Panic seems to have gripped the people who have purchased their long-cherished homes through power of attorneys and wills following the news about the ruling of the supreme court and its observations concerning the fate of immovable properties sold vide general power of attorneys and wills. Some common issues of concern and effect of the supreme court ruling are discussed here. 

The present ruling that a transfer of immovable property must be through a written instrument, duly stamped and registered, is consistent with its earlier rulings on the subject. The provisions of the Transfer of Property Act, 1882, The Stamp Act and the Registration Act, 1908 already provide for such transfer to be compulsorily registered and stamped.

Way back as 1929, the supreme court had ruled that an agreement for transfer of rights in an immovable property should be done only by way of a registered instrument.

Reiterating the judgment in the context of the provisions of the Registration Act, the court again ruled in 2005 that the Transfer of property Act requires that certain transactions should be effectuated only by registered instruments in view of the provisions of Section 17 of the Registration Act, 1908. The judgments of the supreme court relating to gift of immobile properties in 2009 and 2010 were on similar basis.

The Section 17 of the Registration Act, 1908 provides that a document purporting to assign, limit or extinguish and present or future rights in an immovable property for a consideration more than Rs 100 should be compulsorily registered.

The Stamp Act additionally requires such transfer to be stamped in accordance with the rate of stamp duty as is applicable in the state where the immovable property concerned is situated.

Let us now understand the cases where possibly such transfer of immovable properties was purportedly being done by way of an unregistered agreement to sell along with a general power of attorney (GPA) and a will:

(i)  in cases where sellers do not have a free hold title and have a leasehold right in a perpetual lease:

In this case, the seller/existing owner does not have any freehold right and as such is not left with many options except to execute an agreement recording receipt of the sale proceeds in lieu of transferring his/her rights in the property along with a GPA, will and passion letter.

(ii) in cases where the buyer was a developer who intends to develop the property and then sell it to ultimate buyers within a short span:

In this case the buyer qua the existing owner is acting as a collaborator to develop the property and intends to sell his/her share to ultimate buyers (qua the developer). As a consequence of the supreme court ruling, the conveyance for transfer of property in the hands of the ultimate buyer should be done only by way of a written instrument for transfer and should be duly registered and stamped. The transaction between the existing owner and the developer can be stamped and registered as a sale only if the developer is acquiring the property before selling it to the ultimate buyer – as against developing the property on behalf of the existing owner. As an analogy, the transaction of transfer of title can be verified from the tax treatment in the books of the existing owner, the developer and the ultimate buyer respectively. The capital gains should be applicable only on the seller in the registered instrument of sale, i.e., the existing owner.

(iii) in cases where the buyers or the sellers intend to minimise the transfer charges by side-stepping the registration procedure:

The supreme court ruling clearly seeks to curb this class of transactions.

It will be interesting to discuss the status of the multitude of property owners who have acquired immovable properties in the past through unregistered instruments along with GPA and a will:

- Those falling under class (i) above should not panic at the confusion resulting from various reports on the subject. They should instead complete the conversion of the properties to free-hold and thereafter execute the relevant conveyances and pay stamp duty to complete the transfer of freehold title in the hands of the buyers.

- Those falling under class (ii) above should verify the transaction and the collaboration agreements to ascertain whether a transfer should have been effected in favour of the developer before the conveyance of ownership rights vide a registered instrument in favour of the ultimate buyer.

- Those falling under class (iii) above should register the transfer by way of appropriate instruments and pay stamp duty to ensure that the existing owners get a clear and marketable title on such immovable properties.

While the supreme court has again reiterated the necessity to comply with the provisions of the Transfer of Property Act, 1882 in this regard, the challenge remains at the door of the administrative agencies to ensure that all transfers of immovable properties are duly registered and stamped. Cases reaching the notice of the Supreme Court vide disputes over title are only indicators of the amount of confusion existing over verification of title of immovable properties. The problem is more acute in areas where property prices have witnessed a sharp rise in the recent past two decades.

The ruling of the supreme court is effective prospectively.

The problem at hand is similar to the cases of under-pricing or suppressed pricing of immovable property to save on transfer charges/stamp duty. The initiatives of the state governments to lower the stamp duty rates and to fix minimum/sector rates has definitely helped control under-pricing or suppressed pricing.

Be that as it may, bona fide buyers under class (i) or class (ii) relating to past transactions are clearly not the focus of the supreme court ruling, and hence should not panic to allow ill-intentioned prospective buyers to mislead them to believe they do not have title over the immovable properties. If that is allowed to happen, the resultant distress sales could result in more revenue loss to the state than that as presently perceived.