GPA Does Not Transfer Title; Agent Must Account For Sale Proceeds Under Section 218 Indian Contract Act: Delhi High Court

"A General Power of Attorney is not an instrument of transfer of right, title or interest in an immovable property, but is a document of agency. Even an irrevocable Power of Attorney does not have the effect of transferring title to the attorney." Delhi High Court has reaffirmed that a General Power of Attorney (GPA) merely creates an agency relationship and does not operate as a transfer of ownership, irrespective of clauses purportedly conferring a right to "gift" or sell.

A bench of Justice Neena Bansal Krishna observed that an agent who sells property on behalf of a principal is statutorily bound under Section 218 of the Indian Contract Act, 1872, to account for and remit the entire sale consideration received.

The dispute arose after the appellant sold agricultural land in New Delhi, co-owned by his late sister-in-law Smt. Kusum Mehta, using a registered GPA. While the appellant sold the property for over Rs. 6.95 crores, he remitted only a fraction of the share to the principal, Smt. Kusum Mehta, claiming the balance was a "friendly loan." Following her death, her daughters filed a suit for recovery, which the trial court decreed under Order XII Rule 6 of the CPC based on the appellant's own admissions.

The court was primarily tasked with determining whether a GPA containing a "gift" clause acts as a transfer of title and whether a decree under Order XII Rule 6 of the CPC was sustainable. Further, the court addressed whether the appellant’s plea of a "friendly loan" constituted a triable issue sufficient to defeat a motion for judgment on admissions, and whether the suit was barred by limitation.

The court held that the recitals in the registered Sale Deed, wherein the appellant explicitly described the co-owners as "absolute owners" and himself as a mere "General Attorney," constituted categorical admissions. Applying the principles of Section 91 and Section 92 of the Indian Evidence Act (now reflected in the Bharatiya Sakshya Adhiniyam, 2023), the court ruled that the appellant could not be permitted to resile from the covenants of a registered instrument he had himself executed.

GPA as an Instrument of Agency

The bench clarified that the legal position regarding GPA sales remains settled by the Supreme Court’s decision in Suraj Lamp & Industries Pvt. Ltd. v. State of Haryana. The court emphasized that a GPA is a document of agency, not a conveyance. The mere inclusion of an "irrevocable" clause or a power to "gift" does not transform an agent into an owner, nor does it extinguish the principal’s title to the property.

"Moonshine Defence" of Friendly Loan

Regarding the appellant’s claim that the payment was a friendly loan, the court observed that this was a "moonshine defence." The court noted that the appellant had deposited identical sums into the accounts of all three co-owners, contradicting his narrative that the specific payment to Smt. Kusum Mehta was a loan. Furthermore, the appellant’s failure to produce any documentary evidence or reflect the alleged loan in his own income tax records proved the claim was an afterthought.

"Court Rejects Inconsistent Pleadings"

The court further highlighted that the appellant provided inconsistent versions regarding the payment mode—initially claiming it was handed over by cheque, and later asserting it was transferred via RTGS. Such contradictions, coupled with the fact that Smt. Kusum Mehta had already declared the amount as long-term capital gains in her own tax returns, demolished the appellant’s contentions.

"The defence of an interest-free friendly loan, being wholly unsupported by any documentary material and being contradicted by the Appellant's own contemporaneous written Reply before the police authorities, is a moonshine defence."

Limitation and Procedural Objections

Addressing the limitation plea, the court held that the cause of action accrued only upon the principal’s discovery of the sale and the subsequent retention of funds. Since the suit was filed within three years of this knowledge, it was well within the limitation period. The court further clarified that a pending counter-claim, which had been registered as a separate suit, does not bar the court from passing a decree on admissions for the principal suit.

The High Court upheld the trial court's order, dismissing the appeal and confirming that the appellant, having acted as an agent, was legally obligated to remit the sale proceeds to the legal heirs of the principal.

Date of Decision: 31 August 2026