Supreme Court India

A recent supreme court verdict is quite significant, in disallowing “General Power Of Attorney” (GPA) as a legitimate way to transfer property title.

Concept: GPA based sales went like this:

  • I own a property that you want
  • You pay me money to buy it from me
  • You don’t intend to keep the property, you want to sell it for a higher price
  • You don’t register a sale deed in your name, because that will involve your paying registration fees and stamp duty (can be 5% to 12% of the property value).
  • Instead, you take a power of attorney in your name, which means that you act as my “attorney” in both selling the property I own and receiving money on my behalf.
  • When you find a buyer, you register the transfer in that person’s name saying that you’re my representative (as my attorney). This time, registration fees will be paid, but for two transactions, fees are paid only once.

The “General” part of the GPA entitles the holder to do anything with the asset. (as opposed to “specific powers of attorney” where you limit the rights of the holder)

The GPA concept was being used in a number of ways:

  1. To avoid high registration fees as described above.
  2. To stash black money or avoid scrutiny. Since you do not need to disclose a GPA as an asset (it isn’t one) people can “own” property without anyone ever getting to know. Plus think of how good this is for politicians or public officials – they have to declare their assets, but since a GPA isn’t an asset….
  3. For land grabbing. Find the owner, make sure he sells to you through a GPA; then sit on the land for years until it appreciates; then sell it. The risk here is that the seller could realize that the GPA means nothing to land authorities, so he might resell the land to someone else without the GPA holder knowing. (This kind of deal is often where mafia and politicians are involved)
  4. For owning agricultural or restricted land: Since many states impose restrictions on who can own property (Himachal Pradesh) or who can own farmland (only “agriculturists” in most states), people use the GPA route to circumvent these laws.

Where are GPAs legitimate?

If you were living abroad and owned a piece of land in India, you’d want someone local to handle the small bits of work – like collecting a cheque, signing the registration deed etc. The idea isn’t to transfer your property to the GPA holder, it’s to enable a transaction.

What did the Supreme Court say?

That GPAs are not valid transfers of ownership. Only registered sale deeds are.

But it’s not with retrospective effect; existing properties that have been purchased from a GPA holder (before October 11, 2011) won’t be affected. Even those who hold a GPA today can “regularize” it by converting it into a sale deed, but they can no longer sell it to a third party.

According to a ToI article:

The verdict is likely to affect a large number of property owners. A senior lawyer who vets sale documents for a leading bank estimated 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. Experts also say the verdict will raise the market value of freehold real estate while depressing the price of leasehold properties.

The full order makes for great reading.

What should you do?

Just make sure when you buy a property that the seller had bought it from the previous owner through a sale deed. Make sure you speak to the person whose name is on the sale deed. (Not the person who signed – that is irrelevant)

If you’re buying an apartment, demand the ownership papers of the underlying land also. For under-construction apartments, these will be available – for others, you might need to get the documents from the registrar (I wonder if you can use an RTI request).

Note that you won’t get bank loans for GPA based property sales anymore.

This is a great order that should at some level curb the misdeeds in the realty business. We also need a proper real estate regulator and unambiguous property ownership laws.

Now, tell them about it: