In a significant judgment that brings clarity to real estate transactions conducted through Power of Attorney (PoA), the Supreme Court has ruled that sale transactions executed under a valid PoA cannot be invalidated on the grounds of subsequent cancellation of that PoA.
Background of the Case
The case involved a plaintiff who executed a Power of Attorney in favor of the first respondent on October 15, 2004. Between 2004-2006 and in 2009, several sale transactions were carried out under this PoA. In 2015, the plaintiff cancelled the PoA and subsequently filed a suit in 2018 seeking to nullify these transactions.
The plaintiff contended that he only became aware of these sale transactions on September 21, 2015, and that his suit was filed within the three-year limitation period from the date of this discovery. The Power of Attorney was cancelled the very next day, on September 22, 2015.
Legal Journey
The defendant filed an application under Order VII Rule 11 of the Civil Procedure Code (CPC) to reject the plaint as time-barred. The Trial Court agreed with this contention and rejected the plaint, finding that the plaintiff had prior knowledge of the sale transactions.
However, the High Court reversed this decision, reasoning that the limitation period should be calculated from the date of cancellation of the PoA, effectively restoring the plaint.
Supreme Court’s Ruling
Hearing the defendant’s appeal, the Supreme Court bench comprising Justice Sudhanshu Dhulia and Justice K Vinod Chandran took a clear stance on the matter. The Court observed:
“We are clear in our minds that the cancellation does not affect the prior conveyances made which are clearly on the strength of the power conferred on the appellant. There is no contention raised as to the power of attorney having not conferred the power to enter into conveyances or that such power of attorney was executed by reason of a fraud or coercion employed on the executant.”
The Court further elaborated that once a power holder has exercised the authority legitimately conferred upon them, the subsequent cancellation of that power has no effect on the transactions that were validly carried out while the power was in force.
The Supreme Court criticized the High Court’s approach, stating it had “erroneously treated the cancellation as the point of commencement of limitation.” Given that the PoA was executed in 2004 and the transactions occurred between 2004-2009, the Court held that “there cannot be any cause of action ferreted out on the basis of the cancellation of the power of attorney, after more than 11 years.”
Implications for Real Estate Transactions
This ruling has significant implications for real estate transactions in India:
- It reinforces the validity of transactions carried out under a legitimate Power of Attorney
- It protects buyers who purchase property through PoA holders from potential future litigation
- It establishes that the subsequent cancellation of a PoA cannot retroactively invalidate legitimate transactions
- It emphasizes the importance of the limitation period in property disputes
Conclusion
This judgment provides much-needed clarity in the real estate sector, particularly for transactions conducted through Power of Attorney. By affirming that legitimate transactions cannot be invalidated by the subsequent cancellation of a PoA, the Supreme Court has upheld the principles of contractual certainty and finality of transactions.
For property owners, this ruling underscores the importance of due diligence before executing a Power of Attorney, as subsequent cancellation will not undo transactions validly executed during its existence.
Disclaimer: This blog post is for informational purposes only and does not constitute legal advice. The information provided is based on the specific facts of a particular case and may not apply to your situation. Readers should consult with a qualified attorney for advice regarding their individual circumstances.