VALIDITY OF POWER OF

ATTORNEY SALES AND STAMP

DUTY EVASION
Validity of Power of Attorney Sales and Stamp Duty Evasion

Cash component in property transfers

Immovable property (flats, houses, land, etc.) is sold by executing a deed of conveyance or
sale deed, which needs to be registered as per the Registration Act, 1908 and stamped as
per Indian Stamp Act, 1899 (or the applicable state-level legislation) Act. At the time of
registration, the Sub-Registrar may examine whether the document has been appropriately
stamped. Stamp duty costs can be high, and buyers in any case want to identify ways of
avoiding stamp duty as it increases the cost of the transaction. (Usually, buyers pay stamp
duty, although parties can agree that it may be equally shared by both buyer and seller).
For example, it has been common practice to have lower transaction value stated in the
agreement than what is actually paid (for tax and stamp duty purposes). These transactions
have a ‘cash’ component and enable people to transact in the ‘black market’. However,
states have overcome this problem by simply levying stamp duty on the ‘circle rate’ that is
notified by the government, without regard to whether the transaction value is lower.

Pros and cons of a conveyance through Power of Attorney

Let’s move to the interesting situation of power of attorney sales in Delhi. In Delhi, the High
Court had stated that in some cases that a power of attorney can transfer interest in a
property, thus leading to a practice of selling property by simply executing a general power
of attorney. There were several advantages for property owners who used this practice:

1. Reduction of stamp duty - The stamp duty on a general power of attorney in Delhi
ranges between INR 20 to INR 501, while for conveyance (or a joint development
agreement empowering the person to sell the flat is 5 percent of the consideration
mentioned in the instrument (or 3 percent if the purchaser is a woman).2

2. Typically, flats acquired through government authorities such as the DDA (Delhi
Development Authority) had conditions restricting their transfer by the allottees.
However, by using a power of attorney, people were able to circumvent these
provisions.

As stamp duty was not paid, it caused a revenue loss to the government. Since property
transactions through power of attorney did not require registration, it made property
searches more difficult. Property disputes, litigation, lack of clarity in property ownership,
absence of records of property transactions would increase if this practice continued
unchecked.

One malpractice that was prevalent was that when the seller comes to know about increase
in the price of land, he/she may take the advantage of the transaction done with the
previous purchaser through the means of Power of Attorney by reselling it since the seller
is well aware that there is no registered instrument or record in any public office. Further,
real estate mafia also acquired properties earlier transferred through such Power of
Attorney, and threatened former `Power of Attorney' holders from asserting their rights.

1
See Article 48 in Schedule I-A of the Indian Stamp Act, as applicable to Delhi.
2
See Article 23 in Schedule I-A of Indian Stamp Act, as applicable to Delhi.

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Validity of Power of Attorney Sales and Stamp Duty Evasion

Legal Validity of Power of Attorney Sales

In Suraj Lamp & Industries vs. State of Haryana (see here), the Supreme Court held that
immovable property can be legally and lawfully transferred only by a registered deed of
conveyance, and not by Power of Attorney. However, it made an exception for

I. Power of Attorney executed by a person in favour his spouse, son, daughter,

brother, sister or a relative to manage his affairs and

II. Power of Attorney granted by an owner to a developer in the case of joint

development agreements to develop the plot and sell flats. The execution of such
development agreements and powers of attorney are already regulated by law and
subjected to specific stamp duty in several States.

Subsequently, the Delhi Government issued a notification (see here) dated 27/4/2012,
which prohibited all kinds of power of attorney transactions (without the two exceptions
mentioned in Suraj Lamp case above). The text of the notification read as follows:

"[I]t is again clarified to all the Registrars/ Sub-Registrars, that on the basis of a
GPA, a Will, and Agreement to Sell, collectively or separately in respect of an
immovable property, a conveyance cannot be executed i.e. no transfer of
property will take effect until unless a clear sale deed is executed and duly
registered by the executants in the office of the Registrar/ Sub-Registrar.
Therefore, it is advised that all the Registrars/ Sub Registrars shall follow their
instructions while discharging their functions under the Registration Act 1908."

In Pace Developers vs. Government of NCT (see here) the Delhi High Court struck the
notification down because it created an absolute ban on transfer of property through a
power of attorney, even in genuine cases. It did not carve out an exception for the two
situations mentioned in the Suraj Lamp case by the Supreme Court (mentioned above).

Accordingly, the Government passed a new notification dated 22nd July 2013 (see here),
exactly in accordance with Suraj Lamp case, i.e. prohibiting registration of power of attorney
sales in general, except in genuine situations identified above. The notification is attached
separately.

Some states, such as Haryana have reduced stamp duty on conveyance from 12 percent to
5 percent, to incentivize people to register property transfers.

Some states have different stamp duties for different areas and for men and women.
Haryana has 6% stamp duty in rural areas and 8% in urban areas for men and 4% stamp
duty in rural areas and 6% in urban areas for women (See guidance in question 13 here).

Andhra Pradesh Government has prescribed strict rules so that accurate information about
conveyance through power of attorney is available with the Sub-Registrar (that is, the

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Validity of Power of Attorney Sales and Stamp Duty Evasion

registering authority for property transfers). It has also prescribed that cancellation of
power of attorney must be registered (the document is attached separately).

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