In the landmark case of Suraj Lamp & Industries Pvt Ltd. V. State of Haryana ((2012) 1 SCC 656; also (2009) 7 SCC 363), the Hon'ble Supreme Court has rectified what became a rampant and perverse practice, i.e. sale of properties through power of attorney (Commonly known as "GPA Sales"). Over the years, in places like Delhi, buyers/sellers have come up with a shrewd device to transfer immoveable propert, such as to avoid not only statutory requirements, but also registration and consequently, payment of stamp duty. As the Hon'ble Supreme Court itself observed in this judgement:
"5. The ‘Power of Attorney Sales’ as a method of ‘transfer’ was evolved by lawyers and document writers in Delhi, to overcome certain restrictions on transfer of flats by the Delhi Development Authority (for short ‘DDA’).
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6. The ‘Power of Attorney Sales’, as noticed above was adopted to overcome the restrictions/prohibitions interms of allotment and the rules of allotment of DDA governing the allotment of flats. Such transactions were obviously irregular and illegal being contrary to the rules and terms of allotment. Further, in the absence of a registered deed of conveyance, no right, title or interest in an immovable property could be transferred to the purchaser. However, the Delhi High Court in a few cases accepted such ‘Power of Attorney Sales’ as creating an ‘interest’ in the DDA flat which was so ‘transferred’ and consequently, protected such interest of the purchaser by issuing injunctions or decrees preventing the vendor from further dealing with the property. This led to a general impression the ‘Power of Attorney Sales’ were valid recognized modes of transfer and the very purpose DDA prohibiting transfers and requiring permission on payment of certain difference in price was defeated by this process."
While this practice became commonplace, so much as being virtually given legal recognition (and inherit in that legal acceptance) by even the High Court of Delhi, the legal validity of such sales was always in doubt. The defect in such sales stems from the following statutory provisions:
Statutory Provisions related to the Sale of Property (Click to Expand)
Section 5 of the Transfer of Property Act, 1882
Transfer of Property defined : In the following sections “transfer of property” means an act by which a living person conveys property, in present or in future, to one or more other living persons, or to himself [or to himself] and one or more other living persons; and "to transfer property" is to perform such act.” [...]
Section 54 of the Transfer of Property Act, 1882
"Sale" is a transfer of ownership in exchange for a price paid or promised or part-paid and part-promised.
Sale how made. Such transfer, in the case of tangible immoveable property of the value of one hundred rupees and upwards, or in the case of a reversion or other intangible thing, can be made only by a registered instrument. In the case of tangible immoveable property of a value less than one hundred rupees, such transfer may be made either by a registered instrument or by delivery of the property.
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Section 17 of the Registration Act, 1908
Documents of which registration is compulsory
(1) The following documents shall be registered, if the property to which they relate is situate in a district in which, and if they have been executed on or after the date on which, Act No. XVI of 1864, or the Indian Registration Act, 1866, or the Indian Registration Act, 1871, or the Indian Registration Act, 1877 or this Act came or comes into force, namely:-
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(b) other non-testamentary instruments which purport or operate to create, declare, assign, limit or extinguish, whether in present or in future, any right, title or interest, whether vested or contingent, of the value of one hundred rupees, and upwards, to or in immovable property;
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Section 49 of the Registration Act, 1908
Effect of non-registration of documents required to be registered No document required by section 17 or by any provision of the Transfer of Property Act, 1882 to be registered shall-
(a) affect any immovable property comprised therein, or
(b) confer any power to adopt, or
(c) be received as evidence of any transaction affecting such property or conferring such power, unless it has been registered.
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Even a bare reading of these provisions show that there is no ambiguity in the statutory provisions. Yet, the expediency with which these practice became commonplace was alarming. Even though the above-mentioned ruling has come a bit late in the day, as the adage goes, better late than never. The judgement puts a nail in the coffin of one of the most open malpractices rampant in the real-estate sector. The law is finally abundantly clear in that no property can be transferred except by a written, registered instrument on which the appropriate stamp duty is duly paid.