Blockchain
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This article is written by Harshita Shah, pursuing a Diploma in Cyber Law, FinTech Regulations and Technology Contracts from LawSikho.

“We have elected to put our money and faith in a mathematical framework that is free of politics and human error”.                                – Tyler Winkelvoss, Rower & Entrepreneur

 

Introduction

Indian Judiciary is currently burdened with a 3 crore cases backlog of which 66%[1] belong to disputes about land and property titles. Due to presumptive ownership of land, one has to go through the property records of 30 years which is an arduous task, and hence due to presumptive nature courts are later flooded with disputes to determine the ownership of property and to protect interests in the property. As per the report of CAG some 1,24,325[2] cases were pending for property registration in 2015. The entire registration process spans three departments i.e., Revenue and mutation Department, Registration Department, and cadastral survey department. The process of acquiring necessary documents from these departments is a cumbersome exercise as officials exhibit corrupt tendencies and records are not updated in uniformity across all the departments. It has been estimated that USD 700 million in bribes are being exchanged at registrar offices across the country and for all these reasons India is ranked 154th in the world Index for ease of doing business.[3]

Digitisation of Land Records

The digitization of land records across all states was proposed and the same was started in 2008, to integrate all the three departments, digitize all the physical records, and synchronize the records. The same is called Digital India Land Records Modernization program. In this article, an attempt is made to explain that digitization of land records on a centralized database will not ensure transparency and will be prone to failures and hence, blockchain as a solution shall be preferred due to its decentralized nature. An attempt is made to explain the problems caused due to the current land records system, explain the use cases of blockchain in countries that had previously physical land records or digitized land records on a centralized database.

Traditional Land Records System

Under the Traditional Land Records system, property registration is a long, tedious, and costly process, and hence, many people undervalue the actual value of property to avoid huge stamp duty.  Any buyer intending to enter into a transaction for the purchase of property has to obtain 7/12 extracts from the office of Record of Rights and verify if the property is free of encumbrances, lien, mortgage, etc. It is the onus of the buyer to establish that the property is free of encumbrances because a bank would not want to pass a loan arrangement for properties whose title is disputed. Usually, a buyer would ask the assistance of any lawyer to verify the property details for the last 30 years. The entire process would take around 10-15 business days and, on average, can cost around 10,000-35, 0000. The sale deed is executed before the sub-registrar in presence of the buyer, seller, and two witnesses, and later for the mutation, a request will have to be made to the city survey.

Problems with the current land records system

1) Presumptive nature of sale deed– Under the prevailing system of land records, the sale deed is a mere proof of transfer and sale of land. It does not determine conclusive ownership of the land. Before executing the sale deed, it is the onus of the buyer to see if the property is free from all encumbrances, lien, mortgage, loans, etc.

2) Poor condition of Record of rights– Record of Rights or is commonly called as 7/12 extract are physically documented and one has to verify the record of rights for the past 30 years before executing sale deed, hence most of the records are not available due to damage to physical records or because many properties are not registered to avoid stamp duty and registration fees. Also, registration of a certain class of property is optional, such as Lease of immovable property not exceeding 1 year, Instrument of partition by a revenue officer, Grant of immovable property by the government, etc. and hence rights acquired on any immovable property under any of the following remains undocumented.

3) Lack of technology intervention to maintain cadastral maps– Spatial land records include details of land boundaries, plot area, water bodies, surrounding areas, and whether the land is situated in a residential area, commercial area, or agricultural area. The maintenance of spatial records is done by the survey officers, which requires intensive manpower, and hence for a decade, many spatial records have not been updated. For example, in the state of Andhra Pradesh, the survey of land records dates back to the 1920s. Only around 2005, the survey of land records was updated and it was found that only about 49%[4] land survey records were in good condition, while the rest of the maps were brittle, faded, or torn. However, recently Director General of Civil Aviation has approved high definition aerial mapping of villages in India using drones[5].  So, it will be interesting to see how this development will ensure that farmers are not cheated with illegal land acquisition[6].

These ineffective maintenances of land records and property titles have given rise to another set of problems which includes–

a) Dead Capital– Hernando De Soto, an economist coined the term dead capital[7] to refer to assets that cannot be easily transacted, valued, or used as collateral for more production. In the context of land, many migrant farmers are not able to secure a loan through the formally established credit channels because of the lack of proper documentation of their agricultural land. Farmers holding less than 1% of hectare land often obtain credits from informal money-lenders who easily exploit them and trade loans at a heavy rate of interest as compared to banks.

