a future date upon satisfaction of lot of terms. Once all the payments are made, possession is handed over without any further execution of SALE DEED because this AGREEMENT TO SELL itself is treated as SALE DEED. Even banks release home loan based on this AGREEMENT.

I am quite surprised. As per this Agreement, the property is still under construction, and possession will be transferred on satisfaction of lot of terms. Then how come property transfer takes place as per Transfer of Property Act when it does not even exist?

Further, the same AGREEMENT is used when flats are ready and certificate of occupation is received. In this situation, a flat is to be handed over immediately upon receipt of full payment AFTER execution of above agreement. In fact, even for sale of a ready flat, builders use the same procedure. They collect 20% payment, register the AGREEMENT, handover the agreement to buyer so that he can get home loan released, then, collect the remaining payment and handover possession. Thus, there is no difference in documentation whether it is a future property not in existence or a ready property.

Pls advise legality of such documentation.

Thanking you,

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3 Replies

Dr. MPS RAMANI Ph.D.[Tech.] (Scientist/Engineer) 16 September 2013

Economic growth is built on trust, trust on due performance by the other party. Agreement to sell being considered as the sale deed itself probably arose from the liability to pay stamp duty. Governments require payment of stamp duty because it is a source of revenue. And Government wants to collect its due in the beginning itself and not after everything is over. Hence stamp duty is payable in the agreement stage itself.

Again banks advance loan on trust. An agreement is taken as proof of the sincerity of the concerned parties. Banks can ask for collaterals if it has reason not to be fully satisfied with the capacity of any of the parties for due performance.

Occupation certificate is given only after actual inspection of the flat. In fact even the Registrar of Assurances is supposed to inspect the flat after construction to assure for himself that the flat is as detailed in the agreement and there has been no undervaluation.

Ultimately what is required is all parties concerned have to be satisfied. The purchaser wants the house of his dreams, the builder wants the money for his due performance, the Bank wants repayment of its loan with interest and the Registrar wants to confirm that there has been no undervaluation.

In commerce the seller, the purchaser and the work together on trust that each will perform his part satisfactorily.

rakesh (consultant) 28 November 2013

Could it be that Supreme Court https://judis.nic.in/supremecourt/imgst.aspx?filename=20034

held Agreement for Sale as deemed conveyance for the purposes of stamp duty payment or does it have some other basis? It would really be of help all if a considered view is given by the respected Experts

Dr. MPS RAMANI Ph.D.[Tech.] (Scientist/Engineer) 01 December 2013

In the particular case in which the judgment was delivered after the agreement, only fully payment remained to complete the transaction and no further conveyance was required. Hence the agreement itself became deemed conveyance. By extending the argument one has to say that if the wording of the agreement was such that a further conveyance deed would be required to complete the transaction then only at the conveyance stage stamp duty would be payable. The purpose of stamp duty is that it is a source of revenue for the State Government. If the stamp duty is not levied at the agreement stage and if no conveyance is further necessary the party will not have to pay stamp duty to complete the transaction and the State Government will lose revenue.