Transfer of immovable property is generally effected through two modes in Delhi: One, through a sale deed executed between the buyer and seller, which attracts stamp duty of 6 per cent (approx.) of the sale price of the property; and second, through execution of a general power of attorney (GPA), agreement to sell and will by the seller in favour of the buyer, which attracts a significantly lesser stamp duty.
Lot of people ask what is a Power of Attorney? A power of attorney is an instrument that is used by people to confer authority on somebody else to legally act on their behalf. They can be of two types – special power of attorney (SPA) and general power of attorney (GPA). While an SPA is used for transfer of a specific right to the person on whom it is conferred, the GPA authorizes the holder to do whatever is necessary. For example, in property ‘sales’ using this instrument, the buyer gets a GPA from the seller not only for his own use of the property, but for further ‘sale’ to someone else if he so desires. Of course, a GPA holder can only ‘sell’ the property through another GPA.
The person wanting to sell grants a GPA to the buyer. Typically, the buyer will insist that the GPA must be ‘irrevocable’, since he wants to ensure that the seller does not renege on the deal after the money has been paid. He will also insist on a will and perhaps even on all legal heirs of the seller submitting affidavits revoking their claim to the property. The GPA also specifies that he has the right to sell the property when it is saleable or transfer it to anybody else at his discretion. Typically, the right to get the property converted to free-hold is also specified in the GPA.
How was this used in property transactions?
The second mode that is execution of a general power of attorney (GPA), agreement to sell and will by the seller in favour of the buyer is used for properties which cannot technically be sold for a variety of reasons. For instance, the original owner may have got it from an institution like DDA at a below-market rate and DDA may have imposed a minimum period for which it must be held. Any sale before this period is not legally possible, so a GPA may be resorted to.
Or, the property could be part of a housing society which has got the land on lease. In such cases, the ‘owner’ of the property actually has only a certificate from the society allowing him to use it, but not to sell it. It is only when the property is converted from lease-hold to free-hold that he gets the title to the property. That is when he actually becomes the owner and, hence, is entitled to sell it.
Net-Net : A freehold property is transferred by executing sale deed by seller in favor of buyer and a leasehold property is transferred through execution of a general power of attorney (GPA), agreement to sell and will by the seller in favor of the buyer
What was the catch here? There were some smart people who were not getting the Agreement to Sell registered with the registrar and were only getting the GPA registered. This was done to evade the stamp duty to be paid on the on registration of ATS.
Chronology of Events for lifting of ban by Delhi Government
The Supreme Court had on October 12, 2011 had ruled that sale transactions carried in the name of GPA will have no legal sanctity and immovable property can be sold or transferred only through registered deeds. Most states banned the use of GPAs for this purpose soon thereafter.
But the Delhi government passed an order to this effect only on April 26, 2012, the Revenue department in Delhi had directed all registrars and sub-registrars not to register any sale deed for an immovable property based on a GPA, will or agreement to sell.
The Delhi High Court on May 5, 2013 had quashed the Delhi government order banning property sale through GPA. Delhi HC, in its order, reproduced a paragraph from the SC judgment and held, "Quite clearly, the Supreme Court has not said that in no case a conveyance (sale deed) can be registered by taking recourse to a GPA. As long as the transaction is genuine, the same will have to be registered by the sub-registrar.
In a circular issued on 22 July 2013, the government clarified the following:
1. There is nothing in existing provisions of law that prevents the registered property owner holding registered and valid deed of transfer, like sale deed, gift deed, partition deed, relinquishment/release deed, from executing general power of attorney/special power of attorney in favour of their spouse, son, daughter, brother, sister or any other relative or person of trust to manage his property or empowering him/them to execute any further deed of transfer, including conveyance, sale, gift deed on behalf of the registered owner.
2. Lease can be validly transferred only under a registered assignment of lease.The registered power of attorney is competent to execute further deed of transfer by any authorised mode, like sale, gift, conveyance in accordance with the terms and conditions of the power of attorney. It is also legally tenable if the registered owner enters into a land development agreement or builder agreement and executes a registered attorney in favour of such land developer or builder with respect to his immovable property to facilitate land or building development provided the builder agreement is also produced and registered.
3. The immovable property can be legally and lawfully transferred only by a registered deed, like sale, gift and conveyance. Transaction in respect of immovable property by merely executing GPA/special power of attorney/Will do not convey any title and thus, are not legally recognized valid mode of transfer of the immovable property as per the existing provisions of law.
4. As per the circular, property transaction through GPA will be considered "legal" but it will not be considered as transfers of title for mutation of property.
My Take on the new circular:
This lacks clarity on whether the leasehold properties can be sold on the basis of registered GPA, Sale agreement and will. There is no mention of this fact in the circular. Form the circular it looks like I can be given a GPA by someone to manage his or her property and also execute the deed of transfer on his behalf. If I have a GPA it doesn't means I am a legal owner of the property. I am just a custodian of the property and can assist the legal owner in different property matters including the execution of transfer deed. If my understanding is correct this absolutely changes nothing from the sale and purchase point of view for Delhi properties. The leasehold properties legally won't be transferred on GPA. Also key point to note is that banks do not give loans for property transactions done through GPAs. So, it will not lead to greater demand for such properties.
The people are of the view that this move is expected to provide relief to lakhs of residents living in group housing societies and un-authorised colonies.The lifting of the ban on GPA-based transactions will help sell and purchase of properties in un-authorised colonies where there is no clear title. To me this looks to be a difficult proposition as most of the property in un-authorised colonies have been sold on GPA and that too not registered ones rather they have been just notarized. The properties have changed number of hands and it is really a difficult task to get them registered and regularize. The Government needs to come up with a procedural framework to get this mess sorted out.
Being a optimist I believe Government will soon come out with further clarification on the circular and sort out the issues listed above. If they don't come out with clarifications this will only become a election gimmick.
Thumb rule for buying property in Delhi should be - Buy a freehold property.