Suraj Lamp &
Industries Pvt. Ltd. Vs. State of Haryana & ANR.
J U D G M E N T
R. V. Raveendran J.
1.
By
an earlier order dated 15.5.2009 [reported in Suraj Lamp & Industries
Pvt.Ltd. vs. State of Haryana & Anr. - 2009 (7) SCC 363], we had referred to
the ill - effects of what is known as General Power of Attorney Sales (for
short `GPA Sales') or Sale Agreement/General Power of Attorney/Will transfers (for
short `SA/GPA/WILL' transfers). Both the descriptions are misnomers 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.
As noticed in the earlier order, these kinds of 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.
2.
The
modus operandi in such SA/GPA/WILL transactions is for the vendor or person claiming
to be the owner to receive the agreed consideration, deliver possession of the property
to the purchaser and execute the following documents or variations thereof:
(a) An Agreement of sale
by the vendor in favour of the purchaser confirming the terms of sale, delivery
of possession and payment of full consideration and undertaking to execute any
document as and when required in future. Or An agreement of sale agreeing to sell
the property, with a separate affidavit confirming receipt of full price and
delivery of possession and undertaking to execute sale deed whenever required.
(b) An Irrevocable
General Power of Attorney by the vendor in favour of the purchaser or his nominee
authorizing him to manage, deal with and dispose of the property without reference
to the vendor. Or A General Power of Attorney by the vendor in favour of the purchaser
or his nominee authorizing the attorney holder to sell or transfer the property
and a Special Power of Attorney to manage the property.
(c) A will bequeathing
the property to the purchaser (as a safeguard against the consequences of death
of the vendor before transfer is effected). These transactions are not to be confused
or equated with genuine transactions where the owner of a property grants a power
of Attorney in favour of a family member or friend to manage or sell his
property, as he is not able to manage the property or execute the sale, personally.
These 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.
Ill-Effects of
SA/GPA/WILL transactions
3.
The
earlier order dated 15.5.2009, noted the ill-effects of such SA/GPA/WILL
transactions (that is generation of black money, growth of land mafia and
criminalization of civil disputes) 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.
This kind of transactions
has disastrous collateral effects also. For example, when the market value increases,
many vendors (who effected power of attorney sales without registration) are tempted
to resell the property taking advantage of the fact that there is no registered
instrument or record in any public office thereby cheating the purchaser. When
the purchaser under such `power of attorney sales' comes to know about the vendors
action, he invariably tries to take the help of musclemen to `sort out' the
issue and protect his rights. On the other hand, real estate mafia many a time purchase
properties which are already subject to power of attorney sale and then threaten
the previous `Power of Attorney Sale' purchasers from asserting their rights.
Either way, such
power of attorney sales indirectly lead to growth of real estate mafia and
criminalization of real estate transactions."It also makes title
verification and certification of title, which is an integral part of orderly conduct
of transactions relating to immovable property, difficult, if not impossible, giving
nightmares to bonafide purchasers wanting to own a property with an assurance
of good and marketable title.
4.
This
Court had therefore requested the learned Solicitor General to give suggestions
on behalf of Union of India. This Court also 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 to
be 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 are: (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. But the other ill-effects continued. Further such transaction which
was only prevalent in Delhi and the surrounding areas have started spreading to
other States also. Those with ulterior motives 6either to indulge in black money
transactions or land mafia continue to favour such transactions.
There are also efforts
to thwart the amended provisions by not referring to delivery of possession in
the agreement of sale and giving a separate possession receipt or an affidavit
confirming delivery of possession and thereby avoiding the registration and stamp
duty. The amendments to stamp and registration laws do not address the larger
issue of generation of black money and operation of land mafia. The four States
and the Union of India are however unanimous that SA/GPA/WILL transactions
should be curbed and expressed their willingness to take remedial steps.
5.