Hence, the land as an asset becomes a dead capital to farmers because it is not transacted with formal credit institutions to obtain loans. 

b) Benami Transactions– Unclear land titles and asynchronicity of update in land records across departments has led many to exploit loopholes to trade with their black money. In a Benami transaction, a property is transacted in the name of a fictitious person, and the black money towards the purchase of the property is given by someone else. Hence, the digitization of land records and real-time updates is proposed as a measure to curb Benami transactions.

c) Delay in new ventures– Due to non-digitized, centralized repository of land records, asynchronicity between various departments many new land infrastructure projects are witnessing delays. Many land titles are unclear since registration is not mandatory for all transactions. These unclear land titles make the execution of new projects inefficient. Disputed titles increase the cost of compliances, litigation and are murky to venture into since there is a risk that the transfer of such title can be potentially challenged in the future making investments risky.

d) Loss to the exchequer– Unclear land titles create a scarcity of land, which leads to an increase in the market cost of land, and hence such lands remain unoccupied or unauthorized occupied by slum dwellers in urban cities. These slum dwellers do not pay any tax on property and their livelihood continues to face a lack of basic amenities such as drainage facility, drinking water, electricity, etc. This also results in the loss of taxes and creates inequality in land distribution.

e) Scams– The coal blocks allocation scam is one of the longest in the history where CBI is pursuing investigation till date and since then UPA has been in a bad light. In the Coalgate scam, the government had decided to allocate coal blocks to private companies that were not part of the production plan of PSUs and Singareni Collieries Company Limited. These allocations of coal blocks to private companies were without any merits and bypassed the ordinary procedure of auction where the highest bidder from private sector enterprises of PSUs is given the block for mining coal. The Coalgate scam had resulted in a great loss to the exchequer and had benefited some government officials immensely. Blockchain and smart contracts as a solution can be incorporated to allocate such lands to bidders who qualify the conditions laid down for allocation and it will ensure that the process remains transparent.

Digital Land Records Management Programme (“DLRMP”)

To overcome the challenges faced by the current land records system, the government has proposed the digitization of land records in 2008. The Project was due to be completed in 2016, however, due to the enormous nature of documentation in land records and unclear land titles the program was re-introduced under the Digital India flagship program and is called as Digital India Land Records Modernization program. The program is extended to 2020-21 and an additional 950 crore has been allocated in the 2021 budget[8].

The proposed framework under DLRMP is as follows-

a) Single window for land records– The idea of a single-window is to integrate all the departments under one roof so that there is no asynchronicity. The aim is to eventually move from land revenue collection to facilitate ease of transactions and conclusive title deeds to the buyers rather than presumptive.

b) Integrated mutation entry and conclusive title– After the registration of sale deed with ROR, parties will no longer have to approach the mutation office separately to apply for mutation as the registration of property will automatically follow mutation under DLMRP and by title to sale deed, the buyer acquires conclusive ownership in the property. The government will provide for title insurance which means that the government will guarantee title to the property and provide for any compensation to the titleholder in case of defective title.

Faults in implementation design of DLRMP[9]

The proposed framework under DLRMP can be successful if it is implemented well. However, the implementation of DLRMP faces certain other issues which include-

a) Lack of technical competency and physical infrastructure – digital land records modernization program faces technology infrastructure issues. The program is witnessing a slow pace due to server breakdown, power shortages, power connectivity, etc. Also, there is no good physical infrastructure to maintain all records.

b) Government officials lack understanding as to their role in the digitization of land records, lack of training and orientation has pushed them into a state of indecision.

c) Government employees have shown resistance in adopting the technology, primarily because they fear they will lose the dependency that people had on them. Also, this is a precise reason why institutions fear decentralization. Among other things, departments complain about the lack of finance and lassitude of government officials in motivating subordinates.

Will DLRMP help in curbing corruption?

The purpose of DLRMP, will not be served completely only by bringing the Record of rights department, survey and settlement department, mutation department, and land registration department together. This will create a centralized system but will not ensure transparency. As per the Transparency International India 2019 report[10]It was found that in several government offices citizens continued paying bribery despite the offices being computerized or also had functional CCTVs and the department of property registration and land issues ranked second in the hierarchy of most bribed departments, preceding to the police department and followed by Municipal department. Countries like Georgia and Honduras, are apt examples to convince why the government should think about moving from centralized land databases to blockchain.

