A Power of Attorney is issued by NRI if he/she cannot be physically present in India for the execution of property transaction.
Normally as a buyer or seller, one should insist on the physical presence of NRI Buyer/Seller in India for sale deed to avoid any future hassles that may arise. The risk is greater if the buyer is Resident Indian, and Seller is NRI, who is represented by Power of Attorney holder.
A property transaction executed by NRI through Power of Attorney calls for extra scrutiny. A sale deed can be declared null & void because of errors in the execution of Power of Attorney by NRI. These errors could be intentional or unintentional. In many intentional cases, the status of NRI is concealed in POA to avoid TDS. An NRI executing POA in India cannot declare his/her status as Resident Indian.
Generally, Resident Indians are not aware of legal aspects of Power of Attorney executed by NRI. Even professional help does not help in most of the cases due to lack of knowledge.
Though it is equally important if a seller is Resident Indian, and Power of Attorney holder represents the NRI Buyer, tracing of money trail from NRI Seller’s case becomes difficult in cases of fraud.
Reason for Execution of Power of Attorney
The presence of an NRI seller in India for execution of sale deed is an ideal option. But if circumstances do not permit, as a buyer one should check the reason for the execution of Power of Attorney. If the buyer is convinced, the purpose/reason for the execution of a power of attorney should be clearly mentioned in the Power of Attorney.
Steps in Executing POA
Execution of POA involves a 2 step process i.e. attestation of POA at Indian Consulate/Embassy and the registration of same in India. Attestation of POA is required even if the seller is not an NRI i.e. not completed 180 days outside India. On the other hand, if NRI executes POA on Indian Soil then attestation is not required.
Payment towards property transaction should not be transferred to POA holder. Power of Attorney holder is only a representative of an NRI seller. The resident Indian buyer should make payment only to the NRI seller in his/her NRE/NRO account. An NRI seller can authorize POA holder to accept payment on his behalf but cannot authorize payment to POA holder.
In the case of multiple NRI sellers, the payment should be transferred in the proportion of ownership in the property to each seller.
A buyer can safeguard his/her financial interests by including a blanket indemnity clause in the sale deed. It is also advisable to ensure that sale deed clauses are in concurrence with the terms and conditions of the POA to avoid any possible legal/tax hassles.
Checklist for executing a POA:
- NRI seller creates two copies of Power of Attorney with detailed terms and conditions. As a buyer, one should go through each and every clause thoroughly to understand the content.
- Buyer should check whether the POA is signed by two witnesses present in the country of residence of a seller.
- Check whether the witnesses were physically present in Indian Consulate/Embassy at the time of signature or not. If they were not physically present, then their signatures should be attested by the Local Notary.
- The POA should be attested by the Indian Consulate/Embassy.
- The Attested POA should be registered in India by the resident Indian i.e. POA holder. The registration process in India should be completed within three months from the date of execution of POA. The POA can be registered in SDM (Sub Divisional Magistrate) office or Sub-Registrar Office.
- The relation between the NRI and POA holder should be mentioned in the POA. Preferably the details of ID proof of a POA holder issued by Govt of India should be specified in the POA. The buyer retains the original copy of Power of Attorney for future reference.
It is also important to note that in some cases a POA holder simply notarizes the POA in India instead of registering it in Sub-registrar office. A notarized POA is legally not valid in India. A POA executed by NRI on foreign soil should be registered in SDM or Sub-Registrar office.