Suraj Lamp Industries v. State of Haryana & Anr

After reading this judgement you will learn what the Apex Court has held as good law in relation to transfers via Sale Agreement, General Power of Attorney and Will.
CITATIONSpecial Leave Petition No 13917 of 2009
COURTSupreme Court of India
JUDGES/CORAMJustice RV Raveendran, Justice AK Patnaik and Justice HL Gokhale
DATE OF JUDGEMENT11.10.2011

Introduction

The Hon’ble Supreme Court in a landmark decision in the present caseput to rest controversy surrounding transfers via Sale Agreement/General Power of Attorney/Will transfers by holding that such transactions are not ‘transfers’ or ‘sales’ and that such transactions cannot be treated as completed transfers or conveyances.

Facts

The facts of the case are as follows: This judgment is in continuance to an earlier judgment of the Hon’ble Supreme Court dated 15.05.2009 in Suraj Lamp & Industries Pvt. Ltd. vs. State of Haryana & Anr[1] wherein the review of the Solicitor General was sought on various issues touching the validity, prevalence and efforts undertaken by the respective State Government in respect of Sale Agreement/General Power of Attorney/Will transfers (`SA/GPA/WILL’ transfers).

The Power of Attorney Sales is not to be confused or equated with genuine transactions where the owner of property grants a power of Attorney in favor of a family member or friend to manage or sell his property, as he is not able to manage the property or execute the sale, personally. These are transactions, where a purchaser pays the full price, but instead of getting a deed of conveyance gets an SA/GPA/WILL as a mode of transfer, either at the instance of the vendor or at his own instance to avoid prohibitions/conditions regarding certain transfers, to avoid payment of stamp duty and registration charges on deeds of conveyance, to avoid payment of capital gains on transfers, to invest unaccounted money (`black money’) and to avoid payment of `unearned increases’ due to Development Authorities on transfer.

The Hon’ble Court noted the ill effects of such SA/GPA/WILL transactions that is generation of black money, growth of land mafia, large scale evasion of income tax, wealth tax, stamp duty and registration fees thereby denying the benefit of such revenue to the government and the public and criminalization of civil disputes. The Court further took cognizance of the fact that such transactions were undertaken by the vendors with imperfect title who cannot or do not want to execute registered deeds of conveyance, purchasers who want to invest undisclosed wealth/income in immovable properties without any public record of the transactions or by the purchasers who want to avoid the payment of stamp duty and registration charges.

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In the backdrop of abovementioned facts the Court requested the learned Solicitor General and four other states i.e. States of Delhi, Haryana, Punjab, Uttar Pradesh to give suggestions on behalf of Union of India. It has been responded and confirmed that SA/GPA/WILL transfers required to be discouraged as they lead to loss of revenue (stamp duty) and increase in litigations due to defective title. It was suggested that the SA/GPA/WILL transactions should be curbed and expressed their willingness to take remedial steps.

The Hon’ble Court was apprised with the general measures taken to curb the SA/GPA/WILL transfer such as amending the Registration Act 1908 requiring documents containing contract to transfer for consideration (agreements of sale etc.) relating to any immoveable property for the purpose of section 53A of the Act, shall be registered and amending of the stamp laws subjecting agreements of sale with delivery of possession and/or irrevocable powers of attorney in favor of non-family members authorizing sale, to the same stamp duty as deed of conveyance. The State of Haryana had further taken a positive step by reducing the stamp duty conveyance from 12.5% to 5% with the view to discourage SA/GPA/WILL transfers.

Issues

The main issue in the case was: Validity and legality of SA/GPA/WILL transactions.

Summary of court decision and judgment       

The Court in the background of all the relevant provisions i.e. Section 5, 54, 53A of the Transfer of Property Act, Section 27 of the Indian Stamp Act, Section 17, 49 of the Registration Act 1908 examined the issue at hand and reached the conclusion that an SA/GPA/WILL transaction does not convey any title nor create any interest in an immovable property.

The learned three-judge bench stated the law in black and white that an immovable property can be legally and lawfully transferred/conveyed only by a registered deed of conveyance.  In other words, the transactions of the nature of ‘GPA sales’ or ‘SA/GPA/WILL transfers’ do not convey title and do not amount to transfer, nor can they be recognized or valid mode of transfer of immovable property. They further held that decision was to be applied prospectively to avoid hardship. However the SA/ GPA/ WILL transactions that have been accepted by DDA or other developmental authorities or by the Municipal or revenue authorities to effect mutation, they need not be disturbed were kept out of the purview of this judgment.

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While concluding the judgment Hon’ble Court made it clear that the judgment was not intended to in any affect the validity of sale agreements and powers of attorney executed in genuine transactions. For instance a person may enter into a development agreement with a land developer or builder for developing the land either by forming plots or by constructing apartment buildings and in that behalf execute an agreement of sale and grant a Power of Attorney empowering the developer to execute agreements of sale or conveyances in regard to individual plots of land or undivided shares in the land relating to apartments in favor of prospective purchasers.

Analysis

The Hon’ble Supreme Court in arriving at the conclusion in the present case made a careful and detailed analysis of the law surrounding the controversy in issue. At the outset the scope of an Agreement of sale was considered to determine whether it had the effect of creating any interest or charge on its subject matter. For this Section 54 of the Transfer of Property Act was taken into consideration that makes it clear that a contract of sale, that is, an agreement of sale does not, of itself, create any interest in or charge on such property. Thus a transfer of immovable property by way of sale could only be by a deed of conveyance (sale deed). In the absence of a deed of conveyance (duly stamped and registered as required by law), no right, title or interest in an immovable property can be transferred except to the limited right granted under Section 53A of Transfer of Property Act.

Subsequently the Court turned its focus on examining the scope of will. The Court observed that will is intended to come into effect only after the death of the testator and is revocable at any time during the lifetime of the testator. Thus even registration of a will does not make it any more effective. Therefore it does have the effect of creating any interest or charge on its subject matter.

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Thirdly, by placing reliance on the dicta of Hon’ble Supreme Court in State of Rajasthan v. Basant Nehata[2] the Court reached the conclusion the power of attorney is revocable or terminable at any time unless it is made irrevocable in a manner known to law.[3] Thus, even an irrevocable attorney does not have the effect of transferring title to the grantee.

However the judgment gives a cursory glance regarding the possessory rights. Thus, though the ownership rights would not normally rest with the plaintiff however the possessionary rights of the suit property cannot be disputed as was held in the subsequent judgment of the Delhi High Court in Suresh Kumar and Anr. v.  Suresh Atal[4] .

Conclusion

The present judgment is a path breaking revelation in the field of SA/GPA/WILL transfers. This decision has been a guiding light in plethora of subsequent judgments.


[1] Suraj Lamp & Industries Pvt .Ltd. v. State of Haryana & Anr. (2009) 7 SCC 363.

[2] 2005 (12) SCC 77.

[3] Section 1A and Section 2 of the Powers of Attorney Act 1882.

[4] RFA No. 482/2011.