The Supreme Court recently in Suraj Lamp & Industries (P) Ltd v. State of Haryana on October 11, 2011 has come down heavily on the invalidity of the legal arrangements taking place in the real estate sector in the form of Sale Agreement (SA) / General Power of Attorney (GPA) / Will Transfers; and instead held that the Registered Deed is the only legally valid tool for property transactions. Wherever a purchaser pays the full consideration, and instead of getting a Registered Deed of conveyance gets a SA/ GPA/ Will as a mode of transfer, either at the instance of the vendor or at his own instance, it cannot be treated as legally valid.
This judgement has brought into limelight a practice in India’s real estate, a practice in vogue for a long time, where registration of freehold property is administered through SA/ GPA/Will. In popular notion, and mistakenly at that, all the prospective sales can take place through any of the aforesaid modes, all being equally legitimate for all intents and purposes. It’s however inaccurate because there cannot be a sale or any other kind of transfer of immovable property through SA/ GPA/ Will.
This practice has become prominent because the agreements in the form of SA/ GPA/ Will are not required to be registered compulsorily since they do not involve transfer of any right or title and thereby escapes from the payment of stamp duty. A high rate of stamp duty levied on conveyancing deeds acts as a damper for execution of deeds of conveyance for full value, and encourages SA/ GPA/ Will transfers. When parties resort to such agreements for their transfer of immovable property, the adverse effect is not only loss of revenue (stamp duty and registration charges) but the greater danger of generation of 'black' money as these transactions facilitate persons with undisclosed wealth/ income to invest their black money and also earn profit/ income, thereby encouraging circulation of black money and corruption. Also the unscrupulous property owners more often enter into such sale agreements and take huge earnest money and then sell the property to others, plunging the original agreement holder and the subsequent purchaser into litigation. Thus the motive behind such transfers ranges from avoidance of stamp duty, registration charges and capital gains tax, to the fear of defective title of the seller being exposed at the instance of registration.
Furthermore, it is necessary to refer to the hardship, loss and anxiety caused due to the unnecessary litigation in absence of a mechanism for prospective purchasers to verify whether a property is subject to any pending suit, decree or attachment. Compulsory registration of conveyancing of immovable property would definitely reduce the litigation to a considerable extent, by which a prospective purchaser can ascertain this before he decides to purchase the property. This will go a long way towards discouraging generation of black money in real estate matters, and undervaluation to save stamp duty. Whatever be the intention behind the transfer of immovable property through SA/ GPA/ Will, the consequences are distressing in the long run, adversely affecting the economy and the civil society of the country.
This refined decision of the Apex Court was indeed long needed as it tends to clean up the illegal money flourishing in the real estate sector by making all the properties registered by restraining investments of black money under the cover of anonymity conferred by the unregistered transactions. It not only strikes down the transfers through SA/ GPA/ Will, but more manifestly drives the gullible persons holding properties with a title arising out of SA/ GPA/ Will transfers to execute proper conveyance deeds and register them since anything less than the registration would automatically obviate them from full-fledged ownership. This would undoubtedly set the innocent buyers free from the nagging fear of being surpassed by an imposter and would certainly put a reality check on the vehicles of fraud in the real estate sector.
It is disappointing to note here despite of having hundreds of anarchic laws on the subject, such abuse of law is seen so frequently. This suggests that even the legislators are the beneficiaries of the situation and the recent scams are the proof of it. Steps should be taken for reduction of the stamp duty on conveyance so as to encourage public to disclose the maximum sale value and have the sale deeds registered. Though the reduction of the stamp duty may result in an immediate reduction in the revenue by way of stamp duty, in the long run it will be advantageous to the law and order of the country. Thus it is the law makers this time who are supposed to take the call by making amendments in the existing anarchic legal system and uphold the welfare of the society.