State whether a document compulsorily registerable but not registered can be admitted in evidence and if so, for what purpose? [2002 A.P.P.S.C]

1. State whether a document compulsorily registerable but not registered can be admitted in evidence and if so, for what purpose?

Answer:

There are several documents which are not compulsorily register able under Section 17 of the Registration Act.. Some of them require high stamp duty under the Karnataka Stamp Act and some of them do not. Even the ones which require high stamp duty, if they are under stamped, can be rectified later by paying a penal amount 10 times the original amount. Non payment of stamp duty does not make the document void or otherwise invalid. The consequences of under stamping as per the stamp act are 1. to make the document inadmissible for evidence before any authority capable of receiving evidence of before any public authority. 2. The document can also be impounded for enforcing the payment of full stamp value. An under stamped instrument can be admitted as evidence in court if penal stamp duty 10 times the value of the original amount is paid.

The following are the list of documents that do not require registration:

·         Power of attorney that is given except power to sell property

·         Development agreement

·         Agreement of sale given by a land owner to a developer

·         Lease agreement

·         Lease deed for less than one year

·         Memorandum of oral partition

·         recording a past transaction.

Power of Attorney:

Registration: In many cases, a general or specific power of attorney need not be registered. The question of registration arises only if a power is given for the sale of immovable properties. The Indian Registration Act does not make a power of attorney compulsorily registerable. However, the Supreme court has recently ruled that a power of attorney given to sell immovable properties should be registered. It should be done at the office of the sub registrar within whose jurisdiction the person giving the power resides. If the person resides abroad, the power should be attested by the Indian consulate in that country. Such power of attorney should be used within 3 months from the date of its execution.

Stamp duty: The Karnataka Stamp Act prescribes the stamp duty to be paid on different types of power of attorneys. A power given to a close relative needs only Rs. 100/- stamp paper, even if it is to sell property. A power given to a person who is a non relative will attract a stamp duty of 2% of the market value of the property, which can be adjusted in the stamp duty payable on the sale deed. A power of attorney given to a developer will attract stamp duty at the rate of 4% on the market value of the property which is subject to a maximum of Rs 4 lakhs. This amount is not adjusted at the time of executing subsequent sale deeds

Consequences of under stamping

The power of attorney: Can a sub registrar refuse to register a sale deed if the power of attorney produced by the person executing the sale deed is not properly stamped? Yes, the sub registrar can refuse to accept such a document for registration, provided he immediately gives the reason to be recorded in writing.

Revocation of power of attorney: It is now settled law that an irrevocable power of attorney given for consideration cannot be revoked.

Development agreement and Agreement to sell between landowner and developer:
A development agreement is not required to be registered. This includes all construction contracts given to a developer. However it attracts a stamp duty of 4% of the market value of the property, subject to a maximum of Rs. 4 lakhs. If the developer properly stamps the agreement, then the power of attorney which is executed by the land owner in favored the developer is exempted from stamp duty and requires only Rs. 100/-.The Stamp Act says that agreements of sale or M.O.U. given to a developer for construction, development, sale or transfer (in any manner whatsoever) of any immovable property in Karnataka attracts a stamp duty of 4% of the market value of the property subject to a maximum of Rs. 4 lakhs. Agreements of sale between the developer and the land owner should be made out as a simple agreement of sale accompanied with a separate contract to build between two parties which require only Rs. 200/- stamp paper. Possession should be taken separately and at a later date by the developer from the land owner.

An agreement to sell coupled

with possession in the agreement itself will attract the same duty as a conveyance. The duty payable is adjusted later in the stamp duty towards the sale deed.

Registration: A development agreement and an agreement of sale need not be registered under the Registration Act. It is hardly surprising therefore that there are hardly any development agreement or agreements of sale that are properly stamped. As already stated, an under stamped document is not an invalid document. But want of registration cannot be cured, so documents that require compulsory registration should always be registered.

Lease agreements and lease deed for less than one year:

An agreement to lease without possession and a lease deed for less than one year need not be registered. However, if a lease for more than one year is drafted as a leave and licence deed or if the lease is found to commence from the date of agreement itself and if possession is found to be handed over, then the agreement to lease operates as a lease deed and should be registered if the period of lease is over 1 year.

The new rent control act

has practically removed all statutory protection of tenants, but thehigh cost of stamp duty of a lease agreement or lease deed of less thanone year continues to deter full stamping of such documents.

