Power Of Attorney To Sell Property In India

Law
13-Feb-2024
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Power of attorney also known as POA, is a legal document that provides a person an authority to act on behalf of some other person. The person to whom the power is being given can be an agent or attorney. The person who provides the power of attorney is known as a principal. The power of attorney is a legal set of documentation that gives either extensive or limited authority to make legal decisions on behalf of the principal. These decisions can be about the property, finance, healthcare, or any other matter mentioned in the power of attorney deed. In general parlance, a power of attorney comes into the picture when the principal is incapable of executing a legal document due to illness, disability, residing in another country, or due to minor age. It stays valid till the term mentioned in the power of attorney deed and lapses when the principal dies, revokes it, or when declared invalidated by the court of law.

Importance of Power of Attorney in Property Transactions

Doing a property transaction through a power of attorney can be a complex procedure, given the fact that the Supreme Court of India had rules in 2019 that property transfers made through a power of attorney are not valid, and if someone sells any immovable property being an agent, the previous owner will be considered as the real titleholder in the eyes of the law. 

A power of attorney to sell property in India is not a valid instrument to transfer an overwhelmed property titles in India, people still use it as a medium to transfer property as it provides financial benefits to both the buyer and the seller, this made property transactions through power of attorney a common practice in India. To transfer property titles, a sale deed must be executed along with proper documentation, stamp duty payment, and registration fees. Further, the seller has to endure certain capital gain tax on the said transaction and many people avoid this tax by transferring their property through power of attorney.

In India, there are mainly two types of power of attorney:

General Power of Attorney: The general power of attorney gives authority to the agent to act on behalf of the principal for real estate transactions such as buying, selling, leasing, and managing the immovable property. It generally happens in cases where the principal cannot be physically present to sign or execute the legal documents. It is broader.

Special Power of Attorney: This is a special kind of power of attorney that grants limited power or authority to the agent for a particular transaction or purpose. The agent is given the power to execute a particular transaction for a specific property.

Can a property transaction be executed by Power of Attorney?

Earlier, a general power of attorney was executed to sell immovable property in the absence of the real owner, and it would grant the agent the power to handle all the aspects involved in the sale or renting of the property, including finding the right buyer, negotiating the price, and executing the sale deed. This method lacked transparency which led to many instances of misuse and fraudulent activities. Many people sell their immovable properties via the power of attorney as it avoids capital gain tax, stamp charges, and other charges.

Legally, agricultural land cannot be sold for residential purposes without doing the conversion of the land use but most of the owners sell it through a general power of attorney to escape the legal complications that might be attracted. The sale of a property through a general power of attorney only provides you the possession of the property, the legal title of ownership will not be transferred.

Property Transactions That Can Be Done Using Power of Attorney

Usually, a power of attorney is signed by a person, who for any given reason, is unable to carry out a certain property transaction. There can be many reasons why people execute power of attorney deeds:

• When the principal lives in a foreign country and is unable to be present for the sale or rent of the property

• When the principal is ill or bedridden

• When the principal is a senior citizen with health problems

• When the principal has any other reason due to which they are not able to execute the said transaction.

Using a power of attorney to sell property in India, one can only grant the power to manage the estate, manage the rented properties, pay electricity and water bills and other utility bills, and act as a representative of the owner in home loan matters. 

If you are living in a foreign country, the general power of attorney will give you the right to:

  • Mortgage, sell, lease, and collect rent

  • Look after the disputes and manage them

  • Assist banks, and insurance companies, and enter into contracts with them.

Types of Power of Attorney 

  • General Power of Attorney -  Also known as conventional power of attorney, this document grants broad powers to represent the principal in all matters and is in the form of a deed, attested by 2 witnesses. The general power of attorney should be registered to attain its legal validity and can be revoked by the principal at any time. For instance, an agent can be given a power of attorney to collect rent on behalf of the principal perform some business-related tasks, or manage the investment account of the principal.

  • Special Power of Attorney - Special Power of Attorney or limited Power of Attorney is executed when the principal has to get certain specific tasks done in his absence and is limited to specific responsibilities. This power comes to an end when the particulars are completed and it is not necessary to get this deed notarized. For example, if any company wants to initiate a legal action against any person or entity, it will give any of its representatives a special power of attorney to represent the company in court. An agent always acts within his power granted by the power of attorney deed and cannot act to a larger extent than what is permitted to him.

