A power of attorney is an instrument that is used by people to confer authority on somebody else to legally act on their behalf. They can be of two types – special power of attorney (SPA) and general power of attorney (GPA). While an SPA is used for transfer of a specific right to the person on whom it is conferred, the GPA authorizes the holder to do whatever is necessary. For example, in property ‘sales’ using this instrument, the buyer gets a GPA from the seller not only for his own use of the property, but for further ‘sale’ to someone else if he so desires. Of course, a GPA holder can only ‘sell’ the property through another GPA.
Why is General Power of Attorney (GPA) used in property transactions?
Many properties cannot technically be sold for a variety of reasons. For instance, the original owner may have got it from an institution like DDA at a below-market rate and DDA may have imposed a minimum period for which it must be held. Any sale before this period is not legally possible, so a GPA may be resorted to. Or, the property could be part of a housing society which has got the land on lease. In such cases, the ‘owner’ of the property actually has only a certificate from the society allowing him to use it, but not to sell it. It is only when the property is converted from lease-hold to free-hold that he gets the title to the property. That is when he actually becomes the owner and, hence, is entitled to sell it.
How is the General Power of Attorney (GPA) used in such cases?
The person wanting to sell grants a GPA to the buyer. Typically, the buyer will insist that the GPA must be ‘irrevocable’, since he wants to ensure that the seller does not renege on the deal after the money has been paid. He will also insist on a will and perhaps even on all legal heirs of the seller submitting affidavits revoking their claim to the property. The GPA also specifies that he has the right to sell the property when it is saleable or transfer it to anybody else at his discretion. Typically, the right to get the property converted to free-hold is also specified in the GPA.
Why does a General Power of Attorney (GPA) have to be registered?
The government realized properties were being bought and sold through GPAs and no stamp duty was being paid on these transactions. To stop this and boost its revenues, in 2004, the Delhi government made it mandatory for GPAs to be registered at 90% of the stamp duty rate applicable to sale deeds. It made it clear the GPAs that are not registered will have no legal validity.
What has the Supreme Court done?
In October 2011, Supreme Court has ordered that no further transfer of property should be allowed through GPAs. Most states banned the use of GPAs for this purpose soon thereafter.
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