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When to allow someone to act on your behalf

Specify the task for the person and insist on getting copies of all documents she/he signs

Priya Nair 

In the film Baazigar, Shah Rukh Khan played a man out to avenge the death of his father. The father, a rich businessman, had executed a power of attorney (PoA) in the name of one of his employees, who later used the PoA to take charge of the business, leaving the original owner and his family with nothing.

Such examples abound, in real life, too.

A PoA is an agreement by which one can authorise another individual to carry out certain tasks on her/his behalf. It can be used to buy, sell or rent property; carry out financial transactions such as operating bank accounts, receiving payments, making investments, etc. However, if not executed carefully, it can be misused, and the only way out could be a long-drawn court battle.

  • Avoid a general power of attorney (PoA) unless it is in the name of close family member or someone you trust
  • Give a specific PoA with details of what the attorney can do and what documents she/he can sign on your behalf
  • Set a validity period for the PoA, after which it will be automatically revoked
  • Get PoA registered
  • Though it isn’t mandatory, get the PoA vetted by a lawyer

A PoA can be executed in the name of family members, friends, or real estate and stock brokers. Sometimes, promoters of companies do it in the names of employees. The person giving the PoA is called the donor or grantor, while the one to whom it is given is called the attorney. The PoA can be between two parties in the same city, different cities or different countries.

Matters relating to powers of attorney are regulated by the Powers of Attorney Act.

Mumbai-based lawyer Rizwan Siddique says most people executing a PoA do not understand it. "There have been cases in which a PoA is given to sell property, and the buyer issues the cheque in favour of the attorney, instead of the property owner," he says.

"They do not understand that a PoA is not a transfer of title document in itself, but only gives limited power to the holder to deal with the property in the name of the donor. Any misuse of the PoA or collection of any money in the personal name of the attorney shall not only make the attorney liable for criminal prosecution, but also the said transaction shall be deemed illegal and invalid," he says.

Or there are cases where high networth individuals give PoA to brokers to carry out equity trading on their behalf. But if the broker trades recklessly then the client could end up losing lot of money. So, clients need to regularly keep track of their investments and check with the brokers if they suspect something.

Then there are instances in which the person granting the power revokes it, but the attorney continues to use the power, says Anil Harish, a lawyer at D M Harish and Company Associates. At times, an attorney simply signs a document without attending to the details, which creates problems for the donor. "Sometimes, an employee might use the power by contracting on behalf of the employer. Often, we see notices in newspapers to the effect that an employee has left an organisation and the employer states he/she will not ratify the acts of the employee," Harish says.

Types of PoA
There are two types of PoA - general and specific. A general PoA is one that gives an attorney the authority to do multiple things. For instance, if one is going abroad on an assignment, one can give a PoA in the name of his/her father, authorising him to operate a bank account, collect rent, etc.

A specific PoA is for specific purposes and should mention all details of the task to be carried out. For instance, assume you are planning to buy a house and the deal will fall through if the payment isn't made within 20-25 days. In such a case, if you have to go out of town, you can give a specific PoA to your broker, authorising him/her to carry out the transaction on your behalf. This PoA will mention all details such as the property name, the price at which the deal will be transacted, the seller's name, the period by when the deal will be completed, the person in whose name the cheques should be issued, etc. Also, one must mention the documents the attorney can sign on your behalf.

Some other conditions that the PoA should ideally include are the time period by when the specific transaction (for which the PoA is being given) should be complete and the region or geographical area within which the PoA is valid.

"It is better to give a specific PoA to persons other than family members. This will ensure it is not misused. Give a general PoA only when you trust the person," says Rajmohan Krishnan, co-founder and managing director, Entrust Family Office Investment Advisors.

It is important for a person who receives a PoA to keep a copy of every document she/he signs under the PoA. This way, one can produce it whenever necessary to show he/she hasn't violated the terms of the power, says Harish.

How to register a PoA

A PoA has to be executed on stamp paper. In Maharashtra, Article 48 of Schedule I to the Maharashtra Stamp Act provides for the stamp duty on a PoA - in some cases, the duty is Rs 100; for others, it is Rs 500. If the PoA relates to the sale of immovable property and is given to someone other than a close relative (such as broker or a friend), the stamp duty will be about five per cent of the property's worth.

A PoA might be notarised or registered. If it relates to immovable property, it must be registered; if it pertains to movable property, notarisation will suffice. In such cases, an advocate will have to identify the person giving the PoA.

Also, if a PoA is registered, it must have a witness. Typically, a witness should be a third party, not someone related to either the grantor or the attorney.

Cancelling a PoA
If a PoA is notarised, you can cancel it by crossing the deed, akin to cancelling a cheque. However, if it is registered, you have to revoke the deed and publish advertisements in this regard in one or two newspapers (preferably English and regional-language ones) that are circulated in the city in which the attorney resides. Following this, the deed is automatically revoked.

In case an attorney misuses a PoA and causes damage to a grantor, there is no other option for the grantor but to move court. Also, the grantor will have to register the revocation, which will involve a particular fee.

Sometimes, power is given to a sub-delegate, that is, the attorney can appoint another attorney. However, in such cases, the donor might lose control and not be aware of who the power has been sub-delegated to. Therefore, donors can include a clause stating the attorney must give a copy of every document signed by him/her to the donor soon after a document has been signed, says Harish.

Typically, a PoA expires when a donor or attorney dies. "If the donor dies, the attorney might not be aware of this and might continue to use the PoA. Or, the attorney could continue to use the PoA, despite knowing the donor has passed away," Harish says.

Legal sanctity
A PoA has legal sanctity, but it can be contested in court. Nowadays, there are safeguards in a PoA - in addition to the signature, the photograph and thumb impression have to be affixed. "But despite this, a person might use the PoA for wrong purposes or sell property or an asset for a lower consideration than he ought to," says Harish.

In such a case, the affected party might move court against either the PoA or its use. Someone who loses by virtue of the use of the power can also contest it. If the PoA is used despite the fact that the donor has revoked it, the donor can contest the validity and use of the power.

First Published: Sun, May 25 2014. 22:30 IST