Reportable   

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

SPECIAL LEAVE PETITION (C) NO……………………OF 2009   CC 5804/2009

Suraj Lamp & Industries (P) Ltd. Thru. DIR …  Petitioner(s) Vs. State of Haryana & Anr.   … Respondent  (s)

O R D E R  

R.V. Raveendran J.

Delay condoned.  Issue notice. Petitioner to file  copies  of  correspondence  with  State  Information  Commissioner  as  also  its  title  deeds  to  the  disputed  property.  As  this  case  is  a  typical  example  of  an  irregular  process  spreading  across  the  country,  we  propose to refer to some aspects of the case at this  preliminary stage itself. 2. The  petitioner,  a  company  incorporated  under  the  Companies Act, claims that one Ramnath and his family  members  sold  two  and  half  acres  of  land  in  Wazirabad  village,  Gurgoan  to  them  by  means  of  an  agreement  of  sale, General Power of Attorney (for short ‘GPA’) and a  will   in  the  year  1991  for  a  consideration  of

Rs.716,695/-. It is further alleged that the petitioner  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 (an ex MLA and Minister),  instead  of  proceeding  with  the  transaction  with  the  petitioner, 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  half  acres executed and registered and illegally cancelled the  earlier  GPA  in  favour  of  petitioner.  The  petitioner  claims that when its Director, S.K. Chandak, confronted  Dharamvir Yadav in the year 1999 this behalf, 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  dishonoured necessitating a complaint under section 138  of  the  Negotiable  Instrument  Act,  being  filed  against  Dharamvir Yadav which is pending in a criminal court at  Patiala House, New Delhi. It is further alleged that in  the  year  2001,  petitioner  lodged  a  criminal  complaint  against Ramanath and members of his family who executed  the sale agreement/ GPA/will in favour of the petitioner  and another complaint against Dharambir Yadav and his son  in the District Court, Gurgoan, for offences punishable  under sections 406, 420, 467, 468, 471 and 120B of IPC.

The petitioner claims that in December 2005 it lodged an  FIR in respect of offences under Sec. 406,467,468,471 and  120B of IPC against all of them.

3. The petitioner claims that as no action was taken on  its  FIR  by  the  Station  House  Officer/Investigation  Officer  (‘SHO/IO’  for  short),  petitioner  filed  an  application under Right to Information Act, 2004 (‘RTI  Act’ for short) seeking the status, in response to which  the  SHO/IO  gave  contradictory  and  misleading  versions  about  the  status  of  the  investigation  and  about  the  seizure  and  custody  of  the  agreement  and  power  of  attorney  from  the  accused.  An  appeal  filed  by  the  petitioner  was  disposed  of  by  the  Chief  Information  Commissioner,  Haryana,  by  an  order  dated  27.12.2007  merely  directing  that  Police  should  re-investigate  the  FIR as per the order of the court and the Department  should give a specific proper reply about the status of  the documents, to the appellant by 25.1.2008. According  to  the  petitioner,  the  Commissioner  ought  to  have  initiated action against the police for giving false and  misleading information under section 20 of the RTI Act.  Petitioner  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 leave to file an appeal against the said  order.  

4. We are of the view that matter involves an issue  whose  seriousness  is  underestimated.  The  issue  to  be  addressed is avoidance of execution and registration of  deeds of conveyance as the mode of transfer of freehold  immovable property by increasing tendency to adopt ‘Power  of  Attorney Sales’, that is execution of sale agreement/  general  power  of  attorney/will  (for  short  ‘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.  

5. The  ‘Power  of  Attorney  Sales’  as  a  method  of  ‘transfer’ was evolved by lawyers and document writers in  Delhi, to overcome certain restrictions on 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  safeguard  against  the  consequences  of  death  of  the  vendor before transfer.  

6. The ‘Power of Attorney Sales’, as noticed above was  adopted  to  overcome  the  restrictions/prohibitions  in

terms  of  allotment  and  the  rules  of  allotment  of  DDA  governing the allotment of flats. Such transactions were  obviously  irregular  and  illegal  being  contrary  to  the  rules and terms of allotment. Further, in the absence of  a  registered  deed  of  conveyance,  no  right,  title  or  interest in an immovable property could be transferred to  the purchaser. However, 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. This  led to a general impression the ‘Power of Attorney Sales’  were  valid  recognized  modes  of  transfer  and  the  very  purpose  DDA  prohibiting  transfers  and  requiring  permission on payment of certain difference in price was  defeated by this process.

We  are  not  presently  concerned  with  the  validity,  propriety or wisdom of such judgments which virtually put  the seal of approval of the court on transactions which  were irregular and illegal. In fact, it is stated that  DDA  itself  ultimately  recognizes  ‘Power  of  Attorney  Sales’  by  accepting  applications  from  purchasers  under  ‘Power of Attorney Sales’ for conversion from leasehold  to  freehold  and  conveyance  of  the  flats.  We  will

therefore presently exclude the ‘power of attorney sales’  of DDA flats from the purview of the present exercise.  

