22 Apr 2019, 11:56 — 7 min read
Background: The easiest way to execute decisions related to your finances, health care or buying/selling your property when you are away or are unable to do so on your own is preparing a Power of Attorney. It is the most reliable option that legally allows you to transfer the authority to someone else to make any legal decisions on your behalf. In case of sale of property specifically, a Power of Attorney is essentially used to authorise a person/agent to act on their behalf. This article by Vakilsearch explains Power of Attorney and its relevance in sale of property. Read on.
In 2011, the Supreme Court (SC) held that transferring property title through General Power of Attorney is not valid. Before we delve into the SC order and explain the illegality involving property through General Power Attorney, let us first understand what General Power of Attorney is.
What is a Power of Attorney?
A written document in which one person known as the Principal appoints another person to act as an agent on his or her behalf, thus conferring authority on the agent to perform certain acts or functions on behalf of the principal. Powers of Attorney are routinely granted to allow the agent to take care of a variety of transactions for the principal, such as executing a stock power, handling a tax audit, or maintaining a safe-deposit box. Powers of Attorney can be written to 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.
Procedure to make a Power of Attorney
Power of Attorney and Real Estate
Now we have seen what Power of Attorney is and the legal process behind it. 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.
Legally, agricultural land could not be sold for residential purposes without converting land use. Most landowners sell their land parcels without getting into what they call the legal hassle of conversion and sell their land parcels through General Power of Attorney.
There are other legal restrictions that prompt property owners to engage in the sale through General Power Attorney. In most government housing schemes (DDA, MHADA, etc.) where units are allotted on a leasehold basis, there is a specified gestation period, before which the resident cannot sell the property to another party. To sidestep this process, such units are often transferred through a General Power of Attorney, was also seen as a medium to invest accounted for money in real estate. In some cases, members of a family confer property rights through General Power of Attorney. In many cases, naive home buyers fall prey to frauds and invest in properties without understanding the illegality involved in the traction.
The 2011 Supreme Court Order
The order stated that “a Power of Attorney is not an instrument of transfer in regard to any right, title or interest in immovable property”, the top court directed municipal bodies not to register/mutate properties based on these documents. The Supreme Court, however, said that genuine transactions carried out through General Power of Attorney would be valid.
“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 53A of the Transfer of Property Act,” the SC said.
Following the order, the states banned the registration of properties sold through General Power of Attorney. After imposing a blanket ban on registration of such properties in 2012, the Delhi government allowed registration in favour of spouses, sons, daughters, brothers, sisters and any other relative or person of trust by registered owners.
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