SALE AGREEMENT VALIDITY /GENERAL POWER ATTORNEY VALIDITY /WILL TRANSFERS VALIDITY

Whenever we say the word property four terms instantly comes into the mind of an individual i.e. Agreement to Sale, General Power of Attorney, Will and Sale Deed. These terms are common in context to property and major population is aware of it.

Importance and relevance of property in today‘s materialistic world is undeniable. Property related disputes dominate the courts among strangers, former friends and relations who fight tooth and nail with fret and flume wasting several precious years. It is also true that relevance of property in the socio–economic life of an individual is relatable more with respect to its disposition rather than its abstract content which indicates the inherent necessity of awareness of the basic concepts with respect to transfer of property. Fighting immense battles and losing precious lives and time can be avoided to a large extent with right guidance at the initial level of its transfer

Property can be transferred through different modes, i.e. through sale, mortgage, lease, gift, exchange etc. Under the Transfer of Property Act 1882, section 54 states that sale is defined as the transfer of ownership of a property in exchange for a price paid or promised or partly paid or part promised.

The property has been derived from the Latin word ‘properietate’ which means a thing that is owned.

The word property means a tangible or intangible thing over which one has ownership rights. It can be owned by an individual or group of individuals. It is the exclusive right of a person or persons over a thing.  Property has various economic, social and legal implications arising from it. It consists of all animate and inanimate which a person possesses. It also includes all the legal rights resulting from the property of a person. Hence the term property is a vast concept which is governed by different laws. An owner of a property has the right to transfer the property in any way as he desires.

Transfer of Property Act 1882 governs the provisions relating to the transfer of property by the act of parties as opposed to transferring by operation of law. It relates to the transfer of property inter vivos that is between living persons. This Act specifically deals with the transfer of immovable property.

 

IMMOVABLE PROPERTY:

The term ‘immovable property’ has not been defined under the Transfer of Property Act 1882.  However, section 3 of this Act merely lays down the meaning of immovable property. Immovable property means a property which does not include standing timber, growing crops (that is in form of vegetable produce which have separate existence except for their produce) or grass.

Hence, the meaning is an exclusive definition. In Babu Lal v. Bhawani Das and Ors., the court held that section 3(25) of the General Clauses Act which defines immovable property can be applied to Transfer of Property Act 1882.

Under the General Clauses Act immovable property is defined as one which includes land, benefits arising out of the land (eg. Right to catch fish), things attached to the land (like trees and shrubs having no independent use except for produce for example mango trees, orange trees)  or things that are permanently fastened to anything that is attached to the earth (like windows, doors, walls etc.). Additionally, the court held that the right of way, right to collect rent, a Hindu widow’s life interest of the income of the husband’s property, a factory, furniture, fixtures, windows, doors, office of a hereditary priest of the temple etc. are all immovable property.

 

TANGIBLE AND INTANGIBLE:

Tangible properties are the touchable and movable assets of a person or group of persons. This property can be felt, touched, perceived by senses and moved from one place to another. It is not attached to any real property or land.  For example furniture, computer, jewellery, cupboard, goods etc.

Intangible property is personal property. It cannot be moved from one place to another or touched or felt. It has no physical presence. Intangible property can be in the form of creations of human intellect known as intellectual property, like trademarks, copyrights, patents. They are neither tangible nor visible.

We are going to discuss transfer of property through Sale which in itself includes various steps.

The seller of the immovable property in the indirect sales after receiving the agreed consideration, deliver the possession of the said property and executes some or all of the following documents:

• An Irrevocable General Power of Attorney in favor of the purchaser or his nominee.
• An understanding of sale containing the terms which would be like terms of sale by the seller in favor of the purchaser and undertaking to execute any document as and when required in future.
• A Special Power of Attorney either to sell or to manage the property.
• A will bequeathing the property to the purchaser (as a safeguard against the consequences of death of the vendor before transfer is affected). 

