Buying a property through General Power of Attorney (GPA) is a commonly followed route of transacting in Indian real estate. However, as per an order issued by the Supreme Court of India in 2011, transferring property through GPA is invalid. Despite that, what attracts homebuyers is the lucrative offer that comes along with this channel of property purchase since in most cases, sellers are in dire need to dispose of their assets. Thus, before signing the dotted line, homebuyers must know all the nuances of buying a property through the GPA and carefully ascertain the safety of such transactions.
What is General Power of Attorney?
The full form of GPA is property ownership is General Power of Attorney. It is the power given by a person to an acquaintance to carry out specific financial or legal businesses on his/her behalf. It is a common practice in cases where the original owner is unable to be physically present, such as in the case of Non-Resident Indians (NRIs) or disabled owners. In this case, they give the GPA to a trustworthy person who holds the right to carry out business on their behalf.
Uses of a General Power of Attorney
Let us consider the key uses of GPA:
- For managing property-related issues on the owner's behalf
- For managing finances on the behalf of the principal (the person issuing the GPA)
- For managing medical affairs on the behalf of the principal
- For carrying out the ‘as and what’ mentioned in the GPA deed
A GPA is different from a Special Power of attorney.
What is a Special Power of Attorney (SPA)?
When you grant someone the authority to carry out a specific task categorically, it is called a Special Power of Attorney (SPA). For instance, when you authorise a person to act as your legal representative in a particular case, it is only for that specific case that the person will be able to represent you.
While a general power of attorney for property gives broad authorisations to the agent, a special power of attorney narrows the choice that the agent can make.
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What are the differences between GPA and SPA?
While both GPA and SPA offer authority to someone to perform tasks on your behalf, they have a lot of differences as highlighted in the table below:
| Difference between GPA and SPA | ||
|---|---|---|
| Differentiating factors | SPA | GPA |
| Scope of authority | SPA is restricted to limited actions and transactions | GPA is broad, and offers increased authority to the owner for multiple purposes |
| Objective | SPA can be used only for a certain well-defined purpose | GPA can be utilised for several basic as well as undefined purposes |
| Span | The time span of SPA is limited, and it is also event-specific | GPA can last until being revoked or if the principal is declared incapable |
| Use cases | Used in real estate-based transactions, legal issues or business agreements | Used in business operations, real estate deals and extended financial management |
| Revocation scenarios | SPA is revoked upon completion of the specified task | GPA is revoked in scenarios where the principal dies, incapable or explicitly revoking it |
| Customisation | SPA can be modified to achieve certain requirements of a specific transaction | Multiple activities can be covered under GPA, enhancing flexibility |
| Applicability | SPA is exercised when the owner wants someone else to proceed on his/her behalf for specific cases | GPA is useful in scenarios when the principal hires an agent to handle multiple circumstances |
Do you need to register a GPA?
A GPA must be registered at the Sub-Registrar Office (SRO) to get legal validity. Moreover, the GPA is not valid for an indefinite period. It is valid for the lifetime of the principal, and can also be revoked within the lifetime of the owner. The Special Power of Attorney (SPA), on the contrary, stands revoked when the specific task assigned to the SPA is completed.
How to register a General Power of Attorney (GPA)?
The process to register a General Power of Attorney (GPA) for a property is quite simple. If you would like to register GPA for a property, follow the below steps for the same-
- Prepare the GPA on a stamp paper
- Visit the Sub-Registrar’s Office (SRO)
- The GPA holder and the principal owner must be present for the appointment at the SRO
- Submit the necessary documents like the property ownership papers, identity and residence proofs of both parties
- Two witnesses should accompany the parties with their identification documents
- Each person present at the SRO must submit two passport-sized photographs
GPA in the realty sector
Looking at the legalities involved with the GPA route, it is generally not advisable to go for a land deal through this process. However, it was prevalent in India as it provided monetary benefits to both the buyer and the seller.
According to the law, whenever the titles of a land piece are changed, the buyer has to pay stamp duty and registration charges to the government. The seller will also have to bear the capital gains tax on the transaction. By transferring property through a GPA, these charges are avoided, causing a huge loss to the exchequer.
Can a registered GPA holder sell the property?
Despite registering a GPA at the SRO, a GPA holder is not authorised to sell the property on the owner's behalf. The 2011 judgement by the Supreme Court of India empasised on the same and categorically invalidated the sale of a property through GPA. A GPA holder has the legal authority to carry out only those tasks assigned by the owner, excluding the selling of property.
Why do GPA transactions attract people?
From a seller’s perspective, the GPA route allows them to sell a property even if they do not hold clear titles of the property. On the other hand, a buyer is lured by lucrative property deals.
There are other legal provisions, which give impetus to GPA transactions. Many schemes of urban development authorities, where the properties are allotted on a leasehold basis, come with a significant gestation period before the property can be sold legally. To sidestep such provisions, the GPA route is employed frequently. GPA is also an illicit way of investing unaccounted money in the real estate sector.
