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Sale of Property Through Power of Attorney Not Valid; Supreme Court

A Three-Judge Bench of Supreme Court of India comprising of Justices R.V. Raveendran, A. K. Patnaik and H. L. Gokhale in Special Leave Petition (C) No. 13917 of 2009 titled Suraj Lamp & Industries Pvt. Ltd. Vs State of Haryana & Anr., after interpreting various provisions of the law concerning Property Sales, held that the sale of immovable property through Sale Agreement, Will, General Power of Attorney is not valid.

The Bench held that this type of transaction are not transfers or sales and such transactions cannot be treated as completed transfers or conveyances. However, the Bench said the Judgment will not affect genuine transactions under the General Power of Attorney. To avoid such transactions, the Bench asked the States, to reduce the Stamp Duty to encourage registration of Sale Deeds.

The seller of the immovable property in these indirect sales after receiving the agreed consideration, deliver the possession of the said property and executes some or all of the following documents:

  1. An Irrevocable General Power of Attorney in favor of the purchaser or his nominee.
  2. An understanding of sale containing the terms which would be like terms of sale by the seller in favor of the purchaser and undertaking to execute any document as and when required in future.
  3. A Special Power of Attorney either to sell or to manage the property.

The Supreme Court noted that this kind of Indirect Sales badly affected the economy, civil society and law and order.

This Indirect Sales enables:

  • Large scale evasion of Wealth Tax, Income Tax, Registration Fees and Stamp Duty etc. This causes the benefit of revenue to the public and loss to the Government.
  • These type transactions tend to persons with undisclosed wealth or income to invest their black money and also earn profit or income. This prompts empowering circulation of black money and corruption.


Relevant Legal Provisions

Section 5 of the Transfer of Property Act, 1882 defines transfer of property as under:

5. Transfer of Property defined:

In the following sections transfer of property means an act by which a living person conveys property, in present or in future, to one or more other living persons, or to himself [or to himself] and one or more other living persons; and to transfer property is to perform such act.

Section 54 of the Transfer of Property Act, 1882 defines Sales thus:
Sale is a transfer of ownership in exchange for a price paid or promised or part-paid and part-promised.

Sale how made. Such transfer, in the case of tangible immoveable property of the value of one hundred rupees and upwards, or in the case of a reversion or other intangible thing, can be made only by a registered instrument.

In the case of tangible immoveable property of a value less than one hundred rupees, such transfer may be made either by a registered instrument or by delivery of the property. Delivery of tangible immoveable property takes place when the seller places the buyer, or such person as he directs, in possession of the property.

Contract for sale - 54. Sale defined—‘‘Sale is a transfer of ownership in exchange for a price paid or promised or part-paid and part-promised.

Sale how made

Such transfer, in the case of tangible immoveable property of the value of one hundred rupees and upwards, or in the case of a reversion or other intangible thing, can be made only by a registered instrument. 1In the case of tangible immoveable property of a value less than one hundred rupees, such transfer may be made either by a registered instrument or by delivery of the property. Delivery of tangible immoveable property takes place when the seller places the buyer, or such person as he directs, in possession of the property.

Contract for sale

A contract for the sale of immoveable property is a contract that a sale of such property shall take place on terms settled between the parties. It does not, of itself, create any interest in or charge on such property.

Section 53-A of the Transfer of Property Act, 1882 defines Part Performance thus:

Part Performance: Where any person contracts to transfer for consideration any immoveable property by writing signed by him or on his behalf from which the terms necessary to constitute the transfer can be ascertained with reasonable certainty, and the transferee has, in part performance of the contract, taken possession of the property or any part thereof, or the transferee, being already in possession, continues in possession in part performance of the contract and has done some act in furtherance of the contract, and the transferee has performed or is willing to perform his part of the contract, then, notwithstanding that where there is an instrument of transfer, that the transfer has not been completed in the manner prescribed therefore by the law for the time being in force, the transferor or any person claiming under him shall be debarred from enforcing against the transferee and persons claiming under him any right in respect of the property of which the transferee has taken or continued in possession, other than a right expressly provided by the terms of the contract.

Provided that nothing in this section shall affect the rights of a transferee for consideration who has no notice of the contract or of the part performance thereof.

Referring to the relevant provisions of the Indian Stamps Act, 1999 (Note: Stamp Laws may vary from State to State, though generally the provisions may be similar).