Stamp duty

on agreement to lease and lease deed: Leases for more than one year attracta stamp duty of 5% on the average annual rent and 14.5% on the deposit. This duty can be reduced by showing some of the amounts in a separate amenitiesagreement which need not be registered. Agreements to lease and lease deedsfor less than one year also require the same stamp duty as above but asthey do not require registration, they never get properly stamped.

Partition

deed: A memorandum oral partition recording a past transaction need notbe registered. A partition deed effecting partition in the deed itself required registration but the stamp duty is nominal and amounts to Rs. 200 to Rs.1000 per share, depending on its location and nature of land. It is better to register a partition deed an it gives notice of the partition to everyone and the title is better protected.

In conclusion always register a document which is compulsorily register able or for which stamp duty is not high. Documents for which stamp duty is high and which do not require registration do not become invalid for want of proper stamp duty alone. But the rights of both parties should be protected in case of default, so consult a lawyer. Always give possession separately and never in the documents itself.

Importance of Registration

Registration of a document gives publicity and public exposure to documents thereby preventing forgeries and frauds in regard to transactions and execution of documents. It gives solemnity of form and perpetuates documents which are of legal importance or relevance by recording them, where people may see the record and enquire and ascertain what the particulars are.

Registration Act, 1908

In India, Registration Act, 1908, (the “Act”) was enacted with the object of providing orderliness, discipline and public notice in regard to transactions relating to immovable property and protection from fraud and forgery of documents of transfer. Section 17 of the Act, therefore, requires compulsory registration of certain types of documents and provides for consequences of non-registration. The scope of Section 17 covers any document (other than testamentary instruments) which purports or operates to create, declare, assign, limit or extinguish whether in present or in future “any right, title or interest” whether vested or contingent of the value of Rs. 100 and upwards to or in immovable property. Notably, Section 49 of the same Act provides that no document required by Section 17 to be registered shall, affect any immovable property comprised therein or received as evidence of any transaction, unless it has been registered. Section 49 bars the reception in evidence of a document of transfer which is required to be registered under Section 17 of the Registration Act or under the Transfer of Property Act, but is not registered.

Admissibility of Unregistered Document

It is well settled that an unregistered document cannot be received in evidence of any transaction covered by registered document However, such unregistered document can be used as an evidence of collateral purpose, as provided in the proviso to Section 49 of the Registration Act. The aforesaid law in based on the premise that such document maybe required in evidence to prove the factum of a transaction, though not of its content. Furthermore, such an exception does not apply unless the transaction has been reduced to a document form. There is plethora of cases which has firmly laid down that under the proviso to Section 49 of the Act, an unregistered document can also be admitted into evidence for a collateral fact/collateral purpose. However, in order to admit such document even for collateral purpose, the document so tendered must be duly stamped or should comply with the requirements of Section 35 of the Stamp Act, without which, such document cannot be received in evidence unless duty and penalty are paid under Section 35 of the Stamp Act. In G. Balakishtiah vs. B. Ranga Reddy, it was held that unregistered lease deed can be admissible in evidence for proving appellant’s (who was owner of the land in dispute) title to the leased property. Similarly in Hemanta Kumari Debi v. Midnapur Zamindari Co., Privy Council had held that the admission of title in the unregistered lease deeds can be admissible as evidence. More recently in Shibani Basu v. Sandip Ray, Supreme Court held that non-registration of a rent note did not debar use of a document that was to be compulsorily registered, for collateral purposes.

Requirement for Compulsory Registration

Expanding the scope of the requirement for compulsory registration, the Apex Court in Raghunath v. Kedarnath, held-

“by the enactment of Act 21 of 1922 which by inserting in Section 49 of the Registration Act the words “or by any provision of the Transfer of Property Act, 1882” has made it clear that the documents in the supplemental list i.e. the documents of which registration is necessary under the Transfer of Property Act but not under the Registration Act fall within the scope of Section 49 of the Registration Act and if not registered are not admissible as evidence of any transaction affecting any Immovable property comprised therein, and do not affect any such immovable property.”

Accordingly it was held that the document in question was not admissible as evidence of any transaction affecting the immovable property. However, the above rule does not lay down any prohibition in respect of transfers required to be registered under another document. For instance, in Piru Charan Pal and Anr. v. Minor Sunilmoy Nemo and Anr., it was held that as the document in question was required to be registered under the Bengal Tenancy Act, the prohibition contained in Section 49 of the Registration Act did not apply to it and the document was held to be admissible in evidence for purposes other than proving the title.

