NRIs living abroad face many practical difficulties in coming to India to sell their assets and complete all legal formalities which can often take anywhere from a few days to a few weeks. This is not only the difficulty of arranging a long vacation, but it also involves significant travel costs. This is the reason why many NRIs prefer to sell their property through Power of Attorney (POA) by assigning one person to do the property. Registration Formalities However, as a buyer if you are planning to buy a property from a property NRI Going through the PoA, here’s where you should understand the risks of doing so and decide whether you should choose this route or not.
Risks of using POA
Generally, the POA is signed by someone who is unable to conduct his/her own transaction due to various reasons. For example, if the Principal resides abroad, or if he is bedridden or has any other plausible reason for being unable to perform the duties himself. However, the POA is not an instrument of transfer in respect of any right, title or interest in the immovable property. It is simply the creation of an agency by which a person authorizes another person to perform specified functions on his behalf.
POA is not a valid way to transfer property as the property records do not undergo mutation. There have been many cases where property transactions were challenged by an NRI on the ground of errors or inadequacies in execution of the POA.
Hardeep Sachdeva, Senior Partner, AZB & Partners says, “Independently, there is an inherent risk in POA transactions as the owner is not the seller of the property. Since the Indian Registration Act does not mandatorily make POA registerable, people often misuse this clause.”
POA executed by an NRI requires extra precautions as the seller is not resident in India. A small lapse or negligence can land the buyer in deep trouble. The best way is to ask the NRI seller to be personally present at the time of registration of the property. However, if it is not possible and you have to do it through POA, then you must take the following precautions.
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6 Reasons Why You Shouldn’t Buy Property Through Power Of Attorney
Power of Attorney must be registered
In some cases, a POA holder simply gets the instrument notarized instead of registering it. “A notarized POA is different from a registered POA. A notarized POA is not legally valid in India. POA executed by an NRI on foreign soil must be registered with the sub-registrar’s office,” warns Nitin Bhatia, a real estate expert. Huh. He further added that the PoA should also be verified by the concerned Indian Consulate/Embassy and such PoA should be exercised within three months from the date of its execution.
“If sale deed is being executed by someone acting under the PoA, one must ensure that the instrument is properly registered,” says Bharat Chugh, former judge and advocate, Supreme Court.
Sachdeva further adds, “The POA should be registered with the Registrar of Sub-Assurance in whose jurisdiction the property is situated. Further, we need to check the reasons for the POA, the authenticity of the POA and whether there is any dispute or litigation between the two. Owner and POA holder.”
Check Required Sections
Another important aspect is to ensure that the title of the property is clear, i.e., the name of the principal as the owner is reflected in the revenue records. “Ensure that the principal has a valid title to the property and that the principal’s name is mentioned in all relevant title deeds, land records, etc.,” cautions Chugh. It should also be checked that there is not only one POA holder. There have been several cases of fraud where the same property is sold by different POA holders to different people.
Chugh adds that one should also ensure that the signatures and photographs of the principal and the POA holder are also affixed. If the NRI seller is unable to come to India for the sale of the property for any valid reason, the buyer should request the NRI seller to include the said reason in the POA. In short, the reason for the execution of the POA should be clearly mentioned in the document.
The POA holder has the right to sell the property through the POA. If the instrument is time bound, the likely date of expiry of the POA and if there is no time limit, the same should be mentioned. “The POA should not be too old and if so, one should ask the new POA or the owner for confirmation whether it has been terminated or not,” says Sachdeva.
Transfer money to NRI owner, not to POA holder
It is a widespread misconception that payment for property transactions should be transferred to the POA holder. “A buyer needs to understand that the Power of Attorney holder is only a representative of an NRI seller. Resident Indian buyer should only make payment to the NRI seller in his NRE/NRO account. An NRI seller is required to accept a POA holder. Can authorize payment on his behalf but cannot authorize payment to the POA holder. Even if the NRI seller authorizes the POA holder to receive payment directly, the buyer should avoid such property transactions. It will tax the buyer could put you in trouble,” warns Bhatia.
He said that in case of multiple NRI sellers, the payment should be transferred to each seller in proportion to the ownership in the property and each seller should execute a separate POA.
Add indemnity clause in sale deed
Each property transaction is unique. Therefore, a buyer must protect his financial interests by including a blanket indemnity clause in the sale deed. “To avoid getting caught on the wrong side of the law, one must ensure that the sale deed clauses are as per the terms and conditions of the POA so as to remove any possibility of legal or tax issues later on.” Bhatia.
To conclude we can say that a buyer should avoid any property transaction if the seller is an NRI and cannot appear for the transfer of title in India as the rules and regulations governing such transactions are few and far between. are complex. One must keep in mind the fact that Indian law or taxpayers will have no jurisdiction if the NRI hides facts or misuses the system but the buyer residing in India cannot escape the trap of law.