Understanding the Principal and Agent Relationship

To understand the issue properly, we must first understand the legal concepts of a principal and an agent.

Who Is the Principal?

The principal is the person who owns the property and grants authority to another person through a Power of Attorney.

The authority may relate to:

• Selling property
• Managing property
• Collecting rent
• Appearing before government departments
• Signing documents
• Completing legal formalities

The principal remains the true owner of the property unless ownership is lawfully transferred.

Who Is the Agent or Attorney?

The attorney (agent) is the person authorized to act on behalf of the principal.

The attorney acts as a representative and owes important legal duties to the principal.

The authority granted through a Power of Attorney does not make the attorney the owner.

Rather, it authorizes him to perform certain acts on behalf of the owner.

What Is a General Power of Attorney (Mukhtar-e-Aam)?

A General Power of Attorney is a legal document through which a person grants broad powers to another individual.

Depending on the wording of the document, the attorney may be authorized to:

• Sell property
• Execute transfer deeds
• Receive payments
• Appear before authorities
• Sign applications
• Engage lawyers
• Manage transactions

Because these powers can be extensive, misuse of a General Power of Attorney can cause enormous financial loss.

Can an Attorney Sell Property to His Own Relatives?

This question frequently arises in practice.

The answer depends on the wording of the Power of Attorney.

In some cases, the document may expressly permit the attorney to sell property to:

• Family members
• Close relatives
• Associates
• Third parties

However, even if such authority exists, the attorney remains bound by his fiduciary obligations.

The authority to sell property does not automatically authorize the attorney to misappropriate the sale proceeds.

The Most Important Question: Can the Attorney Keep the Sale Money?

The simple answer is:

No.

The attorney may receive the money on behalf of the principal.

However, he receives it as a trustee and representative of the owner.

The sale proceeds belong to the principal.

The attorney has a legal duty to account for the money and transfer it to the rightful owner.

If the attorney keeps the money for personal use, serious legal consequences may arise.

Fiduciary Duties of an Attorney

One of the most important legal principles discussed in PLD 2023 page 550 is the concept of fiduciary responsibility.

A fiduciary relationship is based upon:

• Trust
• Loyalty
• Honesty
• Good faith

The attorney must always act in the best interests of the principal.

He cannot:

• Secretly profit from the transaction.
• Divert sale proceeds.
• Conceal information.
• Exploit the principal’s trust.

Any such conduct may amount to a breach of fiduciary duty.

Essential Elements of a Valid Property Transaction

The lecture highlights the basic elements of a proper property transaction.

These include:

1. Offer and Acceptance

One party offers to sell.

The other agrees to purchase.

2. Transfer of Rights

The ownership rights or interests are transferred according to law.

3. Delivery of Possession

Possession of the property is handed over.

4. Payment of Consideration

The agreed sale price is paid.

This is perhaps the most critical element.

The consideration belongs to the owner.

Without proper payment, the transaction may become the subject of legal dispute.

What Happens If the Attorney Refuses to Hand Over the Money?

If the attorney sells the property and refuses to transfer the proceeds, immediate action should be taken.

Delays often make legal recovery more difficult.

Property owners should seek legal advice as soon as they become aware of the problem.

Revoking a Power of Attorney

One of the first protective measures is revocation.

Step 1: Execute a Deed of Revocation

A formal revocation deed should be prepared on appropriate stamp paper.

Step 2: Register the Revocation

Where applicable, the revocation should be registered with the relevant registration authority.

Step 3: Notify the Public

Public notices should be published in newspapers informing the public that the Power of Attorney has been cancelled.

This warning helps prevent future unauthorized transactions.

Why Newspaper Publication Is Important

Many people underestimate the significance of public notices.

A published notice serves several purposes:

• Warns potential buyers.
• Protects the owner.
• Creates documentary evidence.
• Reduces the likelihood of future disputes.

The notice informs everyone that the attorney no longer possesses authority to act on behalf of the principal.

Another Common Property Problem

A different but equally common issue arises where ownership formalities remain incomplete.

Examples include:

• Development authority transfers pending.
• Housing society approvals pending.
• Mutation proceedings incomplete.
• Revenue records not updated.

In such situations, purchasers often rely upon a Special Power of Attorney.

However, relying solely on a Power of Attorney can be dangerous.

What Happens When the Principal Dies?

Many people are unaware that a Special Power of Attorney generally ceases upon the death of the principal.

This creates serious complications.

Imagine a purchaser who:

• Paid the full price.
• Took possession.
• Received a Power of Attorney.

Years later, when attempting to obtain title, the principal dies.

The legal heirs may then dispute the transaction.

This is where documentary evidence becomes crucial.

Why Documentary Proof of Payment Is Essential

One of the most important lessons from the judgment is that a Power of Attorney alone may not prove that a sale actually occurred.

Courts often ask:

“Where is the proof of payment?”

If millions of rupees changed hands, there should be evidence.

Examples include:

• Receipts
• Bank transfers
• Cheques
• Payment acknowledgments
• Sale agreements

Without such evidence, proving the transaction becomes more difficult.

The Importance of a Separate Sale Agreement

Property purchasers should never rely solely upon a Power of Attorney.

A separate written agreement should clearly record:

The Property Description

Exact details of the property.

The Purchase Price

The agreed consideration.

Payment Terms

How and when payment was made.

Future Obligations

Responsibilities of each party.

Pending Formalities

Steps required to complete title transfer.

This agreement creates valuable evidence if disputes arise later.

Contingent Contracts and Future Obligations

Many transactions involve future events.

For example:

• Transfer approval may still be pending.
• Government permissions may be required.
• Development authority documentation may remain incomplete.

A properly drafted agreement should explain:

• What remains to be done.
• Who is responsible.
• How ownership will eventually be transferred.

This protects both parties.

Why Legal Heirs Can Become Bound

Where proper agreements exist, legal heirs often inherit not only assets but also legal obligations.

This means they may be required to honor commitments made by the deceased.

Well-drafted documents therefore provide additional protection for purchasers.

Common Mistakes People Make

Many disputes arise because buyers:

• Rely solely on verbal promises.
• Fail to document payments.
• Ignore legal advice.
• Depend entirely on Powers of Attorney.
• Do not verify ownership.
• Fail to obtain receipts.

These mistakes frequently lead to expensive litigation.

Practical Tips for Property Owners

If you are granting a Power of Attorney:

• Choose a trustworthy person.
• Limit powers where possible.
• Maintain records of all transactions.
• Monitor the attorney’s activities.
• Revoke authority immediately if misuse is suspected.

Practical Tips for Property Buyers

If you are purchasing property:

• Obtain a written agreement.
• Preserve proof of payment.
• Verify ownership documents.
• Confirm registration status.
• Consult a qualified lawyer.
• Conduct due diligence.