Important Things to Know About a Power Of Attorney (POA)



Important Things to Know About a Power Of Attorney (POA)

Introduction:

Let’s accept the fact that we (the humans) live in a symbiosis and our existence is contingent upon other’s lives. Even the well-heeled require the help and support of others to sustain their eminence and prosperity. Hence, as humans get wrapped up with loads of responsibilities, there is an increased tendency of dependency on others to get things done and it is in this very actuality, that the concept of ‘Power of Attorney’ finds its roots. POAs have gradually gained importance around the globe and that being the case it is very necessary to latch onto its essentials as being a widely read term, it actually gives rise to a great amount of confusion and ambiguity in the common man’s head.

So, what is a ‘Power of Attorney’?

Fundamentally, a Power of Attorney is an instrument (a legal document) by which a person, in case of his inability to take actions, empowers and hands over authority over a specified matter to another person to act on his behalf and make crucial decisions with regards to it.

The authority can be given to agree to charge or pay any interest other considerations for any kind of loans from time to time, to remit, reduce or settle any claim of money related issues, to draw, execute, negotiate or receive payment of any promissory note, bond or undertaking or simply any management issues.

Who are the involved parties?

The person who grants such an authority is known as the principal or the executor and the person upon whom the power and control is entrusted becomes the agent or the attorney-in-fact and such a person who gets the authority is not necessarily an attorney but a trusted individual (family member, employ, acquaintance etc.) of the principal, giving rise to a fiduciary relationship between the principal and the agent.

How is it different from a WILL?

One might take a power of attorney or plainly mistake it for a ‘will’. But a will comes in operation after the death of a person and a power of attorney functions during the lifetime of an individual and gets terminated on the day that the individual dies or becomes mentally incapacitated.

What is the nature of a Power of Attorney?

Since a Power of Attorney requires a principal and an agent, who must be competent to enter into a contract, it is contractual in nature. It confers all the obligations of a principal and an agent upon the parties, the only difference being that the powers of the agent are restricted by the Power of Attorney.

What is its scope?

A Power of Attorney includes only those activities which are authorized by the principal to the agent by the Power of Attorney and nothing else.

For how long does a Power of Attorney remain in action?

A Power of Attorney remains functional until and unless it is explicitly revoked by the principal and the death or subsequent mental incapacity of either of the parties to it. Generally, a specific power of attorney ends at the completion of its stated undertaking which is termed as the duration of Power of Attorney.

Who all are eligible/ competent to execute a Power of Attorney?

Due to its contractual nature, any person who is competent to enter into a contract can execute a Power of Attorney i.e. a major who is not of unsound mind. This is only applicable to the principal. The agent may be a minor. For example, a parent can execute a Power of Attorney in the name of his minor and major children both, depending upon their abilities and availability, with regards to the authorized job, by giving them defined and limited powers, which may include managing everyday expenses of the family, running a small family business or receiving income from and paying expenses on real estate, controlling a financial portfolio, managing insurance and annuity accounts.

Also, Sections 5 of the Power of Attorney Act, 1882 specifically mentions that a married woman may execute a Power of Attorney to get her things done in the same position as if she had been unmarried.

What if there are multiple agents?

It is possible that a principal executes a Power of Attorney in the name of two or more agents. In that case, their powers may be defined to be either several or joint regarding the matter in concern. Such a power of attorney helps in the continuity of the authorized job, even if an agent is absent. But the biggest problem with such POA agreements is that when a dispute arises among agents, the aspired objectives of the POA may not be achieved.

What are the kinds of Power of Attorney?

On the basis of the nature of the objective, the following are the types of Power of Attorney:

General Power of Attorney:

As the name suggests, it enables the principal to authorize the agent to perform certain general acts on his behalf. Here, the term ‘general’ refers to the matters in hand – any and all, as allowed by the principal - and not the power with regards to them, or else it could be simply misused.

For example, ‘A’, the principal authorizes ‘B’, the agent, to manage his bank accounts, buy and sell property, clear debts and take rents. Here, it is essential to notice that no specific jobs are given to the agent, but a number of general tasks.

Specific Power of Attorney:

When an agent is authorized to execute a particularly determined work, it is named as the Specific Power of Attorney. For example, ‘A’, the principal, authorizes ‘B’, the agent, to only look into the affairs of the sale of his land. Here, the agent has the powers to manage only one specified matter. Due to its restrictive nature, it is also known as ‘Limited Power of Attorney’.

Now, reasoning strikes the human brain that as a consequence of the principal-agent relationship, the vested authority should terminate as soon as the principal dies or becomes mentally incapacitated. What next then? Wouldn’t this leave the agent in a pendulum-like situation and raise the question of the validity of the ongoing procedures related to the authority given to the agent?

