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May 07, 2012, 05.29 PM IST | Source: Moneycontrol.com

Loophole via POA addressed!

SC's GPA judgement is seen as a landmark order which will go a long way in reducing the illnesses that prevail in the realty sector.

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“Transfer of immoveable property by way of sale can 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 immoveable property can be transferred,” the Judge ruled in a Supreme Court judgement sometime back and with this announcement, he also probably sounded the death knell on a lot of illegal activities happening in the realty sector.

The Judgement is very specifically aimed at the method of “GPA” type of property sales, which has been used by buyers and sellers to not only avoid showing who the actual owner is, but also to evade stamp duties, which become payable if the property is registered. This method has also been used to avoid capital gains tax and as a means to convert black money into white money. Although, the new judgement may not completely stop the practice, it is seen as a landmark order which will go a long way in reducing the illnesses that prevail in the realty sector.

The Mis-use and Abuse of the GPA

The General Power of Attorney has been around for a long time as a facilitator of transactions when one of the parties cannot be physically present and nominates a third person to execute transactions on their behalf. It has also been an excellent and efficient tool to allow land owners and promoters to build and sell properties.

However, the GPoA or GPA as it is called has been used by individuals and unscrupulous entities to not only cheat the government but genuine buyers/sellers too.

How buyers were affected

The most blatant misuse of the GPA was of GPA holders selling the same property to multiple buyers. As there was no way of finding the correct ownership pattern in the absence of registered deeds, the holders of GPA played truant with many an unsuspecting buyer.

How sellers were affected

Many times, individuals who are abroad or physically unavailable for transactions have entrusted their properties to “friends” or “brokers” by way of a GPA. However, with the sky rocketing of land and real estate prices, there have been several instances where greed took over some of the so called friends who sold off such properties and vanished with the earnings.

How the government was affected

The most evident way in which the Government and local bodies have been affected is by means of tax avoidance. The second aspect has been in selling off properties, which have a lock-in period defined by the government, for example slum redevelopment projects in which, the flat owners cannot sell the property for a specified period of time.

How black money has been routed?

Since the GPA sales process does not involve any kind of registration of transactions, it is easy for people to channelize their black money into real estate. They execute transactions using a GPA and get away without having to show the source of finance for such transactions as neither the land authorities nor the tax department has any inkling on such transactions.

The impact of the judgment

On existing buyers
The most negative impact could be on people who have bought land/property from someone using a GPA. They will have to hurry and get their sale agreements regularized by showing the existing documents to the municipal/revenue/developmental authorities. This is not easy as it sounds and will lead to a lot of complications and fresh litigations in the near future. It will be a wait and watch game for now.

On Miscreants
As of now, illegal operators will have to shut shop on the GPA mode for cheating gullible investors resulting in them losing their hard-earned money. It is not going to be possible to sell the same property to multiple buyers and to channelize black money so easily into the realty segment. Miscreants will now have to look out for new loopholes to abuse and hopefully, all of them can be addressed eventually to provide a cleaner realty environment on the legal front.

On the Government and Local authorities
The income from stamp duty and registrations is bound to see a sharp rise and all transactions will now be forced to go through the registered deed route. At the same time existing buyers too will now try to regularize their properties.

On Builders and Promoters
Since most medium and large sized builders do not use the POA for their transactions the affect will be minimal if not negligible. It is also perceived to have positive connotations as more buyers will now be motivated to buy from established players rather than take a risk with lesser known players who tempt them with lower prices

What should you do?

If you or anyone you know has brought a property from someone holding a GPA, get it registered right away. Those of you who have given a POA to someone else can sleep more peacefully as the chances of the POA being misused have now been reduced drastically. The Power is still with you!

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