Head Notes

Held: Consequences of transactions by means of SAGPA Will are disturbing

and far reaching, adversely affecting the economy, civil society and law

and order - It enables large scale evasion of income tax, wealth tax, stamp

duty and registration fees thereby denying the benefit of such revenue to

the government and the public - Such transactions encourage circulation of

black money and corruption and directly lead to growth of real estate mafia

and criminalization of real estate transactions - Some States have made

some efforts to control such transactions by subjecting agreements of sale

involving delivery of possession and irrevocable powers of attorney for

consideration to the same stamp duty as deeds of conveyance or by making

such documents compulsorily registrable - But the steps taken are neither

adequate nor properly implemented, resulting in multiple transactions in

regard to the same property and leading to legal and other complications -

Solicitor General of India would appear in the matter and give suggestions

on behalf of Union of India - Notice to issue to States of Punjab, Haryana,

Delhi, Uttar Pradesh and Maharashtra as to whether transactions by means of

SAGPA Will instead of regular sales are prevalent in their States and their

views in respect of such transactions as also what steps have been taken

and/or and proposed to be taken by respective States to deal with such

transactions and their effects - Matter adjourned.

CIVIL APPELLATE JURISDICTION : SLP (C) No. ........@ Computer Code No. 5804

of 2009.

From the Judgment & Order dated 25.11.2008 of the High Court of Punjab &

Haryana at Chandigarh in C.W.P. No. 19864 of 2008.

K.V. Vishwanathan, Jayant Kumar Mehta, Neeraj Chaudhari and Sandeep Phogat

for the Appellants.

Subject

Registration Act, 1908:

ss. 17 and 49 - Registration of deeds of conveyance - Purpose of - Practice

of transferring freehold properties by means of sale agreement with General

Power of Attorney and Will (SA-GPA-Will)

Judgement

Reportable

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

SPECIAL LEAVE PETITION (C) NO........................OF 2009

CC 5804/2009

Suraj Lamp & Industries (P) Ltd. Thru. DIR ...

Petitioner(s)

Vs.

State of Haryana & Anr. ... Respondent

(s)

O R D E R

R.V. Raveendran J.

Delay condoned. Issue notice. Petitioner to file

copies of correspondence with State Information

Commissioner as also its title deeds to the disputed

property. As this case is a typical example of an

irregular process spreading across the country, we

propose to refer to some aspects of the case at this

preliminary stage itself.

2. The petitioner, a company incorporated under the

Companies Act, claims that one Ramnath and his family

members sold two and half acres of land in Wazirabad

village, Gurgoan to them by means of an agreement of

sale, General Power of Attorney (for short `GPA') and a

will in the year 1991 for a consideration of

Rs.716,695/-. It is further alleged that the petitioner

verbally agreed to sell a part of the said property

measuring one acre to one Dharamvir Yadav for Rs.60 lakhs

in December 1996. It is stated that the said Dharamvir

Yadav, and his son Mohit Yadav (an ex MLA and Minister),

instead of proceeding with the transaction with the

petitioner, directly got in touch with Ramanath and his

family members and in 1997 got a GPA in favour of

Dharamvir Yadav in regard to the entire two and half

acres executed and registered and illegally cancelled the

earlier GPA in favour of petitioner. The petitioner

claims that when its Director, S.K. Chandak, confronted

Dharamvir Yadav in the year 1999 this behalf, the said

Yadav apologized and issued a cheque for Rs.10 lakhs

towards part payment and agreed to pay the balance of

Rs.50 lakhs shortly but that the said cheque was

dishonoured necessitating a complaint under section 138

of the Negotiable Instrument Act, being filed against

Dharamvir Yadav which is pending in a criminal court at

Patiala House, New Delhi. It is further alleged that in

the year 2001, petitioner lodged a criminal complaint

against Ramanath and members of his family who executed

the sale agreement/ GPA/will in favour of the petitioner

and another complaint against Dharambir Yadav and his son

in the District Court, Gurgoan, for offences punishable

under sections 406, 420, 467, 468, 471 and 120B of IPC. The petitioner claims that in December 2005 it lodged an

FIR in respect of offences under Sec. 406,467,468,471 and

120B of IPC against all of them.

3. The petitioner claims that as no action was taken on

its FIR by the Station House Officer/Investigation

Officer (`SHO/IO' for short), petitioner filed an

application under Right to Information Act, 2004 (`RTI

Act' for short) seeking the status, in response to which

the SHO/IO gave contradictory and misleading versions

about the status of the investigation and about the

seizure and custody of the agreement and power of

attorney from the accused. An appeal filed by the

petitioner was disposed of by the Chief Information

Commissioner, Haryana, by an order dated 27.12.2007

merely directing that Police should re-investigate the

FIR as per the order of the court and the Department

should give a specific proper reply about the status of

the documents, to the appellant by 25.1.2008. According

to the petitioner, the Commissioner ought to have

initiated action against the police for giving false and

misleading information under section 20 of the RTI Act.