The
State of Haryana has however taken a further positive step by reducing the
stamp duty on deeds of conveyance from 12.5% to 5%. A high rate of stamp duty
acts as a damper for execution of deeds of conveyance for full value, and
encourages SA/GPA/WILL transfers. When parties resort to SA/GPA/WILL transfers,
the adverse effect is not only loss of revenue (stamp duty and registration
charges) but the greater danger of generation of `black' money. Reducing the stamp
duty on conveyance to realistic levels will encourage public to disclose the
maximum sale value and have the sale deeds registered.
Though the reduction
of the stamp duty, may result in an immediate reduction in the revenue by way
of stamp duty, in the long run it will be advantageous for two reasons: (i) parties
will be encouraged to execute registered deeds of conveyance/sale deeds without
any under valuation, instead of entering into SA/GPA/WILL transactions; and
(ii) more and more sale transactions will be done by way of duly registered
sale deeds, disclosing the entire sale consideration thereby reducing the generation
of black money to a large extent. When high stamp duty is prevalent, there is a
tendency to undervalue documents, even where sale deeds are executed. When
properties are undervalued, a large part of the sale price changes hand by way of
cash thereby generating `black' money. Even when the state governments take action
to prevent undervaluation, it only results in the recovery of deficit stamp
duty and registration charges with reference to the market value, but the actual
sale consideration remains unaltered. If a property worth `5 millions is sold
for `2 millions, the Undervaluation Rules may enable the state government to
initiate proceedings so as to ensure that the deficit stamp duty and
registration charges are recovered in respect of the difference of `3 millions.
But the sale price remains `2 millions and the black money of `3 millions
generated by the undervalued sale transaction, remains undisturbed.
6.
In
this background, we will examine the validity and legality of SA/GPA/WILL transactions.
We have heard learned Mr. Gopal Subramanian, Amicus Curiae and noted the views of
the Government of NCT of Delhi, Government of Haryana, Government of Punjab and
Government of Uttar Pradesh who have filed their submissions in the form of
affidavits.Relevant Legal Provisions
7.
Section
5 of the Transfer of Property Act, 1882 (`TP Act' for short) defines `transfer
of property' as under: "5. 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." xxx xxxSection 54 of the
TP Act defines `sales' thus: "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. Delivery of tangible immoveable property
takes place when the seller places the buyer, or such person as he directs, in possession
of the property. Contract for sale.-
A contract for the sale
of immovable property is a contract that a sale of such property shall take place
on terms settled between the parties. It does not, of itself, create any
interest in or charge on such property." Section 53A of the TP Act defines
`part performance' thus : "Part Performance. - Where any person contracts to
transfer for consideration any immoveable property by writing signed by him or
on his behalf from which the terms necessary to constitute the transfer can be ascertained
with reasonable certainty, and the transferee has, in part performance of the contract,
taken possession of the property or any part thereof, or the transferee, being already
in possession, continues in possession in part performance of the contract and
has done some act in furtherance of the contract, and the transferee has
performed or is willing to perform his part of the contract, then,
notwithstanding that
where there is an instrument of transfer, that the transfer has not been
completed in the manner prescribed there for by the law for the time being in
force, the transferor or any person claiming under him shall be debarred from
enforcing against the transferee and persons claiming under him any right in respect
of the property of which the transferee has taken or continued in possession, other
than a right expressly provided by the terms of the contract : Provided that
nothing in this section shall affect the rights of a transferee for consideration
who has no notice of the contract or of the part performance thereof."
8.
We
may next refer to the relevant provisions of the Indian Stamp Act, 1999 (Note :
Stamp Laws may vary from state to state, though generally the 10provisions may
be similar). Section 27 of the Indian Stamp Act, 1899 casts upon the party, liable
to pay stamp duty, an obligation to set forth in the instrument all facts and
circumstances which affect the chargeability of duty on that instrument. Article
23 prescribes stamp duty on `Conveyance'. In many States appropriate amendments
have been made whereby agreements of sale acknowledging delivery of possession or
power of Attorney authorizes the attorney to `sell any immovable property are
charged with the same duty as leviable on conveyance.
9.
