The anxiety indicator of a buyer or seller of property is high on the hypertension gauge. Carrying a Santa Clause-size bagful of cash is not the only nightmare. Legal validity of the transfer, title of the owner and encumbrances on the property are issues too cumbersome to be handled by an ordinary person. They are usually left to the real estate agent and his wily lawyers. The Supreme Court has often pointed out that bad laws, and more often, the absence of laws, create this situation.
Some months ago, the Supreme Court pointed out in the case, Suraj Lamps Industries vs State of Haryana, that “power of attorney” (POA) sales generate black money and cheat the government of huge revenue in stamp duty. The case was described as “a typical example of an irregular process spreading across the country”. The POA sales, said the court, enabled large-scale evasion of income tax, wealth tax, stamp duty and registration fees.
Moreover, such transactions enable people with undisclosed wealth to invest their black money and earn profit, encouraging circulation of black money. These transactions have disastrous collateral effects. For instance, property wheeler-dealers can buy assets that are already subject to POA sales and then threaten the previous POA buyers from asserting their rights. “Either way, such sales indirectly lead to growth of a real estate mafia and criminalisation of real estate transactions,” the judgment emphasised.
Last week, the court found two more lacunae in the system. In the case, T G Ashok Kumar vs Govindammal, it asked the Law Commission to remedy these serious flaws afflicting property transactions. The court explained the problem thus: “It is necessary to refer to the hardship, loss, anxiety and unnecessary litigation caused due to absence of a mechanism for prospective purchasers to verify whether a property is subject to any pending suit, decree or attachment. At present, a prospective purchaser can easily find out about any existing encumbrance over a property either by inspection of the registers or by securing a certificate relating to encumbrances from the sub-registrar. But he has no way of ascertaining whether there is any suit pending in respect of the property, if the person offering the property for sale does not disclose it or deliberately suppresses the information.”
This gap can have disastrous consequences. The buyer, after paying the money, may get the shock of his life when he discovers that the property he bought is subject to litigation that could drag on for decades and ultimately deny him the title. The unfortunate buyer will have to wait for the litigation to end or he may have to take over the litigation if the seller loses interest after the sale. The court may also deny the buyer an opportunity to plead his case.
There are two suggestions from the Supreme Court. It says, “Property litigation could be reduced to a considerable extent, if there is some satisfactory and reliable method by which a prospective purchaser can ascertain whether any suit is pending (or whether the property is subject to any decree or attachment) before he decides to purchase the property.” Some states like Maharashtra have already legislated preventive measures. For example, if a case is pending in any court over a property, the fact should be registered under Section 18 of the Registration Act. Such property cannot be transferred by any party to the suit so as to affect the rights of another.
The Supreme Court pointed out another serious issue. At present, sales agreements are not compulsorily registered since they do not involve transfer of any right or title. Unscrupulous property owners enter into sales agreements and take huge earnest money and then sell the property to others, plunging the original agreement holder and the subsequent purchaser into litigation. Registering sales agreements will reduce such litigation.
It will also end the prevalent practice of entering into sales agreements showing the real consideration and then registering the sales deed for only a part of it. Compulsory registration of agreements will go a long way towards discouraging generation of black money in real estate matters, and undervaluation to save stamp duty. It will also discourage the growth of a land mafia and musclemen who dominate the real estate scene, according to the court.
However, recent scams suggest lawmakers are beneficiaries of the status quo. The anarchic system is functioning well both for them and the middle class. Therefore, the court’s well-meaning suggestions are more likely to be stacked high up in law journals. The court has taken up the task of prodding state governments to wipe out POAs, but the response of the states has been tardy. The rest of the problems should be handled by the legislators.
