Use special power of attorney in property matters
Register the documents to ensure legal sanctity
Despite the Supreme Court (SC) coming down heavily on misuse of the power of attorney (PoA) and clarifying its relevance, it continues to be misused. When Dhruv Rawat was looking for a house, an agent showed him a flat that was sold by the government through a lottery three years earlier. While it was cheaper, there was a problem. The owner was not allowed to sell it for another two years. The agent suggested an easy way out: The owner gives Rawat an irrevocable power of attorney. When Rawat consulted a lawyer, he was advised against the deal.
“As there was a rampant misuse of general power of attorney (GPA), the SC had clarified that the instrument does not give ownership title to the holder,” says Hormuz Mehta, partner, J Sagar Associates. This means the holder of a GPA cannot sell the property on behalf of the original owner (donor of the PoA).
Misconceptions: Many individuals traditionally used GPA in a property transaction to avoid paying stamp duty and registration. There has been a misconception that the GPA gives them ownership rights. But, if there’s a dispute, the GPA holder could lose his rights to the property, based on the apex court’s judgment, according to lawyers.
The GPA essentially means the holder is an agent of the donor. Explains Radhika Dudhat Pereira, partner at Shardul Amarchand Mangaldas: “Depending on the specifics of the GPA, the holder can represent the donor in court, at a bank, or any other institution. He can apply for permissions at various authorities. It’s similar to a letter of authority to undertake specific acts on behalf of the donor. But it does not allow the holder to create interest of any nature - for which a special power of attorney will be necessary.”
GPA is commonly used by nonresident Indians (NRIs). They authorise a person on their behalf to take care of various matters back home. It could be for representing the owner in society meetings or dealing with banks and other financial institutions. To make it a valid legal document, a GPA needs to be stamped and signed by a notary. “Clarity is still needed on whether GPA continues to exist after death of the donor or ceases as a valid legal document. Various high courts have taken different views on this,” says Mehta of J Sagar Associates.
PoA for immovable property: In real estate-related matters, a specific or special power of attorney (SPA) needs to be compulsorily registered to give it legal sanctity. The stamp duty on this SPA varies depending on whether the SPA is given to a relative or a third party.
Explains Meenakshi Iyer, partner at Advaya Legal: “As per Article 48 of the Maharashtra Stamp Act, the stamp duty payable on a specific PoA authorising to sell or transfer immovable property, without consideration when given to a close relative like parents, siblings, children, etc, shall be ~500.” Other states, too, follow a similar procedure, say lawyers.
If it is executed in favour of a person other than a close relative, authorising him to transfer (or sell) the immovable property, the stamp duty payable is the same as that on the sale of property. Any PoA granted to a person for sale of an immovable property will have to be compulsorily registered with the applicable sub-registrar of assurances, failing which it cannot be put to use.
The stamp duty is collected at the time of registration of SPA to fill the loophole that existed earlier. In the past, there have been cases where an owner of a property sold it to multiple buyers by giving them power of attorney. When a person searches for titles at a registrar’s office, the ownership of only those properties are reflected on which stamp duty and registration has been paid. Those owners who entered into the transaction based on PoA, later found out that many other claiming a stake on the property, leading to court cases.
Be cautious: In cases like Rawat’s, opting for an SPA can cause trouble to the buyer in the future. There’s already a time restriction imposed by the government. If the buyer still enters into a deal with the house owner through an SPA, and there’s a dispute later, the buyer is likely to lose the case, according to lawyers. The sale would be termed ‘null and void’. Lawyers suggest a property buyer should avoid purchasing houses that have government restrictions on sale. These include state government housing projects and slum redevelopment schemes. Many also buy agricultural land based solely on power of attorney — not advisable, unless the original owner gets the status changed to ‘non-agricultural’. In property matters, always consult a lawyer before giving a PoA or becoming a holder.