By Aseem Chawla and Surabhi Singhi

On October 11, 2011, the Supreme Court of India condemned the increasingly frequent malpractice of transferring immovable properties without a registered deed of conveyance in the case of Suraj Lamp and Industries Pvt. Ltd. v State of Haryana [2011 (11) SCALE 438]. The court, assisted by amicus curiae Mr. Gopal Subramanian, Solicitor General, investigated the rampant practice of transferring property through a general power of attorney]. The States of Delhi, Haryana, Punjab and Uttar Pradesh were also notified to submit their views in the form of affidavits.

According to the court, the modus operandi behind these transactions is the avoidance of stamp duty payments, registration charges, income tax (capital gains on transfers) as well as unaccounted “black” money or illegal money. Therefore, property vendors with imperfect title and purchasers aiming to invest “black money” are the chief propagators of such transactions.

In order to address this issue, the Court clarified that Section 17 of the Registration Act, 1908 has made the transfer of property legitimate only through a registered deed and Section 49 prohibits the use of such documents as evidence to prove title. Thus, the documents in the nature of power of attorney cannot convey any title or create any interest in an immovable property. [The court also stated the ill effects of such transfers by stating that bona fide purchasers may in future be threatened by the ever growing land mafia. Further, the Court emphasized that the vendors are tempted to resell the property due to lack of evidence with the purchaser and owing to an imperfect title and an inevitable consequence is the criminalization of real estate transactions.

The Court highlighted the importance and benefits of transfer of immovable property through a registered instrument such as safety and security of transactions due to publicity of documents and creation of a permanent record in the event of loss or destruction of documents, prevention of fraud and forgeries and easier verification of a marketable title. Further, the court stated that the states may take necessary steps such as reduction of stamp duty, which would encourage the public to get their sale deeds registered. The Court further noted that this may lead to a loss of revenue, yet it would be significant in reducing generation of black money and undervaluation of property.

The Court pointed out, however, that the validity of a power of attorney or a sale agreement in a genuine transaction is not disputed since a person may, for the better management of his property, execute such documents.

Therefore, in the absence of a registered deed, such transactions in the nature of power of attorney are not completed transfers or do not create any interest / title in the property (except to the extent mentioned in Section 53A of the Transfer of Property Act, 1882) and would only protect the transferee against the transferor.

Mr. Aseem Chawla is a Partner, and Ms. Surabhi Singhi is an Associate, Amarchand & Mangaldas & Suresh A. Shroff & Co., based out of Delhi, India. Mr. Chawla leads the tax practice group of the firm and can be contacted at aseem.chawla@amarchand.com. Ms. Singhi is an Associate with the tax practice group of the firm and can be contacted at surabhi.singhi@amarchand.com.