When asked about the consequences of a GPA transaction, Mukesh Jain, Lawyer and Founder, Mukesh Jain & Associates, says, “Generally, it is not advisable to purchase a property through the holder of a power of attorney. However, there is an exception. When the holder has obtained an irrevocable power against consideration, one may deal with the power holder. Even in that case, one needs to ensure that the holder also has some substantive right in the property through an agreement to sell or a similar document. Ideally, such power should be registered as an irrevocable power coupled with interest that remains valid even after the death of the grantor.
Any other type of power is unsafe, more so, when it is not registered. A GPA can be revoked at any time even if it is made irrevocable. Moreover, it lapses on the death of the grantor. The law does not recognise any irrevocable power unless coupled with an interest. Purchase of property through such a power is not safe and is likely to increase the chances of unforeseen complications. Hence, it must be avoided.”
Supreme Court (SC) verdict on property transfer through GPA
The order passed by the Supreme Court (SC) in 2011 categorically stated that the GPA is not an instrument of transfer when it comes to right, title, and interest in an immovable property. The Court further held that power of attorney is only an agency created in favour of the recipient, also known as grantee, on behalf of the grantor. Moreover, even an irrevocable power of attorney does not have the effect of transferring title to the recipient. Therefore, GPA is not valid for the sale of a property. Transactions related to an immovable property can only be done by way of stamped and registered conveyance deeds, as applicable under the respective State government Act.
In the wake of the above decision, the Apex Court directed the municipal bodies not to register properties based on the GPA documents. However, genuine transactions done through GPA would remain valid.
As acknowledged by the SC, GPA enables large-scale evasion of taxes, including income tax, wealth tax, and stamp duty and registration charges. Moreover, GPA transactions facilitate holding black money and earning illegal profits.
Here are some of the important Supreme Court rulings regarding the use of GPA in property transactions.
| Supreme Court Ruling | Description |
|---|---|
| GPA transfers are not valid | Property title transfer through GPA is invalid; a sale deed must be executed for a valid transaction. |
| General Power of Attorney (GPA) is non-transferable | GPA cannot be used to transfer any title, interest, or right in immovable property. |
| Invalidity of Property Transfers via Power of Attorney (PoA) | Transfers through PoA are invalid the previous owner remains the legal titleholder. |
| Legal Holding only by registered sale deeds | Only registered sale deeds provide legal holding to property transactions. GPA transactions have no legal sanctity. |
| Recommendation for Property Ownership Transfer | The use of GPA for property transactions does not confer legal title; a registered sale deed is recommended. |
Delhi High Court order on GPA
After Supreme Court ordered that GPA could not be used as an instrument of transfer of immovable property, the Delhi High Court ruled that property registration through GPA will not be barred in genuine cases, as mentioned in the verdict given by SC. The Delhi HC further quoted the SC verdict and said that the sub-registrar will register the transfer as long as the transaction is genuine. It further added that GPA can be used to execute sale agreements or development agreements where a developer and a plot owner are involved, in developing a piece of land for constructing a residential building.
Considering the Delhi HC verdict on GPA, the Delhi government legalised GPA property transfers of those illegal constructions where sale deeds were not available.
What to do if you have bought a property through GPA?
If you have bought a property through a GPA, you will not be considered the legal owner of the property due to the absence of a registered sale deed. Without the sale deed, you will not be able to sell the property either. Moreover, banks also have a policy of not financing projects involving a GPA.
What all challenges can arise while buying a property through GPA?
Buying a property via a GPA has its own set of challenges that must be understood properly to make an informed decision. Here are a few things to consider while using GPA for property purchase:
- Potential fraud: It is the responsibility of the individual to make sure the attorney they are is appointing on its behalf is trustworthy and will work in favour of its interests. The person hired as an attorney should not carry any personal motive or ill intentions with regard to the owner. A significant risk of having a GPA as a primary tool for property purchase is the risk of fraud. Additionally, one must mandatorily ensure that GPA deed execution and registration are done properly to reduce the risk of fraud.
- Legal challenges: One may face legal challenges while buying a property through GPA. There are few processes that the attorney might be able to execute only if the individual is physically present. Considering such cases, the individual might be required to travel to India, which may prove costly and time-consuming as well.
- Restricted authority: GPA does not offer complete authority to the attorney of financial decision-making on behalf of the individual. In simple words, an attorney cannot make any decision on behalf of the individual in the absence of their consent. Apart from that, it is required to clarify the extent of authority of the attorney before executing GPA. For example, the attorney may not sell the property or alter it without the permission of the individual.
Why should you avoid purchasing a property through GPA?
Property purchase via the GPA route must be avoided because of the following reasons:
- The local municipal and revenue authorities may cause hassle with property mutation, as property title may be missing
- The lack of a sale deed may create an issue with legal ownership of the property, despite possession and transaction papers. Further, the seller may take undue advantage and charge a large sum of money for executing the sale deed and registering the property
- Banks and financial institutions may avoid providing loans to homebuyers
- Buying a property basis GPA without subsequent registration may lead to fraud by the seller
While property purchase through GPA may seem like a lucrative deal, it may have some underlying complications, which the buyer may not know about. Hence, it is best to read through the fine print of a GPA with the help of a legal expert before signing any property papers.
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