Section
17 of the Registration Act, 1908 which makes a deed of conveyance compulsorily
registrable. We extract below the relevant portions of section 17. "Section
17 - Documents of which registration is compulsory- (1) The following documents
shall be registered, namely:-- xxxxx (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. xxxxx
(1A) The documents containing contracts to transfer for consideration, any immovable
property for the purpose of section 53A of the Transfer of Property Act, 1882 (4
of 1882) shall be registered if they have been executed on or after the commencement
of the Registration and Other Related laws (Amendment) Act, 2001 and if such documents
are not registered on or after such commencement, then, they shall have no
effect for the purposes of the said section 53A. Advantages of Registration
10.
In
the earlier order dated 15.5.2009, the objects and benefits of registration
were explained and we extract them for ready reference : "The Registration
Act, 1908, was enacted with the intention of providing orderliness, discipline
and public notice in regard to transactions relating to immovable property and protection
from fraud and forgery of documents of transfer. This is achieved by requiring compulsory
registration of certain types of documents and providing for consequences of
non-registration. Section 17 of the Registration Act clearly provides that any document
(other than testamentary instruments) which purports or operates 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 Rs. 100 and
upwards to or in immovable property. Section 49 of the said Act provides that no
document required by Section 17 to be registered shall, affect any immovable property
comprised therein or received as evidence of any transaction affected such property,
unless it has been registered. Registration of a document gives notice to the
world that such a document has been executed. Registration provides safety and security
to transactions relating to immovable property, even if the document is lost or
destroyed.
It gives publicity
and public exposure to documents thereby preventing forgeries and frauds in regard
to transactions and execution of documents. Registration provides information
to people who may deal with a property, as to the nature and extent of the
rights which persons may have, affecting that property. In other words, it enables
people to find out whether any particular property with which they are
concerned, has been subjected to any legal obligation or liability and who is or
are the person/s presently having right, title, and interest in the property.
It gives solemnity of
form and perpetuate documents which are of legal importance or relevance by recording
them, where people may see the record and enquire and ascertain what the particulars
are and as far as land is concerned what obligations exist with regard to them.
It ensures that every person dealing with immovable property can rely with confidence
upon the statements contained in the registers (maintained under the said Act) as
a full and complete account of all transactions by which the title to the
property may be affected and secure extracts/copies duly certified." 12Registration
of documents makes the process of verification and certification of title easier
and simpler. It reduces disputes and litigations to a large extent. Scope of an
Agreement of sale
11.
Section
54 of TP Act makes it clear that a contract of sale, that is, an agreement of
sale does not, of itself, create any interest in or charge on such property. This
Court in Narandas Karsondas v. S.A. Kamtam and Anr. (1977) 3 SCC 247, observed:
A contract of sale does not of itself create any interest in, or charge on, the
property. This is expressly declared in Section 54 of the Transfer of Property Act.
See Rambaran Prosad v. Ram Mohit Hazra [1967]1 SCR 293. The fiduciary character
of the personal obligation created by a contract for sale is recognised in Section
3 of the Specific Relief Act, 1963, and in Section 91 of the Trusts Act. The
personal obligation created by a contract of sale is described in Section 40 of
the Transfer of Property Act as an obligation arising out of contract and
annexed to the ownership of property, but not amounting to an interest or
easement therein."
In India, the word `transfer'
is defined with reference to the word `convey'. The word `conveys' in section 5
of Transfer of Property Act is used in the wider sense of conveying ownership...
...that only on execution of conveyance ownership passes from one party to
another...."In Rambhau Namdeo Gajre v. Narayan Bapuji Dhotra [2004 (8) SCC
614] this Court held: "Protection provided under Section 53A of the Act to
the proposed transferee is a shield only against the transferor. It disentitles
the transferor from disturbing the possession of the proposed transferee who is
put in possession in pursuance to such an agreement.
It has nothing to do
with the ownership of the proposed transferor who remains full owner of the property
till it is legally conveyed by executing a registered sale deed in favour of the
transferee. Such a right to protect possession against the proposed vendor
cannot be pressed in service against a third party. "It is thus clear that
a transfer of immoveable property by way of sale can only be by a deed of
conveyance (sale deed). In the absence of a deed of conveyance (duly stamped
and registered as required by law), no right, title or interest in an
immoveable property can be transferred.
