GPA in Property Sales: Why They Are Not Legally Valid in India

In the realm of real estate, property transactions are often complex and laden with legal nuances. One such aspect that has garnered significant attention is the sale of property through General Power of Attorney (GPA). The Supreme Court of India has declared the sale of property through GPA as illegal, bringing a significant shift in how property transactions are perceived and conducted. This blog delves into the intricacies of this legal standpoint, its implications, and the correct procedures for property sales in India.

Table of Contents

• General Power of Attorney
• Supreme Court Ruling
• Power of Attorney Validity
• Why GPA Sales Are Considered Illegal
• Implications of the Ruling
• Correct Procedure for Property Sale
• Difference Between General and Special Power of Attorney
• What Happens if You Buy a Property Through GPA?
• What if You Plan to Buy a Property Through GPA?
• What Powers Can You Grant Through GPA in Property Matters?

Understanding General Power of Attorney (GPA)

A General Power of Attorney (GPA) is a legal document that grants one person (the agent) the authority to act on behalf of another (the principal) in various matters, including property transactions. Traditionally, GPA has been used to manage property affairs, especially when the owner is unable to be physically present to execute the sale.

The Supreme Court Ruling

In a landmark judgment in 2011, the Supreme Court of India ruled that power of attorney for sale of property is legally not valid. The ruling emphasized that a transaction involving the sale or transfer of property requires a sale deed, which must be registered under the Indian Registration Act, of 1908. This decision was primarily aimed at curbing fraudulent transactions and ensuring transparency in property dealings.

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Power of Attorney Validity

The validity of a Power of Attorney (POA) depends on its type. A General Power of Attorney (GPA) remains valid until the principal revokes it, becomes incapacitated, or passes away unless a specific expiration date is mentioned. A Special Power of Attorney (SPA) is valid only for the particular task or period specified in the document and automatically expires once the task is completed or the period ends. Both types can be revoked by the principal at any time, provided they are of sound mind.

Why GPA Sales Are Considered Illegal

The Supreme Court’s ruling highlighted several reasons why property sales through GPA are considered illegal:

1. Lack of Legal Ownership Transfer: A GPA does not transfer ownership rights. It merely authorizes the agent to act on behalf of the principal. Thus, a sale through GPA does not constitute a legal transfer of property ownership.
2. Circumventing Stamp Duty and Registration: GPA sales were often used to evade stamp duty and registration fees, leading to significant revenue losses for the government. The ruling aims to ensure that all property transactions are duly registered and appropriate taxes are paid.
3. Increase in Fraudulent Transactions: The misuse of GPA for property sales led to numerous instances of fraud, where multiple sales were executed for the same property, resulting in legal disputes and loss for genuine buyers.

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Implications of the Ruling

The Supreme Court’s ruling has far-reaching implications for property buyers, sellers, and the real estate market in general:

1. Mandatory Registration: All property sales must be executed through a registered sale deed. This ensures that the buyer receives a clear and legal title to the property.
2. Increased Transparency: The requirement for registration enhances transparency in property transactions, reducing the likelihood of fraud and legal disputes.
3. Due Diligence: Buyers are encouraged to conduct thorough due diligence, ensuring that the property has a clear title and all transactions are legally documented.

Correct Procedure for Property Sale

To ensure a legally valid property sale, the following steps must be adhered to:

1. Sale Agreement: A sale agreement outlining the terms and conditions of the transaction should be drafted and signed by both parties. This agreement is not mandatory to be registered but can be notarized.
2. Due Diligence: The buyer should verify the property’s title, ensuring there are no encumbrances or legal disputes associated with the property.
3. Sale Deed: A sale deed should be drafted, detailing the transfer of ownership from the seller to the buyer. This document must be executed on non-judicial stamp paper of appropriate value.
4. Registration: The sale deed must be presented to the local Sub-Registrar’s office for registration. Both parties, along with witnesses, need to be present to complete the registration process. The buyer is required to pay the applicable stamp duty and registration fees.
5. Possession and Mutation: Upon registration, the buyer should take possession of the property and apply for mutation in the local municipal records to reflect the change in ownership.

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Difference Between General and Special Power of Attorney

Feature	General Power of Attorney (GPA)	Special Power of Attorney (SPA)
Scope of Authority	Broad powers to handle various matters like financial transactions, property management, legal matters, and business operations.	Limited powers restricted to specific tasks such as selling a particular property, signing a specific contract, or handling a one-time financial transaction.
Duration	Remains in effect until the principal revokes it, becomes incapacitated, or passes away, unless otherwise specified.	Valid until the specific task is completed or for a limited period as mentioned in the document.
Usage	Used when the principal needs someone to manage their affairs comprehensively, such as during long-term travel, illness, or absence.	Used for specific, one-time transactions or tasks, like signing documents for a property sale or representing the principal in a particular legal matter.
Flexibility	High flexibility allows the agent to manage various aspects of the principal’s affairs without requiring multiple documents.	Limited flexibility as the agent can only perform the specific tasks outlined in the SPA.
Purpose	Suitable for ongoing and general management of the principal’s affairs.	Suitable for one-time or specific transactions requiring clear and limited authority.
Clarity	Broader scope may lead to potential ambiguity regarding the agent’s powers.	Provides clear and precise instructions, minimizing the risk of misunderstandings or misuse of authority.
Risk of Misuse	Higher risk due to broad authority, potentially leading to misuse if the agent is not trustworthy.	Lower risk as the authority is confined to specific tasks, reducing potential for misuse.
Legal Formalities	Requires comprehensive documentation to cover the broad range of powers granted.	Requires specific and detailed documentation outlining the exact powers and duration.

 

What Happens if You Buy a Property Through GPA?

While you may have “possession” of the property, without a registered sale deed, you won’t be its legal owner. Without clear property titles, selling the property in the future becomes almost impossible unless done through another GPA, which perpetuates the illegality.

What if You Plan to Buy a Property Through GPA?

Beyond the issues mentioned above, obtaining bank financing will be impossible. “As a standard practice, banks do not lend money for property transactions conducted through GPA. Clear property titles are the foremost requirement for banks to lend money,” says a banking executive from the State Bank of India.

What Powers Can You Grant Through GPA in Property Matters?

By granting a GPA, you can authorize someone to manage your estate, handle rented properties, pay utility bills, and act as your representative in home loan-related transactions. You can also empower an attorney to register your property through a GPA.

In conclusion, the sale of property through GPA is a legally invalid practice in India, as reinforced by the Supreme Court’s ruling. To ensure a secure and transparent property transaction, it is imperative to follow the correct legal procedures, including the execution and registration of a sale deed. This not only safeguards the interests of both buyers and sellers but also contributes to a more robust and transparent real estate market in India.
By adhering to these legal requirements, property transactions become more reliable and free from disputes, fostering trust and confidence in the real estate sector.

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