note gpa

8/3/2019 NOTE GPA

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NOTE

I) Validity of POAs for selling/transferring of property including creating a charge?

1. In order to understand the exact import of the judgment given by the Hon’ble

Supreme Court in the case of Suraj Lamp & Industries Pvt. Ltd. v. State of Haryana,

dated October 11, 2011 on validity of POA’s for selling/transferring immovable

property, it should foremost be noted that the validity of POA’s for

selling/transferring of immovable property as power of attorney holder on behalf of

grantor was never in issue and not in question before the Hon’ble Court.

2. Accordingly, it should be noted that power of attorney holder can still act on behalf of

the grantor (owner) and execute deeds of conveyance in exercise of such powers as

derived from the POA so as to convey title on behalf of the grantor (owner), as if such

acts/deeds were entered into or executed by the grantor himself.

3. The judgment of the Hon’ble Court inter-alia deals with the ill-effects of what is

known as General Power of Attorney Sales (‘GPA Sales’) and/or Sale

Agreement/General Power of Attorney/Will transfers (‘SA/GPA/WILL’ transfers).

4. These transactions were evolved to avoid prohibitions/conditions regarding certain

transfers, to avoid payment of stamp duty and registration charges on deeds of

conveyance, to avoid payment of capital gains on transfers, to invest unaccounted

money (‘black money’) and to avoid payment of ‘unearned increases’ due to

Development Authorities on transfer.

5. Therefore these transactions must not be confused with or equated with genuine

transactions where the owner of a property grants a Power of Attorney in favour of a

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family member or friend or such other person to manage or sell his property on his

behalf, as he is not able to manage the property or execute the sale, personally.

6. The transactions which the Hon’ble Court has sought to prohibit vide its judgment are

transactions, where a purchaser pays the full price, but instead of getting a deed of

conveyance gets a SA/GPA/WILL as a mode of transfer, either at the instance of the

vendor or at his own instance. Such transactions, it has been held, wrongly attempt to

convey title and interest in an immovable property when no title or interest can be

conveyed or transferred through such instruments as they are not considered to have

any and moreover are not considered to complete or conclude transfers or

conveyances. This is so because immovable property can only be

transferred/conveyed by a registered deed of conveyance.

7. Therefore the judgment of the Hon’ble Court only prohibits transactions of the nature

of GPA Sales or SA/GPA/WILL transfers. The Hon’ble Court has categorically

observed and reiterated the settled position that such instruments do not convey title

and do not amount to transfer, nor can they be recognised as a valid mode of transfer

of immovable property.

8. In fact the Hon’ble Court has also criticised the Hon’ble High Court of Delhi for the

latter’s observations in Asha M Jain v. Canara Bank 94 (2001) DLT 841, wherein, the

Hon’ble High Court had wrongly observed that the “concept of power of attorney

sales have been recognised as a mode of transaction” as a recognised or accepted

mode of transfer or that it can be a valid substitute for a sale deed. The Hon’ble

Supreme Court vide its judgment has categorically observed, that all such decisions to

the extent they recognise or accept SA/GPA/WILL transactions as concluded

transfers, are not good law.

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9. Therefore please note that validity of POA’s for selling/transferring immovable

property by entering into registered deeds on behalf of the grantor are not in issue and

continue to be treated as genuine and valid transactions. It is only transactions which

attempt to convey title and interest over immovable property by associating a

conclusive character to GPA Sales or SA/GPA/WILL transfers in the absence of a

registered deed of conveyance, that have been questioned and prohibited with a view

to put an end to this pernicious practice.

10. Further, the position is no different in cases where a charge is created over an

immovable property based on a POA inasmuch as the grantor (owner of immovable

property) of the POA has granted the Attorney holder the right to do so and enter into

all such agreements/instruments on its behalf, including deed of conveyance or

transfer as a POA by its very nature creates an agency whereby the grantor authorises

the grantee (POA holder) to do acts specified therein, on behalf of the grantor, which

when executed will be binding on the grantor as if done by him. The arrangement of

the above nature as normally contemplated under POAs is valid and remains vastly

distinct and separate from transactions of the nature carried out in the form of GPA

Sales and/or SA/GPA/Will transfers. The Hon’ble Court has prohibited the latter type

of transaction, calling it per-se invalid and illegal.

II. How can banks lend against property if such powers are not provided through

the means of a GPA or SPA?

11. We understand that most banks, even during the period when ‘GPA Sales’ and/or

SA/GPA/WILL transfers were wrongly recognised as acceptable modes of transfer by

some decisions of the Hon’ble High Court of Delhi, did not encourage loan against

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property based on GPA Sales on account of suspicion over marketable and good title

of the property as verification and certification of title was extremely difficult, if not

impossible in some cases.

12. Therefore, as on date based on the judgment of the Hon’ble Court, it is clear that

Banks would no longer sanction loans against immovable properties based on GPA

Sales or such other dubious transactions. Registered conveyance deed, alone would

satisfy the requirement of a completed and conclusive conveyance of title and transfer

of interest.

III) Whether it is a retrograde judgment and will result in inconvenience for

everyone around?

13. The judgment of the Hon’ble Court is not retrospective and the same is clearly

evident from the following paragraphs.

“18. We have merely drawn attention to and reiterated the well settled legal

position that SA/GPA/WILL transactions are not ‘transfers’ or ‘sales’ and

that such transactions cannot be treated as completed transfers or

conveyances. They can continue to be treated as existing agreement. Nothing

prevents affected parties from getting registered Deeds of Conveyance to

complete their title. The said ‘SA/GPA/WILL transactions’ may also be used

to obtain specific performance or to defend possession under section 53A of

the Transfer of Property Act. If they are entered before this day, they may be

relied upon to apply for regularisation of allotments/leases by Development

Authorities. We make it clear that if the documents relating to ‘SA/GPA/WILL

transactions’ has been accepted/acted upon by DDA or other developmental

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authorities or by the Municipal or revenue authorities to effect mutation, they

need not be disturbed, merely on account of this decision.

19. We make it clear that our observations are not intended to in any way

affect the validity of sale agreements and powers of attorney executed in

genuine transactions. For example , a person may give a power of attorney to

his spouse, son, daughter, brother, sister or a relative to manage his affairs or

to execute a deed of conveyance. A person may enter into a development

agreement with a land developer or builder for developing the land either by

forming plots or by constructing apartment buildings and in that behalf

execute an agreement of sale and grant a Power of Attorney empowering the

developer to execute agreements of sale or conveyances in regard to

individual plots of land or undivided shares in the land relating to apartments

in favour of prospective purchasers. In several States, the execution of such

development agreements and powers of attorney are already regulated by law

and subjected to specific stamp duty. Our observations regarding

‘SA/GPA/WILL transactions’ are not intended to apply to such

bonafide/genuine transactions.”

(emphasis supplied)

14. Therefore it is felt that the above two paragraphs of the judgment of the Hon’ble

Court aptly put to rest any concern of retrospective operation and/or inconvenience that may

be raised.

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