Supreme Court Rules on Power of Attorney Misuse in Property Registration Dispute
The Supreme Court of India recently delivered a significant judgment in the case of Asset Reconstruction Company (India) Limited vs. S.P. Velayutham & Others. The case centered around the misuse of a Power of Attorney (PoA) in a real estate transaction and the role of the Registering Authority in verifying documents before registration.
The Court ruled that the Registering Authority must ensure strict compliance with the Registration Act, 1908 and verify whether the PoA holder had the right to sell the property. The Court reinstated the decision of a single judge, invalidating a sale deed executed based on a defective PoA.
Background of the Case
The case involved a dispute over an immovable property used as collateral security for a loan. The Indian Bank initially sanctioned a loan to M.V.R. Group of Industries in 1992, and the borrower allegedly created a mortgage in favor of the bank in 1995-96.
After the borrower defaulted, Indian Bank initiated recovery proceedings under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 in 1996. Later, with the enactment of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002, the bank issued a possession notice in 2005 and assigned the debt to the Asset Reconstruction Company (India) Limited (ARCIL).
Key Legal Issues
- Whether the Registering Authority failed to verify the validity of the Power of Attorney (PoA) used in executing the sale deed.
- Whether a sale deed executed without explicit authorization in a PoA is valid under the Registration Act, 1908.
- Whether the Division Bench of the High Court erred in overturning the single judge’s decision that declared the registration null and void.
Arguments Presented
Petitioner’s (Asset Reconstruction Company) Arguments
- The Registering Authority failed to perform its duty under the Registration Act, 1908 by registering a sale deed executed using a defective Power of Attorney.
- The original PoA dated 23.08.2006 did not confer the power to sell the property, and thus the subsequent sale was fraudulent.
- The High Court’s Division Bench erred in holding that ARCIL should have filed a civil suit instead of invoking writ jurisdiction.
Respondent’s (S.P. Velayutham) Arguments
- The sale deed was executed using a subsequent unregistered PoA dated 07.06.2007, which granted the power to sell.
- The challenge should be raised in a civil suit rather than in writ proceedings.
- ARCIL was improperly challenging the transaction without exhausting available legal remedies.
Supreme Court’s Ruling
1. Duty of the Registering Authority
The Court held that the Registering Authority must verify whether the PoA used for property transactions explicitly conferred the power to sell. The Court observed:
“The Registrar failed to verify that the PoA dated 23.08.2006 explicitly prohibited the agent from selling the property. This failure led to an invalid sale.”
2. The Importance of Properly Executed Power of Attorney
The Court found that the unregistered PoA dated 07.06.2007 could not be relied upon because it contradicted the registered PoA of 2006, which prohibited any sale. The Court noted:
“A later unregistered PoA cannot override a prior registered PoA, especially when the latter contains an explicit restriction on sale.”
3. Writ Jurisdiction Was Properly Invoked
The Court rejected the respondents’ argument that the issue should have been decided in a civil suit. It ruled:
“When the Registering Authority fails in its statutory duty under the Registration Act, 1908, writ jurisdiction can be invoked to correct such errors.”
4. Reinstating the Single Judge’s Decision
The Supreme Court restored the single judge’s ruling, holding:
- The sale deed dated 05.07.2007 was null and void as it was executed without valid authority.
- The registration of the sale deed by the Sub-Registrar was illegal.
- The appeal was allowed, and the Division Bench’s judgment was set aside.
Impact of the Judgment
This ruling has significant implications for real estate transactions and the role of Registering Authorities in India.
1. Strengthening Due Diligence in Property Transactions
The judgment reinforces the importance of verifying Power of Attorney documents before registering property transactions.
2. Limiting Fraudulent Transfers
The ruling prevents the misuse of PoAs in real estate transactions, protecting property owners from unauthorized sales.
3. Clarifying Writ Jurisdiction in Property Disputes
The judgment confirms that High Courts can intervene when Registering Authorities fail in their duties, eliminating the need for separate civil suits in clear cases of procedural failure.
Conclusion
The Supreme Court’s ruling in Asset Reconstruction Company (India) Limited vs. S.P. Velayutham & Others establishes a crucial precedent for property registration in India. By enforcing strict compliance with the Registration Act, 1908, the Court has safeguarded property rights and ensured that unauthorized sales using defective Power of Attorney cannot stand.
Petitioner Name: Asset Reconstruction Company (India) Limited.Respondent Name: S.P. Velayutham & Others.Judgment By: Justice V. Ramasubramanian, Justice Hemant Gupta.Place Of Incident: Tamil Nadu.Judgment Date: 04-05-2022.
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