Fri Apr 29 2022 | Real Estate, Wills, Probate and Trust | Comments (0)
There may be many circumstances in a person’s life who owns assets, properties, bank accounts, etc. but who, at that moment, may not be in the right condition to appropriately execute his/ her duties due to unforeseen circumstances like being ill, being abroad (in case of an NRI) or even when the person is too old to perform his/ her duties etc.
As a result, during circumstances where a financial transaction has to be carried out and mandates the attendance of the person who is unable to appear personally, the solution towards this is to delegate his own powers i.e. to act on behalf of the concerned person
This procedure of delegation of power is called Power of Attorney (PoA) and during such an unforeseen situation, where the rightful owner cannot utilize his power is when a Power of Attorney deed is executed. This practice is highly popular to give one’s powers to a dependable and honourable person to conduct operations like sale, renting out, registrations, etc. provided that person is busy or unable to do those things personally.
However, in 2011, the Supreme Court of India, in a landmark judgment, observed that transferring a property title through a General Power of Attorney (GPA) is illegal. But before discussing the legality of the Supreme Court order, let us understand the concept of Power of Attorney.
A Power of Attorney is a legal document where one person grants the right to execute i.e. power to transact in matters regarding property, legal and judicial proceedings, banking, payment of tax, etc, to another person due to any of the reasons explained above earlier.
A Power of Attorney is an authorisation granted by a written formal instrument whereby an individual termed, as the principal/ donor, authorises another individual termed, as the attorney/ agent/ donee, to act on his/ her behalf.
Principal/ Grantor/ Donor is the person who gives his power/ responsibility/ authority to another person to act on his behalf
Attorney/ Agent/ Donee is the person to whom the power/ responsibility/ authority is given.
Ordinarily, a Power of Attorney is executed by someone who cannot perform his transactions himself or herself (in person) due to numerous reasons. The following are the numerous reasons that make an individual delegate his powers to perform a duty to some other individual:
A Power of Attorney (PoA) can be of 2 types:
When a person is authorised with absolute general right or power to act legally with respect to the property or bank accounts or tax payments, or registration work or to file a case against third parties etc. by another person, it is termed as a GPA.
An individual can either give a GPA for all his properties, banking transactions, tax affairs, registration, legal disputes as well as court matters etc. or can simply grant a general power pertaining to just one category from the above. For instance, power relating to property matters only. This transfer of general power is extremely broad and therefore, has lot of risk involved in case the Agent/ Attorney is not a dependable individual.
An SPA is transfer of special power, which is only granted for a specific assignment and once the specific assignment is completed, the SPA automatically terminates.
A typical example of an SPA is when people rent out their property or when the agent appears for the registration of the principal’s property or when the agent appears in a court or before the Tax authorities on behalf of the Principal etc.
A GPA is a lot different from an SPA since a GPA always grants a general power to perform, while the special power grants only a specific power to perform a particular duty or assignment.
A GPA encloses a broad range of powers and is not restricted to any particular/ specific responsibility. Therefore, it must be given only to a very dependable person. An SPA, on the contrary, expires as soon as the specific responsibility/ assignment is over
An SPA is always specific in nature, however, under a GPA there is unrestrictive authority to buy, sell, rent out, recovering debts, opening of bank accounts, close of bank accounts, attending/ appearing the courts, appearing on the direction of the principal in legal disputes or filing tax returns etc. In an SPA, only one of the above mentioned duties is to be performed by the agent. An SPA cannot be created for every assignment and therefore, the provision for GPA is allowed.
While instituting a Power of Attorney, it is essential to cover specific compulsory clauses depending upon the kind of power of attorney that is being created. The following are the essential clauses that must be included in a Power of Attorney deed:
A Non- Resident Indian can create a Power of Attorney deed while residing outside India without having to visit India solely for that purpose. Majority of NRIs own properties as well as banking transactions in India that could require their appearance while undergoing transactions. However, the same cannot be possible for every such transaction. Therefore, NRIs can always give authority for such transactions to his/ her agent/ attorney who can be a friend or even a family member.