Here, the Durable Power of Attorney comes into the picture.

Durable Power of Attorney:

According to its name, this Power of Attorney is durable, i.e. it holds validity even after the death or subsequent mental incapacity of the principal, which is essentially mentioned in the deed in explicit terms.

People generally execute a Durable Power of Attorney for healthcare in the name of the healthcare agent to make necessary healthcare decisions for him in case of his own inability to make decisions for himself. This is different from a ‘living will’, which is only functional in conditions like terminal illness and permanent unconsciousness.

However, when need arises the two can be combined into a single document, which is not preferable.

What is the legal validity of a Power of Attorney in India?

A Power of Attorney executed in India derives its legality under the Power of Attorney Act, 1882 and the Indian Evidence Act, 1872.

The Power of Attorney Act was enacted on 24th February 1882 and it came into force on the 1st of May, 1882. It applies to the whole of India, except the state of Jammu and Kashmir and aims to amend and consolidate laws related to Power of Attorney in India.

Section 2 of the Act defines the term Power of Attorney as “any instruments empowering a specified person to act for and in the name of the person executing it” and upholds and approves the acts done by the bearer of the Power of Attorney. It asserts that “the donee of a power of attorney may, if he thinks fit, execute any instrument or thing…with his own name and signature…and every instrument and thing so executed and done, shall be as effectual in law as if it had been executed or done…with the signature and seal of the donor thereof.” This applies to all the Power of Attorneys created before and after the commencement of the Act.

Now, what is ‘authentication of a Power of Attorney’?

A Power of Attorney, in accordance with the Indian law, is a legal document with properly postulated duties and responsibilities to be taken up by its holder. To get it authenticated, it is necessary to get it notarized by an authorized notary advocate.

Moreover, it needs to be registered by the registrar or sub-registrar of the area under the Registration Act, 1908, by the principal, where the seal and signature of the registrar is affixed to every sheet of the deed. In case the principal is unable to attend the office of his registering authority, his Power of Attorney gets attested and not authenticated. The registrar, then, himself examines the principal’s details.

Is registration necessary?

In India, registration of Power of Attorney is optional. However, the Supreme Court has recently ruled that if it creates any interest in an immovable property, it must be registered.

What are the documents that need to be verified?

Section 4 of the Power of Attorney Act, 1882 mentions the original documents and their copies that are to be submitted before a magistrate in the respective High Courts or District Courts. After proper authentication, it is necessary that an affidavit be made of the Power of Attorney and submitted before the Court to further maintain its validity.

Are witnesses and their signature necessary to execute a Power of Attorney?

According to Section 85 of the Indian Evidence Act, 1872, witness’s signature is not necessary. The presumption as to Power of Attorney is such that “the Court shall presume that every document purporting to be a power of attorney, and to have been executed before, and authenticated by a notary public, or any Court, Judge, magistrate…was so executed and authenticated”. This means that nothing else is more necessary for a Power of Attorney than to be executed before a notary or a magistrate.

Stamp Duty:

This is another vital concept.

Stamp duty, is basically a government tax that is levied on legal documents. In accordance with Indian law, stamp duty is necessarily payable on Power of Attorney, under Section 48 of Schedule 1 of the Indian Stamp Act, 1899.

How is the revocation of Power of Attorney done?

On the basis of the powers authorized by the POA agreement, a Power of Attorney is of two types – Revocable and Irrevocable.

Revocable Power of Attorney:

With a revocable Power of Attorney, the given powers can be revoked (officially cancelled) by a competent person, at any time throughout its duration, according to his will, in accordance with Sections 201 and 202 of the Indian Contract Act, 1872.

Irrevocable Power of Attorney:

By an irrevocable Power of Attorney, the principal gives up his powers to revoke the conferred authority and it must be specifically indicated or mentioned in the POA deed. However, where the clause of the deed reads that the power of attorney is irrevocable, it may still be revoked by either party, in accordance with the procedure established by law. Such a power of attorney is rarely used and is limited to few purposes such as proxy voting involved in transactions of generally traded stock to give assurance of the effectivity of delegated powers to the agent in front of other traders.

Conclusion:

Hence, to keep things smoothly running, one must keep the above essentials in mind while opting for a Power of Attorney because no matter how pleasing it may be, there is always a risk of abuse of the authority by its holders. After all, a great man has aptly quoted – “Precaution is better than cure.”

 

Contract
Indian Contract Act 1872
Indian Evidence Act
Indian Stamp Act 1899
Power of Attorney
Power of Attorney Act 1882
Registration Act 1908
Stamp Duty
Will

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