IN THE SUPREME COURT OF INDIA
Special
Leave Petition (C) No. 13917 of 2009
Decided
On: 11.10.2011
Suraj
Lamp and Industries Pvt. Ltd.Vs.State of Haryana and Anr.
Hon'ble
Judges/Coram:
R.V.
Raveendran, A.K. Patnaik and H.L. Gokhale, JJ.
Citation:
(2012) 1 SCC 656
1.
By an earlier order dated 15.5.2009 (reported in Suraj Lamp and
Industries Pvt. Ltd. v. State of Haryana and Anr. MANU/SC/1021/2009 :
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 favor 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 favor 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 favor 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 favor 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.
III-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 vendor's 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 purchases 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 favor 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 has started spreading to
other States also. Those with ulterior motives either to indulge in
black money transactions or land mafia continues to favor 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 those 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 ('Transfer of
Property 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 xxx
Section
54 of the Transfer of Property 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 Transfer of Property 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
therefore 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 provisions 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 livable on
conveyance.
9.
Section 17 of the Registration Act, 1908 which makes a deed of
conveyance compulsorily remittable. 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 was 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.
Registration
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 Transfer of Property 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. MANU/SC/0363/1976 : (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
MANU/SC/0212/1966 : 19671 SCR 293. The fiduciary character of the
personal obligation created by a contract for sale is recognized 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 MANU/SC/0680/2004 :
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 favor 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 Transfer of Property 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
Transfer of Property Act). According to Transfer of Property Act, an
agreement of sale, whether with possession or without possession, is
not a conveyance. Section 54 of Transfer of Property 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 creation 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 v.
Basant Nehata MANU/SC/0547/2005 : 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 favor 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 done to act on his behalf. Except in cases where power of
attorney is coupled with interest, it is revocable. The done 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 done.
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 vivo. 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 MANU/DE/1304/2001 :
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,
unintended 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
Transfer of Property 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 Transfer of
Property 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 favor 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.
