Menace of GPA Sales: Why it was declared Illegal?

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Menace of GPA Sales: Why it was declared Illegal?

Anupam Srivastava | April 2013

EVOLUTION OF POWER OF ATTORNEY SALES

The ‘General power of Attorney Sales’ (‘GPA Sales’) as a method of ‘transfer’ was evolved by lawyers and document writers, in Delhi, to overcome certain restrictions imposed on transfer of flats by the Delhi Development Authority (`DDA’). The DDA on every transfer of flats insisted on payment of ‘unearned increase’ that is the difference between the market value/sale price and the original cost of allotment. To avoid the cumbersome procedure in obtaining permission and to avoid payment of the huge part of the price to the DDA as unearned increase the system gradually evolved by all concerned with the transaction. The malaise of “power of attorney sales” through the combination of SA/GPA/Will, did not limit itself only to DDA property but also continued in cases of the transfer of free hold properties, even when there was no bar or prohibition regarding transfer or conveyance of such property.

THE ELEMENTS OF GPA SALES

Essentially a hybrid system whereby the allottee/holder of the flat, on receiving the agreed consideration, would deliver the possession of the flat to the purchaser and execute the following documents:

An agreement of sale (‘SA’) confirming the terms of the sale, delivery of possession and payment of full consideration and undertaking to execute any document when required in future.
An irrevocable general power of attorney (‘GPA’) in favour of the purchaser or his nominee authorising him to manage, deal with and dispose of the property without reference to the vendor.
A will bequeathing the property to the purchaser as safeguard against the consequences of death of the vendor before transfer.

Following categories of persons practised it:

Vendors with imperfect title who cannot or do not want to execute registered deeds of conveyance.
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.
Purchasers who want to avoid the payment of stamp duty and registration charges either deliberately or on wrong advice.

LEGAL PROBLEM WITH EACH DOCUMENT IN GPA SALES

AGREEMENT TO SELL:

Any agreement to sell would fall short of the requirements of a perfect sale as defined in 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). The 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.

POWER OF ATTORNEY:

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 power of attorney is a document of convenience and not a document of conveyance. A power of attorney is usually revocable; it is irrevocable only in cases where the GPA is coupled with interest. 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.

WILL:

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 as 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. Registration of a will does not make it any more effective.

The Hon’ble Supreme Court, in the matter of Suraj Lamp and Industries Pvt. Ltd. MANU/SC/1222/2011 had the occasion to discuss and state the correct position of law of transfer of property and thereby exorcised such property transactions of the menace of the transactions, popularly known as GPA sales and held as follows:

An agreement to Sell /GPA/Will transaction neither conveys any title nor create any interest in an immovable property.
An immovable property can be legally and lawfully transferred/conveyed only by a registered deed of conveyance. The courts will not treat SA/GPA/Will 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 recognised 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.
It is time that an end is put to the pernicious practice of SA/GPA/Will transactions known as GPA sales.
Agreement to sell 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 the date of judgement, they may be relied upon to apply for regularisation of allotments/leases by development authorities.
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 to be disturbed merely on account of this decision.
This judgement would not come in the way of genuine transactions like 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.

CONCLUSION

The Hon’ble Supreme Court in Suraj Lamp case has only reiterated existing law on transfer of property. However, the effect of the judgement has had the cascading effect on execution of sale documents. The office of sub-registrar is more vigilant in registering documents and buyers of the property are more cautious in buying. It is sincerely hoped that sooner than later this judgment would put an end to evasion of stamp duty and generation of black money.

About Author

Anupam Srivastava

Anupam is Partner at The Chambers of Law, Delhi