  • Durable Power of Attorney - Durable powers of attorney are generally given to authorize someone to handle any healthcare matter. They help you plan for medical emergencies and having such a power of attorney in place ensures avoidance of uncertainty and is in effect when the principal is incapacitated but it gets terminated on the death of the principal. Even for financial matters, people execute a durable power of attorney. The attorney in fact can handle matters like buying and selling property and assets, managing bank accounts, filing tax returns, and applying for government benefits. If one doesn't have a durable power of attorney, their family members have to go to court and have them declared incompetent before they can take care of the finances for you. One can create a durable power of attorney online and it should be signed and registered depending on the state in which it is being executed.

Step-by-Step Procedure

  • Drafting of a Power of Attorney Deed

Drafting of a power of attorney deed is the first step towards the execution of the power of attorney process. Unlike other legal documentation, this is a pretty simple procedure as it involves executing legal documentation along with producing some legal identity proofs. The principal needs to draft a power of attorney deed with the help of a lawyer and decide key terms which will form part of the power of attorney deed. These terms can be the terms of the deed, conditions for power of attorney, specific purpose, and other terms agreed between the principal and the attorney.

  • Legal Requirements and Documentation

To make your power of attorney deed a legally binding document, one needs to produce the following documents:

  • Identity Proof – Aadhar Card or Passport

  • Address Proof – Utility Bills or Bank Statements

  • Two Witnesses – They should also provide their identity and address proof.

  • Signature and Registration

The last step is to sign the final draft of the power of attorney deed, once all the terms are in place. The principal and the agent or attorney need to sign the power of attorney deed on a legal paper along with 2 witnesses. Post execution, the deed needs to be notarized and registered at the local sub-registrar office. In some states, one needs to file the stamp duty post execution depending on the state stamp act. In many cases, people execute the power of attorney deed however they don't register it, thereby adding a question on its authenticity and legal protection. To make your document a legally binding agreement one should always register their power of attorney deed for future legal protection and disputes.

Court Landmark judgment on POA for property Transaction

In 2011, the Supreme Court of India declared that power of attorney is not an instrument of transfer of any immovable property concerning its right, title, or interest. Accordingly, the Indian courts were directed not to mutate or register immovable properties based on power of attorney date. However, the Supreme Court of India reinstated the legality of the validity of property transactions carried through a general power of attorney. Such transactions can also obtain specific performance or defend their possession under the Transfer of Property Act 1882. The objective was to limit the free flow of black money in India’s real estate sector through the manipulation of properties via the power of attorney deeds.

In the year 2013, when the Delhi government’s circular for property transactions using the general power of attorney was issued, the Delhi High Court addressed the impact the circular had on property holders, as can be seen from the numerous applications for relief admitted in the court. The court clarified that the Supreme Court did not outrightly prohibit the registration or conveyance of property transactions through a general power of attorney. In cases, where the transactions are done with the bonafide intention they should be registered with the sub-registrar. In 2019, the Delhi government took steps to provide legal legitimacy to all the illegal constructions done through the power of attorney. 

In 2022 the Supreme Court of India strengthened the position of the Delhi High Court ruling stating that a power of attorney holder cannot sell a property unless he or she is properly authorised to do so within the ambit of the power of attorney deed. A general power of attorney holder cannot sell the property to any 3rd person if he or she is not authorized to do so unless specifically mentioned in the document. The Supreme Court of India emphasized the need for the clear and express language of Hindi general power of attorney to avoid future legal disputes and misuse of the deed.

Additionally, the Supreme Court of India also stated that verbal cancellation of the power of attorney has no legal validity and the cancellation must be communicated in writing and should be delivered to the concerned parties including any relevant authorities.

Conclusion

Power of Attorney simplifies the real estate property transactions and allows the parties to execute the deals without being physically present at the time of execution, it provides a streamlined process and gives legal representation to the person chosen by the owner. However, there has been an increase in the misuse of the authority extended via power of attorney among the people due to which the Supreme Court of India had put a blanket ban on transferring property solely based on general power of attorney. The power of attorney has to be given with strict interpretation and no extra rights should be given apart from what is mentioned in the deed. The representatives must act within their scope and not bind the principal by their acts done beyond their authority. As a non-resident of India, one cannot be held responsible for the fraud done by the representative unless it is proved to be done with common intention.