 

GENERAL POWER OF ATTORNEY (GPA) & SPECIAL POWER OF ATTORNEY (SPA):

A ‘Power of Attorney’ is a legal document that results in the grant of authorization from one person to another. The authorization thus gained enables the person who receives it to represent the person who grants it in legal procedures.

A Special Power of Attorney confers a set of limited rights on a person referred to as ‘Attorney’ to act on behalf of the ‘Principal’ to fulfill his/her legal obligations; whereas a General Power of Attorney bestows a wider array of rights on the Attorney.

Any power of attorney, including a general power of attorney or special power of attorney begins with the brief acknowledgment of ownership and description of the property and declaration of the intention to sell it. Then, the reason for executing the power of attorney should be clarified and the details about the incapacity should be mentioned in detail.

The most important clause in GPA OR SPA is the appointment clause which gives validity to the appointment of the second party as the true and lawful attorney of the principal.

 

AGREEMENT TO SALE:

An agreement to sell is an important document in the process of sale and purchase of property. This agreement contains the terms and conditions agreed upon between the parties, and bind them. An agreement to sell is the basic document on which a conveyance or sale deed is drafted. It is always advisable to have an agreement to sell in writing.

It precedes the execution of a sale deed. This agreement is signed and executed by the seller and buyer on a non-judicial stamp paper. It has legal value and if need be can be produced as evidence in a court. The agreement specifies the procedures to be followed leading to the execution of the conveyance or sale deed. It records the understanding reached between the parties, and is binding on both.

An agreement to sell protects the interests of both parties and spells out in clear terms the conditions under which the seller is intending to sell the property and those under which the buyer is intending to purchase it. This facilitates smooth culmination of the transaction without dispute, confusion and misunderstanding.

 

WILL:

A Will is a legal declaration of the intention of the testator, with respect to his property which he desires to be carried. Will becomes enforceable only after the death of the testator. It gives absolutely no rights to the legatee (the person who inherits) until the death of the testator. It has no effect during the lifetime of the testator into effect after his death.

After the death of a person, his property devolves in two ways – according to his Will i.e. testamentary, or according to the respective laws of succession, when no Will is made. In case an individual dies intestate (no Will is made), the laws of succession come into play.

A Will, obtained by force, coercion or undue influence, is a void Will as it takes away the free agency of the person. A Will, made under influence of intoxication or in such a state of body or mind, sufficient to take away free agency of the testator, is void.

A Will can be made at any time in the life of a person. There is no restriction on how many times a Will can be made by a testator. However, only the last Will made before his death is enforceable. A Will has to be executed by the testator, by signing or affixing his thumb impression on it. It should be attested by two or more witnesses, each of whom should have seen the testator signing the Will.

These terms are well versed to everyone, we all are aware its usage in the procedure of sale. As there cannot be a sale by execution of a power of attorney nor can there be a transfer by execution of an agreement of sale and a power of attorney and will. A sale deed is generally drafted in extension of an agreement to sell and GPA. It is preferably the best way for buyer to inspect the sale property carefully. But there are many mystification and misapprehension regarding the validity or ill effect of these terms.

The landmark judgment of Supreme Court brings the clarity to the actual meaning and usage of these terms in the process of sale.

 

Suraj Lamp & Industries Pvt. Ltd. v. State of Haryana & Anr.:

In the said judgement the bench of consisting of R.V. Raveendran, A.K. Patnaik and H.L Gokhale has dealt with is whether immovable property can be legally transferred or conveyed through a General Power of Attorney, Agreement to Sell and a Will? 

By an earlier order dated 15.5.2009, court had referred to the ill – effects of what is known as General Power of Attorney Sales or Sale Agreement/General Power of Attorney/Will transfers as under:

“Recourse to `SA/GPA/WILL’ transactions is taken in regard to freehold properties, even when there is no bar or prohibition regarding transfer or conveyance of such property, by the following categories of persons:

(a) Vendors with imperfect title who cannot or do not want to execute registered deeds of conveyance.