7. What we are concerned is extension of the concept of  such  ‘Power  of  Attorney  Sales’  by  execution  of  SA/GPA/Will with reference to freehold properties.  

8. 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.  Registration  provides  information to people who may deal with a property, as to  the nature and extent of the rights which persons may  have, affecting that property. In other words, it enables  people to find out whether any particular property with  which they are concerned, has been subjected to any legal  obligation or liability and who is or are the person/s  presently  having  right,  title,  and  interest  in  the  property.  It  gives  solemnity  of  form  and  perpetuate  documents which are of legal importance or relevance by  recording  them,  where  people  may  see  the  record  and  enquire and ascertain what the particulars are and as far  as land is concerned what obligations exist with regard  to  them.  It  ensures  that  every  person  dealing  with  immovable  property  can  rely  with  confidence  upon  the  statements contained in the registers (maintained under  the  said  Act)  as  a  full  and  complete  account  of  all  transactions by which the title to the property may be  affected and secure extracts/copies duly certified.

9. 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 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.  

10. Whatever  be  the  intention,  the  consequences  are  disturbing  and  far  reaching,  adversely  affecting  the  economy, civil society and law and order. Firstly, 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.  Secondly,  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. For example, when  the

market value increases, many vendors (who effected power  of attorney sales without registration) are tempted to  resell the property taking advantage of the fact that  there is no registered instrument or record in any public  office thereby cheating the purchaser. When the purchaser  under such ‘power of attorney sales’ comes to know about  the vendors action, he invariably tries to take the help  of  musclemen  to  ‘sort  out’  the  issue  and  protect  his  rights. On the other hand, real estate mafia many a time  purchase properties which are already subject to power of  attorney sale and then threaten the previous ‘Power of  Attorney  Sale’  purchasers  from  asserting  their  rights.  Either way, such power of attorney sales indirectly lead  to growth of real estate mafia and criminalization of  real estate transactions.  

11. Some states have made some efforts to control such  ‘Power  of  Attorney  Sales’  by  subjecting  agreements  of  sale  involving  delivery  of  possession  and  irrevocable  powers of attorney for consideration, to the same stamp  duty as deeds of conveyance or by making such documents  compulsorily registrable. But the steps taken are neither  adequate nor properly implemented resulting in multiple  transactions in regard to the same property by greedy and  unscrupulous

vendors and/or purchasers giving nightmares to bonafide  purchasers  intending  to  buy  a  property  with  certainty  regarding title. It also makes it difficult for lawyers  in  tracing  and  certifying   title.  Any  process  which  interferes  with  regular  transfers  under  deeds  of  conveyance properly stamped, registered and recorded in  the registers of the Registration Department, is to be  discouraged and deprecated.  

12. 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.  If  there  was  a  bar  and  the  process was adopted to overcome such bar regarding sale  of lands, then courts should not go to their assistance,  as  that  would  amount  to  perpetuating  illegalities.  If  there was no bar, then the questions that arise are: why  should a company hold a property in a state of suspended  animation from 1991? How can a company ‘verbally’ agree  to sell a property to someone? What is the reason for the  delay  in  lodging  the  complaints?  If  petitioner  had  purchased  the  property  under  a  registered  sale  deed,  numerous disputes, litigations and criminal proceedings

could  have  been  avoided.  The  illegal  and  irregular  process  of  ‘Power  of  Attorney  Sales’  spawns  several  disputes  relating  to  possession  and  title,  and  also  results in criminal complaints and cross complaints and  extra-legal  enforcement  and  forced  settlements  by  land  mafia.  

13. We  are  therefore  of  the  view  that  the  situation  warrants special measures. We are informed that sometime  back in 2008, there was a proposal to amend section 147  of Delhi Municipal Corporation Act, 1957 to check and  discourage ‘power of attorney sales’. There was also a  proposal  to  have  special  enactment  relating  to  registration and recording of title in Delhi. But so far  nothing appears to have fructified. It is the dream of  every  citizen to  own a  house or  a plot  of land.  The  citizens must be enabled by the government to do so with  safety,  security  and  without  fear  of  litigation  or  defects in title.  14. We therefore request the Solicitor General to appear  in the matter and give suggestions on behalf of Union of  India. We also direct notice to the States of Punjab,  Haryana,  Delhi,  Uttar  Pradesh  and  Maharashtra  (represented by their respective Chief Secretary/Revenue  Secretary) to consider the following issues:  

(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?  

List the matter in the last week of August, 2009.  

_________________J [R. V. Raveendran]

________________J [J. M. Panchal]

New Delhi;  May 15,2009.