A Peep into the Chandigarh based Digital Land Records Modernization Programme

In Chandigarh, the property records have been linked through Aadhar cards and the land registry has collaborated with several stakeholders such as court cases system, loan records, co-operative societies housing boards to provide computerized records of ROR, Survey and settlement records, Land and caste-based certificates, income certificates, domicile certificates, etc. The project is run under the guidance of the Ministry of Rural Development, National Informatics Centre, Chandigarh Administration which includes Nodal Authority that coordinates with all stakeholders and ensures proper implementation through the district. For technology support, Chandigarh has partnered with Infosys for computerization.            

Risk of Cyber Attacks

Aadhar database has been exposed to breaches several times. With a huge amount of private and confidential data, the UIDAI database has experienced security shortcomings several times. UIDAI had blocked about 5000[11] officials from accessing the Aadhar portal. It was reported that the portal was accessed without any authorization. Thus, the model which Chandigarh has adopted of linking Aadhar cards of the property owner with property records, court case management systems, and financial lending and borrowing institutions would severely risk the data to breaches, since government-owned databases have poorly managed to adopt best security practices. Storing all the records in a centralized database will risk the data to unauthorized and mala fide access.  The point of failure in this system can arise when those in charge of centralized depository can become biased favouring and heavily tilted to large businesses and politicians and involve in corrupt practices. Integrating all services with Aadhar can make the system more prone to hacking, and bias the system in favour of the large businesses and politicians, especially when land transactions involve huge stakes.

Case studies of use of blockchain in land records

1) Georgia– Georgia is a small country located between Turkey and Russia. Due to corruption and lack of transparency in land transactions, Georgia ranked at the bottom of Transparency International’s corruption Perception in 2003. However, later in 2013, the Georgia government moved towards centralized digitization of land records and is ranked 48th in Transparency International’s Corruption Perception. After the implementation of Blockchain in 2018, Georgia ranks 4th[12] in ease of registering a property. Georgia had entered into a public-private partnership model to put the existing digitized land records in blockchain and Georgia had registered 1.5 million land titles on their blockchain-based systems.

Before moving into a blockchain-based land records system, Georgia had digitized land records in a centralized system. Through Private companies’ involvement in digitization, and proper education Georgia managed to enter correct, updated, and clear land title records, and later in 2016, Georgia moved to a blockchain-based ecosystem. After successful blockchain implementation, Georgia has experienced a surge in the number of international investors and a curb in corruption.

The rising number of international investors is an indication that investors are more likely to trust a decentralized transparent system, where land registrations are not favoured on basis of bribes, and where the system is less prone to breakdown and crash. Moreover, the blockchain model has brought in different kinds of business and regulatory approaches.

2) Honduras– The state of Honduras lies in the central part of America. Similar to India, Honduras has a manual land registry, later the same was digitized into a centralized database. However, the digitized land records did not include complete factual information. The process of converting physical land titles into digitized land titles was not accurate in the true sense as the land registry failed to bring undocumented land titles on record and establish its veracity of all titles. Even after digitization, the digital land registry was susceptible to duplicate titles, unauthorized changes, and corruption. Hence, the Honduras government came up with the novel idea to use blockchain solutions in the land registry to create a tamper-proof and transparent database. However, the Honduran government failed to implement blockchain solutions for land registries to date due to a lack of political support for the idea.

Stakeholders in new zones of Employment and Economic Development demanded the creation of a blockchain-based land registry for land records in new zones of Employment and Economic Development. Creating new records in the blockchain-based ecosystem right from its inception is easy.

3) Sweden– Sweden government has collaborated with Chroma way (a blockchain firm) to develop a solution to digitize the mapping, cadastral surveys, and land registration and put it into the blockchain-based ecosystem. The proposed Sweden blockchain ecosystem will have participants such as real estate agent, bank, buyer, seller, and Swedish Lantmateriet, which is The Swedish Mapping, Cadastre, and Land Registration Authority. Smart contracts are put into place to ensure that transactions on the blockchain system abide by Swedish regulatory policies. The agreement to purchase property is reduced to a unique hash code and put into the blockchain. Later banks, real estate agents, buyers, and the Lantmateriet can substantiate the veracity of this purchase agreement and other documents through their unique digital signature (hash on the blockchain).