(b) Purchasers who want to invest undisclosed wealth/income in immovable properties without any public record of the transactions. The process enables them to hold any number of properties without disclosing them as assets held.

(c) Purchasers who want to avoid the payment of stamp duty and registration charges either deliberately or on wrong advice. Persons who deal in real estate resort to these methods to avoid multiple stamp duties/registration fees so as to increase their profit margin.

Whatever be the intention, the consequences are disturbing and far reaching, adversely affecting the economy, civil society and law and order. Firstly, it enables large scale evasion of income tax, wealth tax, stamp duty and registration fees thereby denying the benefit of such revenue to the government and the public. Secondly, such transactions enable persons with undisclosed wealth/income to invest their black money and also earn profit/income, thereby encouraging circulation of black money and corruption.

In 2012, Supreme Court while deprecating the practice of sales of immovable properties through power of attorney, held as under:

“Transactions of the nature of `GPA sales or `SA/ GPA/ WILL transfers’ do not convey title and do not amount to transfer nor can they be recognizedor valid mode of transfer of immovable property. The courts will not treat such transactions as completed or concluded transfers or as conveyances as they neither convey title nor create any interest in an immovable property. Such transactions cannot be relied upon or made the basis for mutations in municipal or revenue records.”

Due to these kinds of transactions has brought upon collateral damages. This further makes title verification difficult which is an integral part of transactions of immovable property.

The Supreme Court directed notice to States of Delhi, Haryana, Punjab, Uttar Pradesh to give their views on the matter. The four states have responded and confirmed that SA/GPA/WILL transfers required being discouraged as they lead to loss of revenue (stamp duty) and increase in litigations due to defective title. They also referred to some measures taken in that behalf. The measures differ from State to State.

In general, the measures were:

(i) to amend Registration Act, 1908 by Amendment Act 48 of 2001 with effect from 24.9.2001 requiring documents containing contract to transfer for consideration (agreements of sale etc.) relating to any immoveable property for the purpose of section 53A of the Act, shall be registered; and

(ii) to amend the stamp laws subjecting agreements of sale with delivery of possession and/or irrevocable powers of attorney in favour of non-family members authorizing sale, to the same stamp duty as deed of conveyance.

These measures, no doubt, to some extent plugged the loss of revenue by way of stamp duty on account of parties having recourse to SA/GPA/WILL transactions, instead of executing deeds of conveyance.

This judgment has discussed the importance of in legal sanctity, of the documents which are parts of the transaction of sale deed as under:

The validity of Agreement to Sale-

As per Section 54 of Transfer of Property Act, a contract of sale, that is, an agreement of sale does not, of itself, create any interest in or charge on such property. The Hon’ble Apex Court in many earlier judgments after recognizing various provisions of law has held that a contract of sale at the most creates a fiduciary character of the personal obligation and is annexed to ownership but does not in any way amounts to an interest or easement therein. Therefore, transfer of immovable property by way of sale can only be by a deed of conveyance (sale deed). In the absence of deed of conveyance (duly stamped and registered as required by law), no right, title or interest in an immovable property can be transferred. Any contract of sale (agreement to sell) which is not a registered deed of conveyance (deed of sale) would fall short of the requirements of sections 54 and 55 of TPA and will not confer any title nor transfer any interest in an immovable property. According to TPA, an agreement of sale, whether with possession or without possession, is not a conveyance. Section 54 of TP Act enacts that sale of immovable property can be made only by a registered instrument and an agreement of sale does not create any interest or charge on its subject matter.

Validity of Power of Attorney-

A power of attorney is not an instrument of transfer in regard to any right, title or interest in an immovable property. The power of attorney is creation of an agency whereby the grantor authorizes the grantee to do certain acts specified therein, on behalf of grantor, which when executed will be binding on the grantor as if done by him. It is revocable or terminable at any time unless made irrevocable in a manner known to law. Even an irrevocable attorney does not have the effect of transferring title to the grantee. So, power of attorney does not convey ownership. An attorney holder may however execute a deed of conveyance in exercise of the power granted under the power of attorney and convey title on behalf of the grantor.