Section 27 of the Indian Stamp Act, 1899 casts upon the party, liable to pay stamp duty, an obligation to set forth in the instrument all facts and circumstances which affect the chargeability of duty on that instrument.

Article 23 of the Indian Stamp Act, 1899 prescribes stamp duty on Conveyance. In many States appropriate amendments have been made whereby agreements of sale acknowledging delivery of possession or power of Attorney authorizes the attorney to sell any immovable property are charged with the same duty as leviable on conveyance.

Section 17 of the Registration Act, 1908 which makes a deed of conveyance compulsorily registerable is extracted below. the relevant portions of section 17 reads as under:
Section 17 - Documents of which registration is compulsory-
(1) The following documents shall be registered, if the property to which they relate is situate in a district in which, and if they have been executed on or after the date on which, Act No. XVI of 1864, or the Indian Registration Act, 1866, or the Indian Registration Act, 1871, or the Indian Registration Act, 1877, or this Act came or comes into force, namely:-
(a) instruments of gift of immovable property;
(b) other non-testamentary instruments which purport or operate 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 one hundred rupees and upwards, to or in immovable property.

(1A) The documents containing contracts to transfer for consideration, any immovable property for the purpose of section 53A of the Transfer of Property Act, 1882 (4 of 1882) shall be registered if they have been executed on or after the commencement of the Registration and Other Related laws (Amendment) Act, 2001 and if such documents are not registered on or after such commencement, then, they shall have no effect for the purposes of the said section 53-A.]

Advantages of Registration

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 and providing for consequences of non-registration.

Section 17 of the Registration Act, 1908 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.

Scope of an Agreement of sale

Section 54 of the Transfer of Property Act, 1882 makes it clear that a contract of sale, that is, an agreement of sale does not, of itself, create any interest in or charge on such property.

Supreme Court in Narandas Karsondas v/s S. A. Kamtam & Anr., (1977) 3 SCC 247, observed:
A contract of sale does not of itself create any interest in, or charge on, the property. This is expressly declared in Section 54 of the Transfer of Property Act, 1882. See Rambaran Prosad Vs Ram Mohit Hazra, [1967] 1 SCR;

293. The fiduciary character of the personal obligation created by a contract for sale is recognised in Section 3 of the Specific Relief Act, 1963, and in Section 91 of the Trusts Act. The personal obligation created by a contract of sale is described in Section 40 of the Transfer of Property Act as an obligation arising out of contract and annexed to the ownership of property, but not amounting to an interest or easement therein.

In India, the word transfer is defined with reference to the word convey. The word conveys in Section 5 of Transfer of Property Act is used in the wider sense of conveying ownership....that only on execution of conveyance ownership passes from one party to another....

In Rambhau Namdeo Gajre v/s Narayan Bapuji Dhotra, [2004 (8) SCC 614] the Supreme Court held:
Protection provided under Section 53-A of the Act to the proposed transferee is a shield only against the transferor. It disentitles the transferor from disturbing the possession of the proposed transferee who is put in possession in pursuance to such an agreement. It has nothing to do with the ownership of the proposed transferor who remains full owner of the property till it is legally conveyed by executing a registered sale deed in favour of the transferee.

Such a right to protect possession against the proposed vendor cannot be pressed in service against a third party.
It is thus clear that a transfer of immoveable property by way of sale can only be by a deed of conveyance (sale deed). In the absence of a deed of conveyance (duly stamped and registered as required by law), no right, title or interest in an immoveable property can be transferred.

Any contract of sale (agreement to sell) which is not a registered deed of conveyance (deed of sale) would fall short of the requirements of Section 54 and 55 of Transfer of Property Act, 1882 and will not confer any title nor transfer any interest in an immovable property (except to the limited right granted under Section 53-A of Transfer of Property Act, 1882). According to Transfer of Property Act, 1882 an agreement of sale, whether with possession or without possession, is not a conveyance. Section 54 of Transfer of Property Act, 1882 enacts that sale of immoveable property can be made only by a registered instrument and an agreement of sale does not create any interest or charge on its subject matter.

Scope of Power of Attorney

A power of attorney is not an instrument of transfer in regard to any right, title or interest in an immovable property. The power of attorney is creation of an agency whereby the grantor authorizes the grantee to do the acts specified therein, on behalf of grantor, which when executed will be binding on the grantor as if done by him (see Section 1A and Section 2 of the Powers of Attorney Act, 1882). It is revocable or terminable at any time unless it is made irrevocable in a manner known to law. Even an irrevocable attorney does not have the effect of transferring title to the grantee.

