[Case Brief] Suraj Lamp & Industries v/s State of Haryana and Another, 2009

Case NameSuraj Lamp & Industries v/s State of Haryana and Another
Case NumberSpecial Leave Petition No 5804 of 2009
CourtSupreme Court of India
BenchJustice RV Raveendran and Justice JM Panchal
Author of the judgmentJustice RV Raveendran
Decided On15.05.2009
Relevant Act/Sections1) Right to Information Act, 2004- Section 20

2) Registration Act, 1908- Section 17
Author of the case briefAditya Gor

Brief Facts and Procedural History-

Suraj Lamp & Industries Pvt. Ltd. (“Company”) claims that one Ramnath and his family members sold two and a half acres of land in Gurgaon to them by means of an agreement of sale, General Power of Attorney (“GPA”) and a will in the year 1991 for a consideration of Rs. 716,695/-.

It is further alleged that the company verbally agreed to sell a part of the said property measuring one acre to one Dharamvir Yadav for Rs. 60 lakhs in December 1996. It is stated that the said Dharamvir Yadav, and his son Mohit Yadav instead of proceeding with the transaction with the company, directly got in touch with Ramanath and his family members and in 1997 got a GPA in favour of Dharamvir Yadav in regard to the entire two and a half acres executed and registered and illegally cancelled the earlier GPA in favour of company.

The company claims that when its Director, S.K. Chandak, confronted Dharamvir Yadav in the year 1999, the said Yadav apologized and issued a cheque for Rs. 10 lakhs towards part payment and agreed to pay the balance of Rs. 50 lakhs shortly but that the said cheque was dishonored necessitating a complaint filed against Dharamvir Yadav in a criminal court at New Delhi.

Further, in the year 2001, various other complaints were lodged by the company against all the respondents. The company claims that as no action was taken on its FIR by the Station House Officer/Investigation Officer (“SHO/IO”), company filed an application under Right to Information Act, 2004 (“RTI Act”) seeking the status, in response to which the SHO/IO gave contradictory and misleading versions about the status of the investigation. An appeal filed by the company was disposed of by the Chief Information Commissioner, Haryana. The company therefore filed a writ petition challenging the order of the Chief Information Commissioner and seeking initiation of proceedings under Section 20 of the RTI Act and imposition of penalty. The said writ petition was disposed of by the High Court by the impugned order holding that Section 20 was directory and not mandatory. This SLP seeks a leave to file an appeal against the said order.

The Ratio given by the judge-

What is Power of Attorney Sales?

The `Power of Attorney Sales’ as a method of `transfer’ was evolved by lawyers and document writers in Delhi, to overcome certain restrictions on the transfer of flats by the Delhi Development Authority (for short `DDA’). DDA had undertaken large-scale development by constructing of flats. It is stated that when DDA allotted a flat to an allottee, any transfer of the assignment by the allottee required the permission of DDA and such permission was granted only on payment to DDA of the `unearned increase’, that is the difference between the market value/sale price and the original cost of allotment. To avoid the cumbersome procedure in obtaining permission and to avoid payment of the huge part of the price to the DDA as unearned increase, a hybrid system was evolved whereby the allottee/holder of the flat, on receiving the agreed consideration would deliver the possession of the flat to the purchaser and execute the following documents:

(a) An Agreement of sale confirming the terms of the sale, delivery of possession and payment of full consideration and undertaking to execute any document when required in future.

(b) An Irrevocable General Power of Attorney in favour of the purchaser or his nominee authorizing him to manage, deal with and dispose of the property without reference to the vendor.

(c) A Will bequeathing the property to the purchaser as a safeguard against the consequences of the death of the vendor before transfer.

There has been an increasing tendency to adopt `Power of Attorney Sales’, that is the execution of sale agreement/ general power of attorney/will (“SA-GPA-Will transactions”) instead of execution and registration of regular deeds of conveyance, on receiving full consideration. This method adopted has the following variants:

(i) Execution of an agreement of sale, one or two powers of attorney, with or without a will, all unregistered.

(ii) Execution of an agreement of sale, power/s of attorney and will, registering either all of them, or any two of them, or any one of them.

The Delhi High Court in a few cases accepted such `Power of Attorney Sales’ as creating an `interest’ in the DDA flat which was so `transferred’ and consequently, protected such interest of the purchaser by issuing injunctions or decrees preventing the vendor from further dealing with the property.

What is the extension of the concept of such `Power of Attorney Sales’ by execution of SA/GPA/Will with reference to freehold properties?

The Registration Act, 1908, was enacted with the intention of providing orderliness, discipline and public notice in regard to transactions relating to immovable property and protection from fraud and forgery of documents of transfer. This is achieved by requiring compulsory registration of certain types of documents and providing for consequences of non-registration. Section 17 of the Registration Act clearly provides that any document (other than testamentary instruments) which purports or operates to create, declare, assign, limit or extinguish whether in present or in future “any right, title or interest” whether vested or contingent of the value of Rs. 100 and upwards to or in immovable property.

Section 49 of the said Act provides that no document required by Section 17 to be registered shall, affect any immovable property comprised therein or received as evidence of any transaction affected such property unless it has been registered. Registration of a document gives notice to the world that such a document has been executed. Registration provides safety and security to transactions relating to immovable property, even if the document is lost or destroyed. It gives publicity and public exposure to documents thereby preventing forgeries and frauds in regard to transactions and execution of documents.

Why are Power of Attorney Sales encouraged?

Recourse to `SA/GPA/WILL’ transactions is taken in regard to freehold properties, even when there is no bar or prohibition regarding transfer or conveyance of such property, by the following categories of persons:

(a) Vendors with an imperfect title who cannot or do not want to execute registered deeds of conveyance.

(b) Purchasers who want to invest undisclosed wealth/income in immovable properties without any public record of the transactions. The process enables them to hold any number of properties without disclosing them as assets held.

(c) Purchasers who want to avoid the payment of stamp duty and registration charges either deliberately or on wrong advice. Persons who deal in real estate resort to these methods to avoid multiple stamp duties/registration fees so as to increase their profit margin.

What are the consequences of Power of Attorney Sales?

The consequences, irrespective of intention, are disturbing and far-reaching, adversely affecting the economy, civil society and law and order because-

It enables 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.

Such transactions enable persons with undisclosed wealth/income to invest their black money and also earn profit/income, thereby encouraging circulation of black money and corruption. This kind of transactions has disastrous collateral effects also as such power of attorney sales indirectly lead to the growth of real estate mafia and criminalization of real estate transactions.

Decision Held-

The present case is a typical example of the consequences of not obtaining a registered sale deed. There is apparently no reason as to why a company registered under the Companies Act should resort to such a transaction. Execution of a will by an individual bequeathing an immovable property to a company is also incongruous and absurd.

Thus, the review of the solicitor general for the following issues have been called for-

(a) Whether `power of attorney sales’ (that is transactions involving execution of Sale Agreement/GPA/Will) instead of regular sales is prevalent in their respective states?

(b) What are the views of the respective state government in respect of such transactions?

(c) What steps have been taken and/or proposed to be taken by the respective states to deal with the chaotic situation and confusion arising from such transactions?

(The Supreme Court gave the final decision of this judgment in the year 2011. The Case Brief of the judgment can be found here)

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