Meaning and Scope of ‘Collateral Purpose’

The term “collateral purpose” is often used along with the expression ‘collateral transaction’. Explaining the meaning of the expression, ‘collateral transaction’, the Bombay High Court in Ramlaxmi vs. Bank of Baroda, observed that such an expression “is used not in the sense of an ancillary transaction to a principal transaction or a subsidiary transaction to a main transaction. The root meaning of the word ‘collateral’ is running together or running on parallel lines. The transaction as recorded would be a particular or specific transaction. But it would be possible to read in that transaction what may be called the purpose of the transaction and what may be called a collateral purpose, the fulfilment of that collateral purpose would bring into existence a collateral transaction, a transaction which may be said to be a part and parcel of the transaction but none the less a transaction which runs together with or on parallel lines with the same.” However, it is to be noted that the precise meaning and examples of collateral purpose is not exhaustively defined. The meaning of ‘collateral purpose’ may vary depending on the nature of the agreement or document. For instance, in case of lease deed, the term ‘collateral purpose’ would mean proving the nature and character of possession and the purpose of leasing out. Similarly, an unregistered sale deed would be admissible in evidence for collateral purpose to limited extent of showing possession of a party to suit. In Ratan Lal and Ors. v. Harisankar and Ors., it was observed that collateral purpose has a limited scope and meaning and it cannot be used for the purpose of saying that the deed created or declared or assigned or limited or extinguish the right to immovable property. If a mortgage deed is not registered, the mortgagor cannot use it to prove his right of redemption for that is not a collateral purpose. However, the simple devise of calling it a “collateral purpose”, a party cannot use the unregistered document in any legal proceedings to bring about indirectly the effect of which it would have had if registered.

Whether Terms of an Unregistered Document Admissible in Evidence

It is to be noted that if a document is inadmissible in evidence for want of registration, none of its terms can be admitted in evidence and that to use a document for the purpose of proving an important clause would not be using it as a collateral purpose. For instance, in Haran Chandra Chakrvarti v. Kaliprasanna Sarkar, it was held that the terms of a compulsorily registerable instrument are nothing less than a transaction affecting the property comprised in it. It was also held that to use such an instrument for the purpose of proving such a term would not be using it for a collateral purpose and that the question as to who is the tenant and on what terms he has been created a tenant are not collateral facts but they are important terms of the contract of tenancy, which cannot be proved by admission of an unregistered lease-deed into evidence. Later Supreme Court in Bajaj Auto Limited v. Behari Lal Kohli, held that if a decree purporting to create a lease is inadmissible in evidence for want of registration, none of the terms of the lease can be admitted in evidence and that to use a document for the purpose of proving an important clause in the lease is not using it as a collateral purpose. In M/s Jiwan Industries (P) Ltd. v. Smt. Kamlesh Rani Budhiraja, it was held that-

“an unregistered lease deed can be looked into only for collateral purpose and collateral purpose cannot be interpreted to include therein the terms and conditions by which parties are related to each other as landlord and tenant. Collateral purpose basically is to show the nature of possession i.e. tenant has not illegally entered into possession but has legally entered into possession. All other terms and conditions between the landlord and tenant as stated in the registered lease deed whether it be for the period of lease, or the rate of rent or area of tenancy or other terms and conditions, the same cannot be looked into in view of the specific bar of Section 49 of the Registration Act.”

However, the Hon’ble Supreme Court in SMS Tea Estates Pvt. Ltd. vs. Chandmari Tea Company Pvt. Ltd.  held that-

“An arbitration agreement does not require registration under the Registration Act. Even if it is found as one of the clauses in a contract or instrument, it is an independent agreement to refer the disputes to arbitration, which is independent of the main contract or instrument. Therefore having regard to the proviso to Section 49 of Registration Act read with Section 16(1)(a) of the Act, an arbitration agreement in an unregistered but compulsorily registrable document can be acted upon and enforced for the purpose of dispute resolution by arbitration.”

Accordingly, an arbitration agreement in an unregistered but compulsorily registrable document can be acted upon and enforced for the purpose of dispute resolution by arbitration.

Judicial Approach

In case of deciding the question of raising an objection against the admissibility of an unregistered document which needs to be registered, the Privy Council in Connecticut Fire Insurance Co v. Kavanagh held that the court should not allow the question to be raised unless it can be disposed off without deciding questions of fact in considering which the court is in a much less advantageous position than the courts below. The Privy Council in ME Moolla Sons Ltd v. Burjorjee refused to allow an objection to the non registration of an agreement of sale to be raised when the agreement had been admitted throughout the litigation and had been treated as valid and no question affecting immovable property was involved in the appeal.

 

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