Analysis- Thus, from the Honduras Centralized database model, it can be inferred that records in a centralized database can be susceptible to duplicate titles, unauthorized changes, and corruption. And as seen in the Georgia model of a centralized database, strong public-private partnership, education, and awareness about sophisticated IT infrastructure lead to accurate titles in the database and increases the pace of digitization. Currently, India needs to learn the same from the Georgia model. In Georgia now it takes 1 day and 1 legal procedure to register a property. While in Honduras which maintains digital land records in a centralized database, it takes 29 days and 6 procedures to register a property[13]. Similarly having effective regulatory policies in place (for e.g.in Sweden), will ensure that these sophisticated systems operate as per the public policy of a nation.

Nonetheless, some states in India, such as Andhra Pradesh have rolled out a strategy to effectively use blockchain in land records.  Using APIs, the blockchain start-up was able to integrate the digitized land records on the state`s database and put them into a blockchain prototype.

Benefits of Blockchain

1) Immutability– Immutability simply means the inability to be changed. As we have seen from the statistics in the above sub-headings to the article, it can be inferred that a centralized database is easy to manipulate. In a blockchain, data is secured using cryptography where the entire data in a block is reduced to a hash. The reduced hash is a combination of data in the new block and the hash of the previous block. Thus, if anyone tries to tamper with the data in a block, they will have to tamper with the hashes of each block which is not possible. Hence blockchain records are immutable.

2) Distributed ledger technology– Blockchain runs on Distributed Ledger technology and in DLT, nodes add a new block to the chain only if the majority of the nodes consent to it. So, when a new block has to be added to the chain, the nodes will verify if the transaction is proper, using the hash of the previous block and generate a new hash, and then add the block to the chain. Thus, nodes a new block only with the consensus of all nodes.

3) Decentralized– In the blockchain, there are no centralized servers that transmit the information requested and act as storage. In the blockchain ecosystem, there are nodes (network of computers) that store copies of records. So if a piece of information stored with a particular node has to tamper, all other nodes will reject the same, and also, the consensus mechanism and cryptography function will practically render it impossible for anyone to change the information. 

4) Use of Smart contracts– Smart Contracts are self-executable contracts. In a blockchain system, land registry, banks, buyers and sellers can mutually decide the terms and conditions of a smart contract and put it into a blockchain platform. Due to the immutable nature of the blockchain platform, no one will be able to change the conditions put into the smart contract, and this will ensure trust in the execution of the contract and deliverables that follow through it. In land records blockchain some rules and procedures will be needed that govern the transactions regarding property on blockchain and hence smart contracts will help in doing so. The land registry can put certain conditions such as “only after payment of stamp duty” the title in the property should be transferred to the buyer. Banks can then put similar conditions for meeting the standards of loan on the purchase of property or releasing of funds from the account of the buyer. Thus, it will ensure that the necessary consequence flows automatically and simultaneously upon the meeting of certain conditions without the land records registration department needing to register the title at their end and then reflect it in land records.

Italy has already introduced a legal framework for smart contracts and Distributed Ledger technology. Under Italy’s Law No. 12 of 11 February 2019 smart contracts are defined as “computer programs operating on DLTs whose execution is automatically binding for two or more parties based on effects predefined thereby.

Need of legal framework for Blockchain

1) Certifying Authority for Digital Signature

Under the present Information Technology act, section 35 of the IT Act, a digital signature has to be certified by the certifying authority and the certifying authority is prescribed by the government. In a Blockchain system, the nodes arrive at a consensus to validate any entry or transaction and to add it to a block. This is called proof-of-work. Each participant in the ecosystem has its private key and the signature is generated using the private key that is only known to the owner, so basically there is no certifying authority for digital signature in blockchain and the consensus algorithm themselves verifies if the cryptographic signature belongs to the rightful owner.

The current IT act is modelled considering the centralized nature of servers that acts as an intermediary. Hence, it is much needed to understand the decentralized nature of blockchain, where data is stored across the nodes, and prepare a framework accordingly.

