The concept of POA has been discussed under two laws in India – the Powers of Attorney Act, 1882 and the Indian Stamp Act, 1899. These legislations defined POA as an instrument empowering a specified person to act on behalf of the person executing the transaction. Basically, a person gives another person the legal right to present himself as his representative, to perform specific tasks on his behalf.
Powers of attorney can be either general (full) or limited to special circumstances. A power of attorney is generally terminated when the principal dies or becomes incompetent, but the principal can revoke the power of attorney at any time.
When it comes to buying or selling a property, Power of Attorney is not a valid instrument to transfer property titles. However, selling the property through General Power of Attorney had become common practice across Indian cities, owing to the monetary benefits it offered, both the buyer and the seller.
A sale deed must be carried out for transferring property titles, following which the buyer has to pay stamp duty and registration charges. The seller will also have to bear the burden of capital gains tax on the transaction. By transferring property title through a General Power of Attorney, these charges are avoided. “From the sellers’ perspective, a General Power of Attorney makes it possible to carry the transaction even if they do not hold clear property titles. General Power of Attorney, in fact, is their only option. From the buyers’ perspective, they can afford property at much cheaper rates than the market price.
In 2011, the Supreme Court ruled that property sale through power of attorney (PoA) is illegal and only registered sale deeds provide any legal holding to property transactions.
POA is commonly used by non-resident Indians (NRIs), as it may not be possible for the NRI to visit his country of origin at a given time, because of his/her businesses or personal work. Owing to the convenience it provides, a POA is also handy for extremely busy people, such as businessmen and people who cannot perform various personal and professional tasks.
In a landmark verdict, the Supreme Court, while delivering its judgment in the Suraj Lamp & Industries Pvt Limited vs the State of Haryana case, ruled that property transactions carried out by way of PoA do not hold legal validity.
“A PoA is not an instrument of transfer in regard to any right, title or interest in an immovable property,” a three-judge bench, headed by justice RV Raveendran, said, adding that property can legally be transferred only through a registered sale deed. The judgment, which came after interpreting various provisions of the law concerning property sales and became effective retrospectively, said it would not affect the validity of sale agreements and PoAs executed in genuine transactions.
The top court cited specific examples to elaborate on genuine cases. “For example, a person may give a PoA to his spouse, son, daughter, brother, sister or a relative, to manage his affairs or to execute a deed of conveyance,”. While stating that municipal bodies should not entertain mutation requests for properties that changed hands through GPAs, it clarified that existing records should not be disturbed, because of the verdict.
Following the SC’s ruling, the Delhi government, in 2012, came up with a circular banning the sale of property through GPA, a will and agreement to sell, collectively or separately. The Delhi government’s circular affected many property holders in the national capital region (NCR), where sales through GPA had become rampant. Following the notification, various applications were moved in the Delhi High Court, seeking relief. The HC ruled that the SC verdict clearly mentioned that registration cannot be barred in genuine cases.
“The SC has not said that in no case a conveyance can be registered by taking recourse to a GPA. As long as the transaction is genuine, the same will have to be registered by the sub-registrar,” the HC said “A person may enter into a development agreement with a land developer, for development of a parcel of land or for construction of apartments in a building and for this purpose, a POA to execute sale agreements can be executed,”
According to the SC, registration of a POA is mandatory, if it is executed for the sale of a property. Also note that a notarised PoA would be admissible as proof in the court of law. However, the rules may vary, depending on the state where the instrument is being drafted. In Gujarat, for example, the registration of notarised power of attorney documents has been made mandatory in the state under the provisions of the Gujarat Registration (Amendment) Bill.
To summaries, the law holds that a power of attorney is not an instrument of transfer in regard to any right, title or interest in an immovable property but any genuine transaction carried out through General Power of Attorney is considered valid under the law.