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For foolproof property deals
S.MURLIDHARAN
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The land mafia would repeat power of attorney sales of the same property, emboldened by lack of a registration trail.
With the apex Court having struck down power of attorney transactions, it will not be as easy to park black money or evade taxes.
October 16, 2011: The Supreme Court in Suraj Lamp & Industries (P) Ltd v. State of Haryana had in its interim but comprehensive order on May 15, 2009, come down heavily on the so-called power of attorney (PoA) sales, but held its hand till it heard the governments of Delhi, Haryana, Punjab and Uttar Pradesh.
Now, its final order dated October 11, 2011, not only holds all prospective sales through this mode illegal, but more importantly exhorts the gullible persons holding properties with a title arising out of sale agreement/general power of attorney/Will to prevail upon the transferors to execute proper conveyance deeds and register them.
Anything less would not vest them with full-fledged ownership; there would always be the nagging fear of being upstaged by an impostor.
Through this judgment, the apex court has disabused the popular notion, encouraged by some judgments of the Delhi High Court in particular, that such transactions were kosher for all intents and purposes. The complacency also arose out of a smug reading of Section 53A of the Transfer of Property Act, that the PoA transactions contemplated by the section vests the POA holder with full and absolute ownership of the property under reference, when all that it says is the transferor himself alone is stopped from reneging on his promise. All that can be done against him is to insist on specific performance.
HOW POA CAUGHT ON
The Court traces the history of the pernicious practice to Delhi Development Authority's insistence on the lessee coughing up the unearned increase in the value of the property if he chose to sell the property during the 99-year lease period. It went on to bemoan how the practice caught on even where freehold ownership was offered to buyers of immovable properties.
The motive would range from avoidance of stamp duty, registration charges and capital gains tax, to the fear of defective title of the seller being exposed at the altar of registration and the desire of the buyer to invest his black money under the cover of anonymity conferred by such unregistered transactions.
Instances of land mafia blithely making repeat PoA sales of the same property, emboldened by the lack of registration trail, and instances of buyers asserting themselves by resorting to the services of thugs to wrench the property from competing claimants, recounted by the Court, serve to underscore the fact that such sales, far from facilitating smooth transfer, vindicate the adage might is right.
CLARIFYING ON THE LAW
The Court pooh-poohed the notion that PoA buyers can strengthen their hold on property by taking the so-called irrevocable Will, by observing that a Will is not worth the paper it is written on, because law permits one to change it any number of times during one's life.
The Court, while recognising the steps taken by governments to plug fiscal loopholes, like, for example, mandating stamp duty even on general power of attorney given for this purpose, hit the nail on the head by observing that all these steps fell short of ending the farce of sale of immovable properties sans registration, with disastrous consequences for the buyers. Section 53A cannot come to their rescue because it does not protect them against the claims of world at large, but only against the transferor who gave the PoA.
The plight of a PoA buyer is akin to that of a gullible inventor who does not rush to the patent office with his invention and thereby allows another person, may be an impostor, to upstage him by going to the patent office ahead of him and acquire the halo of the original inventor. A PoA buyer could be similarly stymied and frustrated by a subsequent buyer of property insisting on registration and getting it.
While taking care not to upset the precarious predicament of thousands of PoA buyers by giving them breathing time to get their acts together and insist on registration, the apex court has shown sensitivity to genuine transactions, like POA given to family members for managing the properties to overcome ill-health or distance as well as to a builder for building flats and selling them bundled with an undivided share of the land.
MAFIAS ON BACKFOOT
This is a fine verdict that would spell an end to the designs of land mafias and black money bags. Post October 11, 2011, transfer of properties evidenced by the mere agreement to sell will not pass muster. The apex court has put an end to a farce that quite often ended in tragedy for gullible buyers. It has also wrenched away from black money owners a slot to park their money without attracting notice of the powers-that-be.
One hopes that in its wake, the income tax authorities' writ would start running. As it is, the solemn proclamation by the taxation laws to the effect that for tax purposes PoA transactions are good enough — the seller has to pay capital gains tax and the buyer has to pay tax on income from house property — has been followed more in breach than in compliance. Now that the true identity of real owners would be there out in the open through the registration records, the taxman can get cracking. But the most important service done by the apex court to the harried buyers of property is that they would no longer clutch to straws.
The Supreme Court has noted with concern the spread of the PoA practice beyond Delhi, Haryana, Punjab and Uttar Pradesh, where freehold registration has been in vogue for a long time. The appeal of the practice lay in its use even where the authorities offered freehold registration. The verdict, therefore, must be hailed as the one that seeks to bring about pan-India discipline in immovable property transactions.
(The author is a Delhi-based chartered accountant
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