Supreme Court of India rests out the much awaited & debated issue of Power of attorney

Consider a situation where a developer enters into an arrangement with a landowner which is 'intent to do a deal' and gets a general Power of attorney signed by the land owner but doesn't register it. Based on this POA, he does a 'soft launch' or ‘pre launch’ booking of flats in the project which is yet to be sanctioned. What do you think of the situation the Home Seekers might have to face on booking in such projects?

Well this was a normal case in the past few years in the northern parts of India, especially in the National Capital Region (NCR).

The much talked judgment of the Hon’ble Supreme Court is in the matter of Suraj Lamp & Industries Pvt Ltd (Petitioner) Vs State of Haryana an (Respondents). After news stared flashing in it created an impression that the stamp duty evasion on part of the real estate developer by using an unregistered POA with the land owner was a problem in Mumbai, Maharashtra as well which isn't true," says Adv. R. P. Rathod.
Some sections of media covered the report as if projects in the MMR would be hit by huge payments of stamp duty by developers and that it would translate into problems for Home Buyers. But Adv. R. P. Rathod rightly points out that the SC judgment will not affect transactions in Maharashtra as the state government has already stopped registering documents based on a POA, except when given to blood relations.  Though the SC judgment will put a curb on transfer of properties by merely taking POA and without paying stamp duty.

The judgment will definitely bring transparency in property dealings. Most of the people have the psychology to evade the stamp duty by not entering into proper agreement for sale or conveyance; just to evade some % of stamp duty; they take a risk on 100% of the property value. Anyway until a conveyance o sale deed is registered, it is not called in any way a transfer of property. In the past, it was not possible to execute a conveyance due to the ULC Act. “The culture of Development Agreements, POA and Agreement for Sale was introduced just because conveyance was not possible," says Adv. R. P. Rathod.

In Mumbai, one cannot sell or buy any property on the basis of a General Power of attorney and one needs to have a specific power of attorney to buy or sell or lease any property specific to the property being purchased or sold, unlike a general power of attorney where you give a 'Blanket Power or consent' to buy or sell any property on behalf of the person. Also, to sell a property, you cannot give a power of attorney to anyone but only your blood relatives or stamp duty on concept of Market rates shall apply. This blood relation needs to be specifically mentioned in the power of attorney on a Rs. 500 Stamp Paper duly notarised. This is to avoid the misuse of the power of attorney. It has been noticed in markets like Delhi and its vicinity where properties are sold and purchased on power of attorney and the parties specifically investors, do not enter into any deed of conveyance, thus, avoiding payment of stamp duty and Registration charges, this also results in black money transactions says Adv. R. P. Rathod. The end user who is interested in staying in the apartment enters into a Deed of Conveyance directly on the basis of the Power of Attorney and avoids paying the stamp duty and registration charges payable at every stage explains Adv. R. P. Rathod. Any power of attorney for sale of a Property in Mumbai however, given to a person who is not a blood relative, attracts stamp duty to the extent of sale of the property as per the prevailing market value prescribed in the Ready Reckoner adds Adv. R. P. Rathod.

The SC had ruled that, effective prospectively from October 11; registered sale deed will be the only valid instrument of transaction of property in the country. The verdict is likely to affect a large number of property owners.  He says that around 70% of property sales in Delhi take place through GPA and SA. Apartment owners in societies which have not got a Completion Certificate will find themselves on a sticky wicket because these flats cannot be converted into freehold. Until now, these properties could be sold through GPA and SA. The new ruling will effectively mean such apartments cannot be sold. The verdict is expected to raise the market value of freehold real estate while depressing the price of leasehold properties.

Adv. R. P. Rathod further emphasis that the impact of the SC judgment will be felt “less” in Mumbai or other parts of Maharashtra. This, he says, is because of an amendment which has been made in the Bombay Stamp Act, which specifies that for a person to act on a power of attorney, 90 percent of the stamp duty has to be paid on the market value of the property. "That's what the law says," he explains. However, he says, it is an open secret that in various properties connected with the World Bank projects, Slum Rehab and MHADA properties, almost 100 per cent transactions are being done on the basis of a power of attorney and the law is toothless in such matters.

Unlike what the Supreme Court judgment says for the property deals done on the basis of POAs, in Mumbai, the need of the day is to levy fines and legalise matters, rather than giving a free hand to the corrupt sections of the government machinery which effectively exploits the purchasers who have merely acted as per the prevalent practice existing in Real Estate Industry" he enlightens. As regards the impact of the judgment, Adv. R. P. Rathod says that now persons will stop dealing to a significant extent on the basis of the power of attorney and would make an attempt to register the agreement. However, where the law stipulates that the property cannot be sold for a certain number of years, the quantum of litigation are bound to increase this judgment will be a jackpot for the original owners of the Property, as they can literally blackmail the purchaser," concludes Adv. R. P. Rathod.

-      Adv. R. P. Rathod.