Real Estate

The legalities of sales through the power of attorney

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For several years, it was a prevalent practice in certain Indian States wherein a deed of power of attorney, coupled with the sale agreement, were treated as concluding or confirming the sale. No sale deeds were registered for conveying the properties. Courts have repeatedly held that a sale agreement or power of attorney by themselves do not create any right or title over immovable properties, and as such there can be no proper conveyance under the said documents.

To clear the air on this subject, the Supreme Court, in the case of Suraj Lamp & Industries Private Limited vs. State of Haryana (SLP No. 13917 of 2009), issued notices to the governments of Delhi, Haryana, Punjab and Uttar Pradesh and sought their responses on the discontinuance of such a practice. The four states confirmed that execution of a sale agreement and power of attorney will alone not amount to sale unless proper deeds of conveyance are executed and registered. Accordingly, final orders were passed by the Supreme Court on October 11, 2011.

While concluding, the Supreme Court made it clear that the order will not in any way affect genuine transactions made pursuant to sale agreements and a power of attorney.

What is a power of attorney?

A power of attorney is a document empowering a specified person to act for and in the name of the person executing it. The executor of the document is called the ‘principal’ and the person who represents the principal in dealings with third parties is called an ‘agent’. Under 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 his/her affairs. The agent’s rights are derived from the authorisations specified in the document as well as the limitations contained therein.

The agent cannot use the power of attorney for his/her own benefit as their appointment is in a fiduciary capacity. Except in cases where the power of attorney is coupled with interest (or executed for consideration), it is normally revocable at the discretion of the principal.

Its validity

Unless a time limit is prescribed in the document, a power of attorney is normally valid until the purpose for which the same was executed is fulfilled.

If the powers granted under the power of attorney are being exercised after a lapse of considerable time, it is advisable to obtain a declaration from the principal that the deed of power of attorney continues to be valid and in force.

Does it require registration?

Since a power of attorney does not create or extinguish any right over immovable property, the said deed normally does not require compulsory registration. However, the Madras High Court has held that when an agent is seeking to get the immovable property worth more than ₹100 transferred, the power of attorney requires it to be compulsorily registered. Subsequently, the government of Tamil Nadu made amendments to the Registration Act, 1908, as a result of which instruments of power of attorney relating to sale of immovable property have to be compulsorily registered.

On transactions done by the agent

The agent is empowered by the deed of power of attorney and he/she should exercise their authority strictly adhering to the scope and limitation of such powers. All transactions done by the agent within his/her authority shall be valid and binding on the principal.

If the deed of power of attorney grants power to sell the property of the principal and to execute and register necessary documents in that regard, such a sale made by the agent will be valid, is binding on the principal, and will convey a proper title to the purchaser(s).

To conclude

To sum up, a deed of power of attorney, agreement for sale, and a sale deed (or any other deed of conveyance or transfer) have independent intents and purposes and transactions effected within the scope of their structure would be valid, enforceable and binding on the respective parties.

The writer is Partner, RANK Associates, a Chennai-based law firm.

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Printable version | Jan 26, 2022 2:12:21 PM |

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