12.
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 TP Act and will not confer any title nor transfer any interest in an immovable
property (except to the limited right granted under section 53A of TP Act).
According to TP Act, an agreement of sale, whether with possession or without
possession, is not a conveyance. Section 54 of TP Act enacts that sale of
immoveable 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.Scope of Power of Attorney
13.
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 14creation of an
agency whereby the grantor authorizes the grantee to do the acts specified therein,
on behalf of grantor, which when executed will be binding on the grantor as if
done by him (see section 1A and section 2 of the Powers of Attorney Act, 1882).
It is revocable or terminable at any time unless it is made irrevocable in a
manner known to law. Even an irrevocable attorney does not have the effect of
transferring title to the grantee. In State of Rajasthan vs. Basant Nehata -
2005 (12) SCC 77, this Court held :
"A grant of
power of attorney is essentially governed by Chapter X of the Contract Act. By reason
of a deed of power of attorney, an agent is formally appointed to act for the
principal in one transaction or a series of transactions or to manage the
affairs of the principal generally conferring necessary authority upon another
person. A deed of power of attorney is executed by the principal in favour of
the agent. The agent derives a right to use his name and all acts, deeds and
things done by him and subject to the limitations contained in the said deed, the
same shall be read as if done by the donor. A power of attorney is, as is well
known, a document of convenience. Execution of a power of attorney in terms of
the provisions of the Contract Act as also the Powers-of-Attorney Act is valid.
A power of attorney,
we have noticed hereinbefore, is executed by the donor so as to enable the donee
to act on his behalf. Except in cases where power of attorney is coupled with
interest, it is revocable. The donee in exercise of his power under such power
of attorney only acts in place of the donor subject of course to the powers
granted to him by reason thereof. He cannot use the power of attorney for his
own benefit. He acts in a fiduciary capacity. Any act of infidelity or breach
of trust is a matter between the donor and the donee." 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. Scope of Will
14.
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. The two essential characteristics of a will are
that it 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. It is said
that so long as the testator is alive, a will is not be worth the paper on
which it is written, as the testator can at any time revoke it. If the
testator, who is not married, marries after making the will, by operation of
law, the will stands revoked. (see sections 69 and 70 of Indian Succession Act,
1925). Registration of a will does not make it any more effective.
Conclusion
15.
Therefore,
a SA/GPA/WILL transaction does not convey any title nor create any interest in
an immovable property. The observations by the 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.
16.
We
therefore reiterate that immovable property can be legally and lawfully transferred/conveyed
only by a registered deed of conveyance. 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 recognized or valid mode of transfer of immoveable 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. They cannot be recognized as deeds of title, except to the
limited extent of section 53A of the TP Act. Such transactions cannot be relied
upon or made the basis for mutations in Municipal or Revenue Records. What is stated
above will apply not only to deeds of conveyance in regard to freehold property
but also to transfer of leasehold property. A lease can be validly transferred
only under a registered Assignment of Lease. It is time that an end is put to
the pernicious practice of SA/GPA/WILL transactions known as GPA sales.
17.
It
has been submitted that making declaration that GPA sales and SA/GPA/WILL
transfers are not legally valid modes of transfer is likely to create hardship to
a large number of persons who have entered into such transactions and they should
be given sufficient time to regularize the transactions by obtaining deeds of
conveyance. It is also submitted that this decision should be made applicable
prospectively to avoid hardship.
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 of sale. 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 TP Act. If they are entered before this day, they may be relied
upon to apply for regularization 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 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.
20.
We
place on record our appreciation for the assistance rendered by Mr. Gopal
Subramaniun, Senior Counsel, initially as Solicitor General and later as Amicus
Curiae.
21.
As
the issue relating to validity of SA/GPA/WILL has been dealt with by this
order, what remains is the consideration of the special leave petition on its
merits. List the special leave petition for final disposal.
.................................J.
(R. V. Raveendran)
.................................J.
(A. K. Patnaik)
.................................J.
(H. L. Gokhale)
New
Delhi;
October
11, 2011.
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