2) Personal Data Protection Bill, 2019

The current Data Protection bill is modelled to prevent depositories of trust that collect, store and process personal, sensitive, and critical data of data subjects to maintain the privacy of users i.e. data subject and to give data subjects greater right in determining what data should be shared, erased, deleted, etc. The current data protection bill puts the onus on data fiduciaries to take consent from data subjects and inform the purpose and manner of processing data before storing and processing their data. However, in blockchain, data will not be stored by a single controller, e.g. land registry in the present context, and hence the current data protection bill needs to consider this development and model the law accordingly, since deleting a record of data or making any correction to the same will not be possible in the blockchain.

Also, for land records, it is important to opt for a public blockchain or hybrid blockchain network so that anyone interested in seeing the details of a property can sign in on a blockchain platform to become an authorized node and become part of the network. Even considering if the classification under the existing bill is used to determine data that can be made public and that has to be kept confidential since there is no single controller in blockchain, the framework will have to be prepared to attain the objective and determine liability in case of failure.

3) Registration Act

Under the Indian registration act, for all the documents mentioned in section 17(1)(a), (b), (c), (d), (e) has to be presented for registration in the office of a Sub-Registrar within whose sub-district the property is situated. In the blockchain, smart contracts can automatically carry out the consequences of meeting an agreed condition. Thus, buyers of property will automatically get the title to their name once the set of conditions as laid in the smart contracts are satisfied and the same will be automatically recorded with the registry. Thus, the title deed on the blockchain is a digital asset for the buyer as ownership for the property. The registration act currently does not recognize the validity of digitally generated titles. 

Conclusion

The effectiveness of the Digital Land Records Modernization program will depend on the effectiveness and accuracy of data. Primarily, to put existing records on the blockchain, digitization will be much needed, and hence the accuracy of records matters more. States such as Rajasthan and Maharashtra have put forward a framework for conclusive titles as against the presumptive titles. In these states, the government will provide compensation to the title holder in case there is any default in the title. This will help to accelerate the process of digitization and experiment with blockchain using APIs that will connect with state land registry. Hence, it is imperative that all states move towards conclusive land titling. It can be manifested that the government wants to shift away from the zamindari system and facilitate ease of property transactions, this will require trust in the system which can be ensured through use of blockchain.

Also, under the seventh schedule to the Indian constitution, land registration and land records have been put in the State list under entry 18, hence each state has its laws for land registration. There is a need to reduce these vast differences in land laws across states for effective penetration of blockchain technology as the uniformity in land laws will make India a favorable market for blockchain lobbyists, developers, and other interested parties.

References

[1] Daksh, What kind of cases are litigants filling? https://dakshindia.org/access-to-justice-survey-results/index.html#

[2] Securing Property Rights in India through Distributed Ledger Technology, Observer Research Foundation, Occasional Paper, 2017

[3] https://taxguru.in/corporate-law/ease-business-registering-property.html

[4] Constraints in land records computerization, Hari Charan Behra, https://www.epw.in/journal/2009/25/commentary/constraints-land-record-computerisation.html

[5] Survey of India gets permission to use drones in villages https://www.geospatialworld.net/news/survey-of-india-gets-permission-to-use-drones-in-villages/#:~:text=The%20objective%20of%20the%20scheme,by%20drones%20by%20Dec%202020

[6] What is Robert Vadra case https://www.business-standard.com/about/what-is-robert-vadra-case

[7] The Mystery of Capital, Hernando de Soto, https://www.imf.org/external/pubs/ft/fandd/2001/03/desoto.htm

[8] Budget 2021-22: Status of the Digital India Land Records Modernization Programme https://rural.nic.in/press-release/budget-2021-22-status-digital-india-land-records-modernization-programme

[9] Innovation in Public Sector: A Study of Land Record Modernization Programme in India Dr. Ashish Sharma and Mir Shahid Satar, International Journal of Management Studies, Vol.–V, Issue –3(3), July 2018, ISSN (Online) – 2231-2528

[10] India Corruption Survey 2019 report, Transparency International India https://transparencyindia.org/wp-content/uploads/2019/11/India-Corruption-Survey-2019.pdf

[11] https://www.firstpost.com/tech/news-analysis/aadhaar-security-breaches-here-are-the-major-untoward-incidents-that-have-happened-with-aadhaar-and-what-was-actually-affected-4300349.html

[12] Digital Transformation: Blockchain and Land Titles, Georg Eder Vienna International Development Network https://www.oecd.org/corruption/integrity-forum/academic-papers/Georg%20Eder-%20Blockchain%20-%20Ghana_verified.pdf

[13] ibid

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