Petitioner therefore filed a writ petition challenging

the order of the Chief Information Commissioner and

seeking initiation of proceedings under section 20 of the

RTI Act and imposition of penalty. The said writ petition was disposed of by the High Court by the impugned order

holding that section 20 was directory and not mandatory.

This SLP seeks leave to file an appeal against the said

order.

4. We are of the view that matter involves an issue

whose seriousness is underestimated. The issue to be

addressed is avoidance of execution and registration of

deeds of conveyance as the mode of transfer of freehold

immovable property by increasing tendency to adopt `Power

of Attorney Sales', that is execution of sale agreement/

general power of attorney/will (for short `SA-GPA-Will

transactions') instead of execution and registration of

regular deeds of conveyance, on receiving full

consideration. This method adopted has the following

variants:

(i)Execution of an agreement of sale, one or two powers

of attorney, with or without a will, all unregistered.

(ii)Execution of an agreement of sale, power/s of

attorney and will, registering either all of them, or

any two of them, or any one of them.

5. The `Power of Attorney Sales' as a method of

`transfer' was evolved by lawyers and document writers in

Delhi, to overcome certain restrictions on transfer of

flats by the Delhi Development Authority (for short

`DDA'). DDA had undertaken large scale development by

constructing of flats. It is stated that when DDA

allotted a flat to an allottee, any transfer of the

assignment by the allottee required the permission of DDA

and such permission was granted only on payment to DDA of

the `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, a hybrid system

was evolved 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 :

(a)An Agreement of sale confirming the terms of the

sale, delivery of possession and payment of full

consideration and undertaking to execute any document

when required in future.

(b)An Irrevocable General Power of Attorney in favour

of the purchaser or his nominee authorizing him to

manage, deal with and dispose of the property without

reference to the vendor.

(c)A will bequeathing the property to the purchaser as

safeguard against the consequences of death of the

vendor before transfer.

6. The `Power of Attorney Sales', as noticed above was

adopted to overcome the restrictions/prohibitions in

terms of allotment and the rules of allotment of DDA

governing the allotment of flats. Such transactions were

obviously irregular and illegal being contrary to the

rules and terms of allotment. Further, in the absence of

a registered deed of conveyance, no right, title or

interest in an immovable property could be transferred to

the purchaser. However, the Delhi High Court in a few

cases accepted such `Power of Attorney Sales' as creating

an `interest' in the DDA flat which was so `transferred'

and consequently, protected such interest of the

purchaser by issuing injunctions or decrees preventing

the vendor from further dealing with the property. This

led to a general impression the `Power of Attorney Sales'

were valid recognized modes of transfer and the very

purpose DDA prohibiting transfers and requiring

permission on payment of certain difference in price was

defeated by this process.

We are not presently concerned with the validity,

propriety or wisdom of such judgments which virtually put

the seal of approval of the court on transactions which

were irregular and illegal. In fact, it is stated that

DDA itself ultimately recognizes `Power of Attorney

Sales' by accepting applications from purchasers under

`Power of Attorney Sales' for conversion from leasehold

to freehold and conveyance of the flats. We will

therefore presently exclude the `power of attorney sales'

of DDA flats from the purview of the present exercise.

7. What we are concerned is extension of the concept of

such `Power of Attorney Sales' by execution of

SA/GPA/Will with reference to freehold properties.

8. The Registration Act, 1908, was enacted with the

intention of providing orderliness, discipline and public

notice in regard to transactions relating to immovable

property and protection from fraud and forgery of

documents of transfer. This is achieved by requiring

compulsory registration of certain types of documents and

providing for consequences of non-registration. Section

17 of the Registration Act clearly provides that any

document (other than testamentary instruments) which

purports or operates to create, declare, assign, limit or

extinguish whether in present or in future "any right,

title or interest" whether vested or contingent of the

value of Rs.100 and upwards to or in immovable property.

Section 49 of the said Act provides that no document

required by section 17 to be registered shall, affect any

immovable property comprised therein or received as

evidence of any transaction affected such property,

unless it has been registered. Registration of a document

gives notice to the world that such a document has been executed. Registration provides safety

and security to transactions relating to immovable

property, even if the document is lost or destroyed. It

gives publicity and public exposure to documents thereby

preventing forgeries and frauds in regard to transactions

and execution of documents. Registration provides

information to people who may deal with a property, as to

the nature and extent of the rights which persons may

have, affecting that property. In other words, it enables

people to find out whether any particular property with

which they are concerned, has been subjected to any legal

obligation or liability and who is or are the person/s

presently having right, title, and interest in the

property. It gives solemnity of form and perpetuate

documents which are of legal importance or relevance by

recording them, where people may see the record and

enquire and ascertain what the particulars are and as far

as land is concerned what obligations exist with regard

to them. It ensures that every person dealing with

immovable property can rely with confidence upon the

statements contained in the registers (maintained under

the said Act) as a full and complete account of all

transactions by which the title to the property may be

affected and secure extracts/copies duly certified.

