Real estate is the most preferred option for an asset to manage some unaccountable cash. However, as years passed, various methods evolved that make an investment look credible, including transferring property through the Power of attorney. The property rights in India are not unknown, but transferring property through Power of Attorney in cities like Delhi has been prevalent for several decades. But is it safe to transfer property based on Power of attorney?
It’s time you clearly understand the concept before you sign the dotted line!
What is Power of Attorney?
Power of attorney, often abbreviated as PoA, is an agreement between two parties to circumvent the law. During 1990, there was a massive spike in property transfer through PoA. That coincidentally grew the property market so much that the Supreme Court was compelled to pass a landmark judgment in 2011, declaring the transfer of property through Power of attorney illegal.
Even though the procedure became invalid, various people still use this mode to perform real estate transactions. Therefore, before you make a property transfer through PoA, you must understand all the nitty-gritty of buying a property and the classifications of Power of Attorney.
Classification of Power of Attorney
Power of Attorney is classified into two segments-
- General Power of Attorney (GPA)
- Special Power of Attorney (SPA)
General Power of Attorney
GPA is a power allotted to you by another person or vice-versa (primarily seen in the case of an heir) to carry out specific businesses on the allocator’s behalf. For example, a sick father gives his authoritative Power to his daughter so she can carry out tasks on his behalf. This is primarily seen in cases when the person is not physically able to be present or is bedridden. Non-Resident Indians (NRIs) also use this technique to carry out their tasks without being physically present.
Special Power of Attorney
SPA is a power allotment where you are authorized by someone else, or you assign someone for a specific task. For instance, you have assigned a person to carry on the responsibilities of a legal representative for a particular case. So, that specific person will be able to represent you for that specific case.
How is GPA different from SPA?
The differentiation lies in the allotment of duties and the scope of the work. While GPA enjoys broad authorizations for the agent, SPA somewhat restricts the choices made by the agent.
The validity tenure differs for both cases as well. SPA is valid until the task is complete, whereas GPA validity can be exercised until the principal’s lifetime or anyone who is allotting the GPA.
Can a person with a registered GPA sell the property on another person’s behalf?
The answer to this question is NO. They can’t. But why? Even though GPA is legally registered, it doesn’t give the selling authority to the person on behalf of the owner. GPA holders can only carry out tasks assigned with the owner’s authority. This does not include selling property. The Supreme Court has ruled out the possibilities of such cases in its verdict.
But then, why do people still follow this route for property transfer?
Even though it is advisable to do otherwise, many people still follow this route to avail certain benefits they find while doing a property transaction. If you go by the law, the buyer must pay registration charges and stamp duty to the government whenever there is a change of title for a land piece. The seller is also levied with tax from capital gain during income tax filing to the government. However, if they transfer it through GPA, the charges can be easily avoided, creating an exciting monetary benefit for both parties.
When can you proceed with the transfer of property with Power of attorney?
Though not advisable, one can still avail of transfer of property with Power of attorney by this exception. If the holder of the deed has absolute Power against consideration, they may proceed with the property transaction. Such cases also require cross-verification on whether the holder has substantive rights on the property in the form of a selling agreement. Then only should we recommend you proceed with such a transfer transaction?
Also, do note that such documents also should be registered. Only then can it be held valid even after the owner’s death. An irrevocable power alongside interest is your only exception in such case of transfer of property.
The final Supreme Court verdict
In the year 2011, the Supreme Court of India declared explicitly that the GPA is not a transfer document when it comes to the following things:
- Interests in an immovable property
The Court further determined PoA is a contract in favor of the grantee on behalf of the grantor. As a result, it does not transfer ownership to the beneficiary. Therefore, GPA is invalid for the sale/purchase of real estate. Transactions involving immovable property need a stamped and registered transfer deed, as the appropriate state government act requires.
Considering the initial verdict, the Supreme Court instructed municipal authorities not to register properties based on GPA papers. However, legitimate transactions conducted via GPA would continue to be valid.
According to the Supreme Court, GPA permits widespread tax evasion, including income tax, wealth tax, stamp duty, and registration fees. Moreover, GPA transactions make it easier to keep unlawful funds and gain illegal profits.
After the Supreme Court declared that GPA could not be used to transfer immovable property, the Delhi High Court held that property registration via GPA would not be prohibited in legitimate circumstances. The Delhi High Court cited the Supreme Court’s decision and said that the sub-registrar would record the transfer if the transaction were legitimate. GPA may be used to sign sale agreements or development agreements when a developer and a plot owner are engaged in developing property to construct a residential structure.
Considering the Delhi High Court’s ruling on GPA, the Delhi government legalized GPA property transfers for unlawful buildings for whom there are no sale documents.
To conclude, a seller cannot transfer the property based on Power of attorney.
Therefore, if any seller insists on selling based on Power of attorney, don’t fall into such temptation. Your legality as an owner will be questioned without a registered sale deed. You won’t get finance from the bank, nor will you be able to sell the property in the future. Always prefer to transfer property against a registered sale deed.