There has been a hue and cry from various quarters, that henceforth a
person cannot execute a power of attorney to sell immovable property
and all such transactions are invalid. The aforesaid wild interpretation
was based on the judgment delivered by the Honourable Supreme Court in
Suraj Lamp And Industries (P) Ltd., Vs State of Haryana and another. The
alarm is unwarranted and the fear is uncalled for. The Honourable
Supreme Court had reiterated the legal position with respect to sale
agreement and power of attorney.
At the outset it would be essential to peruse certain statues
governing power of attorney. The Powers of Attorney Act, 1882 is a short
enactment containing five sections. As per section 2 of the said Act,
any act done by the power of attorney shall have the same effect, in
law, as if it had been executed or done by the principal in his own
name, signature and seal. Section 3 of the act would state that any act
or payment done in good faith by a person pursuant to a power of
attorney, shall not be liable in respect of the said payment of the act
for the reason that before the payment or the act, the principal had
died or had become of unsound mind or insolvent or had revoked the
power, and he was not aware of the same. Section 4 would deal with the
deposit of original instruments creating power of attorney and finally
section 5 deals with execution of a power of attorney by married women.
The power of attorney is presumed to be executed as per Section 85 of
the Indian Evidence Act 1870, when the document purported to be a
power of attorney has been executed before or authenticated by a Notary
Public or any Court, Judge, Magistrate, Indian consul or Vice consul or
representative of the Central government.
Section 2 (21) of the Indian Stamp Act, 1899 defines power of
attorney as “”power of attorney” includes any instrument (not chargeable
with a fee under the law relating to Court fees for the time being in
force) empowering specified person to act for and in the name of the
person executing it.” Article 48 of the said act enumerates the stamp
duty payable for a power of attorney. The article further makes a
distinction with respect to power of attorney executed after receiving
consideration and authorising the attorney to sell any immovable
property, in such cases the article enumerates the duty equal to
conveyance. Finally, chapter X of the Indian contract act, deals with
agency which would substantially apply to a power of attorney.
Interestingly, the Indian Registration Act 1908 does not make the
registration of a power of attorney pertaining to immovable property as
compulsorily registrable.
Having the above-mentioned statutory provisions in mind one can
conclude the nature and extent of a power of attorney. The power agent
acts as a servant of the principal and a power of attorney by itself
does not create any right over immovable property which an agent can
enforce. All acts done or purported to be done by an agent are deemed to
be the acts and deeds done by the principal himself. The power of
attorney shall not be revocable merely by its nomenclature “ irrevocable
power of attorney”. The power of attorney becomes irrevocable only when
it is coupled with interest namely consideration. Where a power of
attorney is coupled with interest, as stated above the stamp duty would
be equal to conveyance. All other power of attorneys are revocable. The
myth that exists among the people ignorant of law, that the power agent
becomes the owner of the property and that the principal is not
entitled to revoke the power or act on his own accord is totally
erroneous. The people advocating the said myth are the root cause for
all confusions that has arisen. Which, the Supreme Court has now
clarified.
An agreement to sell the property expresses the intention of the
vendor to sell and the purchaser to purchase the property on the terms
and conditions usually agreed upon between the parties. Non-compliance
of the terms and conditions in an agreement to sell only leads to a
claim for specific performance of the agreement or a claim for damages.
The title in the property passes only by a deed of the conveyance. It is
only after the execution of the sale deed does purchaser gains title
over the immovable property. An agreement to sell concludes itself in a
document of conveyance.
It is true, that in most of the transactions relating to development
of immovable property by way of plotting the same or putting a
construction and selling the same to various persons, the module adopted
would be to enter into a development agreement and execute a general
power of attorney. Factually, the owner of the land does not sell the
land to the developer. The owner only permits the developer to develop
his property and thereafter the property is sold to various allottees.
In a genuine transaction of this nature there is no evasion of stamp
duty. The core intention of the owner and the developer is not to convey
the property in favour of the developer but to sell them to the
prospective purchasers. Hence the fear that the revenue is affected by
transactions in the module of development agreement cum power of
attorney is unwarranted.
Coming to the judgement passed by the Supreme Court in Suraj Lamp And
Industries (P) Ltd., Vs State of Haryana and another it is eminent to
first understand the background of the case in which the above judgment
was passed. While the apex court was considering the said litigation it
had the opportunity to come across the misuse of the power of attorney
and the sale agreement. In states like Delhi there seems to be a
practice among the government authorities to mutate the revenue records
based on a sale agreement executed along with a general power of
attorney empowering the agent to sell the immovable property. Such
transactions where erroneously considered as transactions, wherein, the
immovable property is presumed to have been conveyed to the agreement
holder/power agent. As seen above the title in the property is not
transferred by execution of a sale agreement/general power of attorney.
As such the agreement holder/power agent does not become the owner of
the property. Since the aforesaid abnormal interpretation that agreement
holder/power agent becomes the owner of the property has been
recognised by the authorities, the Supreme Court had cautiously in order
to avoid utter confusion upon the existing transaction had laid
down that a transaction following the module of sale agreement/general
power of attorney would not confer title in future transactions. The
Supreme Court has clarified that a person would be entitled to obtain
specific performance based on the sale agreement and the same could also
be used to establish their rights under section 53A of the Transfer of
Property Act.
Thus the perspective of the judgment rendered by the Supreme Court can be arrayed as follows:-
a) There cannot be a transfer of title in an immovable property by
execution of a sale agreement/general power of attorney. Any
presumption of transfer of title by execution of a sale
agreement/general power of attorney is not legally valid.
b) The execution of sale agreement/general power of attorney is not
transfer or sale and that such transaction cannot be treated as
completed transfer or conveyance.
c) The development authorities, municipal authorities, revenue
authorities are not to henceforth effect mutation of revenue records
based on the sale agreement/general power of attorney
d) A person can enter into a development agreement, agreement of
sale, power of attorney empowering the developer to execute the sale in
favour of the prospective purchasers and such transactions would be
valid.
e) The observations made by the Supreme Court in the said judgment
regarding the sale agreement/general power of attorney shall not apply
to bonafide and genuine transaction
His Lordship Hon’ble Mr.Justice V.Ramasubramanian had recently in
open court said that we should not only know the law but also understand
the law. Thus a proper reading, understanding and appreciation of the
said judgment would not create chaos and the issue would be put to rest.
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