Lastly, validity of WILL-

A Will is the testament of the testator. It is a posthumous disposition of the estate of the testator directing distribution of his estate upon his death. It is not a transfer inter-vivos. A Will is intended to come into effect only after the death of the testator and is revocable at any time during the life time of the testator. So, even a Will cannot transfer title or ownership in an immovable property.

SA/GPA/WILL transaction does not convey any title nor create any interest in an immovable property.

The further observation made by Delhi High Court  in Asha M. Jain v. Canara Bank – 94 (2001) DLT 841, that the “concept of power of attorney sales have been recognized as a mode of transaction” when dealing with transactions by way of SA/GPA/WILL are unwarranted and not justified, unintendedly misleading the general public  into thinking that SA/GPA/WILL transactions are some kind of a recognized or accepted mode of transfer and that it can be a valid substitute for a sale deed. Such decisions to the extent they recognize or accept SA/GPA/WILL transactions as concluded transfers, as contrasted from an agreement to transfer, are not good law.

A discussion above thus holds that immovable property can be legally and lawfully transferred/conveyed only by a registered deed of conveyance. Transactions of the nature of GPA sales orAgreement to Sell/GPA/Will transfersdo not convey title and do not amount to transfer nor can they be recognized or valid mode of transfer of immovable property.

Last but not least it is further pertinent to mention herein that in the said judgment the Hon’ble Bench has merely drawn attention to the legal position that SA/GPA/WILL transactions are not transfers or sales and that such transaction cannot be treated as completed transfers or conveyances. But they can still be treated as existing agreement of sale. Nothing prevents affected parties from getting registered deeds of conveyance to complete their title.

 

CONCLUSION:

The GPA/SA/WILL these all are the part of transaction of sale but these doesn’t give title to the buyer. What I have concluded from above  is that the concept of these documents were initially to help the buyers who were not able to give the entire consideration in one go, for their benefit GPA and SA was to be executed. There is one more important document which is generally annexed with SA is Receipt, it is what shows that the buyer has paid some amount in respect of property. Now these documents will only create your right up to an extent that if there was any fraud committed buyer can claim the amount he paid for the property.

The documents which were brought inexistence to help the buyers, people has started to misuse these documents for deceiving people that it creates title on the property. Due to this many cases had been filed in the court. It is pertinent to mention that in many cases there is long chain of agreement to sale, GPA and WILL, only to create confusions for the buyer and hide the main owner of the property.

A buyer should always be aware of the words being cited in the agreement to sell as well as the sale deed as it tends to protect his interest. The buyer should be aware of the fraudulent sellers and should always inspect. There have been numerous cases where the purchaser treats the letter of allotment as the latter granting him the rights in the property and in the eyes of law, even after paying the full amount is not the owner of the said property.

The judgement of Suraj lamp has especially put light on the odious effect of documents of GPA/SA/WILL which people using to manipulate buyers and commit fraud. This landmark judgement has cleared the clouds and any other confusion in regard to the title of the property. The buyer himself has to be sharp enough to understand the title chain in regard to immovable property.

Due to all these fraud cases in regard to property matters the government enacted RERA- Regulation and Development Act.

The object of enacting RERA was to protect the interest of buyers and create a transparency in sale/purchase of real estate. Due to the huge generation of black money in real estate sector and numerous instances where developers cheated property buyers, the enactment of RERA was an essential step. The RERA has enhanced the transparency and accountability in real estate and housing transactions. It has boosted domestic and foreign investment in the real estate sector and further it has empowered and protected the right of home buyers.

Lastly in cases of appointing a Power of Attorney, power should only be granted to a trustworthy person and only in exceptional circumstances in consonance with the provisions of law in force. It should always be kept in mind that the developers will always tend to protect their own interest and hamper the interest of the seller, therefore the seller should at times be aware of his rights and should take help from a legal professional while executing a sale deed.

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