An NRI must follow the following procedure to execute the same:
From the above, the legality of a Power of Attorney has been understood and established, and is now clear that a PoA is not an authentic instrument to execute transfer of property titles. Although, the practice of selling and buying property through GPA and SPA had been really common all across Indian cities. The same was because of the monetary benefits such selling and buying offered to both the buyer as well as the seller.
Ordinarily, a sale deed has to be executed for transferring property titles in India, following which the property buyer has to pay the standard stamp duty as well as the registration charges for the property. Besides this, the property seller also has to carry the weight of capital gains tax on the said transaction. By transferring property title through a GPA, registration and tax charges are prevented.
Now from the perspective of a seller, a GPA makes it plausible to take the transaction forward even if the seller does not possess clear titles to the property. As a result, a GPA is the only option available for the seller.
Now from the perspective of a buyer, a buyer can afford to buy a property at a much cheaper rate than the actual market rate. A buyer can also buy such a property which he/ she would not be able to afford otherwise, without using this method.
To explain this in a simpler way, according to the prescribed law, an agricultural land cannot be sold for any residential purpose without converting the use of the property. To avoid the same, majority of the land owners sell their property assets without getting involved in the nitty gritties and legal hassles of conversion and therefore, simply sell their property assets through a GPA.
In addition to the above, there are plenty of other legal limitations that encourage property owners to captivate in sale of property via GPA. Moreover, in most government housing schemes (DDA, etc.) where housing units are assigned on a lease- hold basis, there is a stipulated development time period before which the assignees cannot sell the property to any other party. To steer clear of this procedure, such units of property are mostly transferred via a GPA. Earlier, GPA was also considered as a safe medium to invest one’s accounted money in real estate. Also, in a lot of cases, members of a family grant rights of a property through a GPA.
Apart from this, in a lot of cases, inexperienced homebuyers fall victim to frauds pertaining to buying/ selling of properties and end up investing in properties without comprehending the legality involved in the transaction of property.
The Supreme Court of India in 2011 declared that, “a power of attorney is not an instrument of transfer in regard to any right, title or interest in an immovable property”. In this regard, the Indian Apex court directed the municipal bodies not to mutate or register properties based on such documents. The Supreme Court, however, reinstated that valid transactions carried out through GPA would be legal.
The court further said, "Nothing prevents affected parties from getting registered deeds of conveyance to complete their title. The said transactions may also be used to obtain specific performance or to defend possession under Section- 53 A of the Transfer of Property Act, 1882."
As a result of this Supreme Court order, numerous states across India prohibited the registration of properties that were sold through a GPA. Furthermore, this landmark decision of the Supreme Court has already helped to restrict the free flow of black money, to some degree, in the real estate sector in India, where property titles are manipulated way too often. Besides this, a lot of property transactions where, prices were rounded off till now, will be affected.
However, after a complete prohibition on such properties was imposed, the Delhi government finally agreed to permit registration of properties in favour of the rightful owner’s spouses, daughters, sons, sisters, brothers as well as any other relative or individual of trust of the registered owner.
The person who purchases a property through a GPA might well have the “possession” of the property, but due to the absence of a genuine registered sale deed, the person would not be considered as the rightful legal owner of the said property.
Apart from this, due to the absence of a valid property title with the person, it would become difficult to sell off the property in the future, unless the person does it through a GPA by trying to extend the illegal course of action.
In addition to the above mentioned concerns, a potential buyer would also find it extremely difficult to get finance from a bank in case he requires finance against the property. This is because, as a standard practice of banks, they do not finance money towards property transactions that are performed through GPA. Therefore, the only requisite to get finance from a bank while purchasing a property is for the property title to be absolutely clear.
Now, keeping in mind all of the above, what kind of powers can the Principal grant to his/ her agent through GPA towards a property?
As explained earlier, a GPA must not be granted to execute transfer of titles in a property. Instead, a grant of GPA to an agent can make the agent responsible for management and monitoring the estate of the Principal,, even pay the occasional utility bills as well as act as the official representative in home loan- related transactions. Besides this, the Principal can further empower his/ her agent/ attorney to register his/ her property through a GPA.
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