9. Recourse to `SA/GPA/WILL' transactions is taken in

regard to freehold properties, even when there is no bar

or prohibition regarding transfer or conveyance of such

property, by the following categories of persons :-

(a)Vendors with imperfect title who cannot or do not

want to execute registered deeds of conveyance.

(b)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.

(c)Purchasers who want to avoid the payment of stamp

duty and registration charges either deliberately or on

wrong advice. Persons who deal in real estate resort to

these methods to avoid multiple stamp

duties/registration fees so as to increase their profit

margin.

10. Whatever be the intention, the consequences are

disturbing and far reaching, adversely affecting the

economy, civil society and law and order. Firstly, it

enables large scale evasion of income tax, wealth tax,

stamp duty and registration fees thereby denying the

benefit of such revenue to the government and the public.

Secondly, such transactions enable persons with

undisclosed wealth/income to invest their black money and

also earn profit/income, thereby encouraging circulation

of black money and corruption. This kind of transactions

has disastrous collateral effects also. For example, when

the market value increases, many vendors (who effected power

of attorney sales without registration) are tempted to

resell the property taking advantage of the fact that

there is no registered instrument or record in any public

office thereby cheating the purchaser. When the purchaser

under such `power of attorney sales' comes to know about

the vendors action, he invariably tries to take the help

of musclemen to `sort out' the issue and protect his

rights. On the other hand, real estate mafia many a time

purchase properties which are already subject to power of

attorney sale and then threaten the previous `Power of

Attorney Sale' purchasers from asserting their rights.

Either way, such power of attorney sales indirectly lead

to growth of real estate mafia and criminalization of

real estate transactions.

11. Some states have made some efforts to control such

`Power of Attorney Sales' by subjecting agreements of

sale involving delivery of possession and irrevocable

powers of attorney for consideration, to the same stamp

duty as deeds of conveyance or by making such documents

compulsorily registrable. But the steps taken are neither

adequate nor properly implemented resulting in multiple

transactions in regard to the same property by greedy and

unscrupulous vendors and/or purchasers giving nightmares to bonafide

purchasers intending to buy a property with certainty

regarding title. It also makes it difficult for lawyers

in tracing and certifying title. Any process which interferes with regular transfers under deeds of conveyance properly stamped, registered and recorded in the registers of the Registration Department, is to be discouraged and deprecated.

12. The present case is a typical example of the

consequences of not obtaining a registered sale deed.

There is apparently no reason as to why a company

registered under the Companies Act should resort to such

a transaction. Execution of a will by an individual

bequeathing an immovable property to a company, is also

incongruous and absurd. If there was a bar and the

process was adopted to overcome such bar regarding sale

of lands, then courts should not go to their assistance,

as that would amount to perpetuating illegalities. If

there was no bar, then the questions that arise are: why

should a company hold a property in a state of suspended

animation from 1991? How can a company `verbally' agree

to sell a property to someone? What is the reason for the

delay in lodging the complaints? If petitioner had purchased the property under a registered sale deed, numerous disputes, litigations and criminal proceedings could have been avoided. The illegal and irregular process of `Power of Attorney Sales' spawns several disputes relating to possession and title, and also results in criminal complaints and cross complaints and

extra-legal enforcement and forced settlements by land mafia.

13. We are therefore of the view that the situation

warrants special measures. We are informed that sometime

back in 2008, there was a proposal to amend section 147

of Delhi Municipal Corporation Act, 1957 to check and

discourage `power of attorney sales'. There was also a

proposal to have special enactment relating to

registration and recording of title in Delhi. But so far

nothing appears to have fructified. It is the dream of every citizen to own a house or a plot of land. The

citizens must be enabled by the government to do so with safety, security and without fear of litigation or defects in title.

14. We therefore request the Solicitor General to appear

in the matter and give suggestions on behalf of Union of

India. We also direct notice to the States of Punjab,

Haryana, Delhi, Uttar Pradesh and Maharashtra

(represented by their respective Chief Secretary/Revenue

Secretary) to consider the following issues:

(a)Whether `power of attorney sales' (that is

transactions involving execution of Sale

Agreement/GPA/Will) instead of regular sales is

prevalent in their respective states?

(b)What are the views of the respective state

government in respect of such transactions?

(c)What steps have been taken and/or proposed to be

taken by the respective states to deal with the chaotic

situation and confusion arising from such transactions?

List the matter in the last week of August, 2009.

_________________J

[R. V. Raveendran]

________________J

[J. M. Panchal]

New Delhi;

May 15,2009.