In State of Rajasthan Vs Basant Nehata, 2005 (12) SCC 77, Supreme Court held:
A grant of power of attorney is essentially governed by Chapter X of the Contract Act. By reason of a deed of power of attorney, an agent is formally appointed to act for the principal in one transaction or a series of transactions or to manage the affairs of the principal generally conferring necessary authority upon another person. A deed of power of attorney is executed by the principal in favour of the agent.

The agent derives a right to use his name and all acts, deeds and things done by him and subject to the limitations contained in the said deed, the same shall be read as if done by the donor. A Power of Attorney is, as is well known, a document of convenience.

Execution of a power of attorney in terms of the provisions of the Contract Act as also the Power of Attorney Act, 1882 is valid. A power of attorney, we have noticed hereinbefore, is executed by the donor so as to enable the donee to act on his behalf. Except in cases where power of attorney is coupled with interest, it is revocable.

The donee in exercise of his power under such power of attorney only acts in place of the donor subject of course to the powers granted to him by reason thereof. He cannot use the power of attorney for his own benefit. He acts in a fiduciary capacity. Any act of infidelity or breach of trust is a matter between the donor and the donee.

An attorney holder may however execute a deed of conveyance in exercise of the power granted under the power of attorney and convey title on behalf of the grantor.

Scope of Will

A will is the testament of the testator. It is a posthumous disposition of the estate of the testator directing distribution of his estate upon his death. It is not a transfer inter vivos. The two essential characteristics of a will are that it is intended to come into effect only after the death of the testator and is revocable at any time during the life time of the testator.

It is said that so long as the testator is alive, a will is not be worth the paper on which it is written, as the testator can at any time revoke it. If the testator, who is not married, marries after making the will, by operation of law, the will stands revoked. (see Sections 69 and 70 of Indian Succession Act, 1925).

Registration of a will does not make it any more effective.

The Bench while passing the landmark Judgment concluded as under:
15. Therefore, a SA/GPA/WILL transaction does not convey any title nor create any interest in an immovable property. The observations by the Delhi High Court, in Asha M. Jain Vs Canara Bank, 94 (2001) DLT 841, that the concept of power of attorney sales have been recognized as a mode of transaction when dealing with transactions by way of SA/GPA/WILL are unwarranted and not justified, unintendedly misleading the general public into thinking that SA/GPA/WILL transactions are some kind of a recognized or accepted mode of transfer and that it can be a valid substitute for a sale deed. Such decisions to the extent they recognize or accept SA/GPA/WILL transactions as concluded transfers, as contrasted from an agreement to transfer, are not good law.

16. We therefore reiterate that immovable property can be legally and lawfully transferred/conveyed only by a registered deed of conveyance.

Transactions of the nature of GPA sales or SA/GPA/WILL transfers do not convey title and do not amount to transfer, nor can they be recognized or valid mode of transfer of immoveable property. The courts will not treat such transactions as completed or concluded transfers or as conveyances as they neither convey title nor create any interest in an immovable property. They cannot be recognized as deeds of title, except to the limited extent of Section 53-A of the Transfer of Property Act, 1882. Such transactions cannot be relied upon or made the basis for mutations in Municipal or Revenue Records.

What is stated above will apply not only to deeds of conveyance in regard to freehold property but also to transfer of leasehold property. A lease can be validly transferred only under a registered Assignment of Lease. It is time that an end is put to the pernicious practice of SA/GPA/WILL transactions known as GPA sales.

17. It has been submitted that making declaration that GPA sales and SA/GPA/WILL transfers are not legally valid modes of transfer is likely to create hardship to a large number of persons who have entered into such transactions and they should be given sufficient time to regularize the transactions by obtaining deeds of conveyance. It is also submitted that this decision should be made applicable prospectively to avoid hardship.

Going into the legality of such transfers, the Supreme Court held that any contract of sale which was not a registered sale deed would fall short of the requirements of the relevant provisions of the Transfer of Property Act and could not confer any title.

The Supreme Court further held that said a transfer of property by way of sale could only be by a sale deed. In the absence of a deed of conveyance (duly stamped and registered as required by law), no right, title or interest in an immovable property can be transferred, the bench said.

Written By: Damini Singh Chauhan, Semester 9th, The Law School, University of Jammu.
Email: [email protected]

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