Dated 1st September, 2020
Introduction
Sometimes, an individual possessing properties, bank accounts, etc. may become incapacitated to perform any transaction due to several reasons such as illness, being abroad, etc. It is a well-known fact that the ability to solve numerical questions as well as to manage financial affairs are the first skills to fade away as individuals age. In such situations, the only way to give effect to such transactions is to give the power to another person to act on behalf of the individual unable to physically present himself. This practice of giving authority to any third person to carry out several transactions is known as Power of Attorney (POA). It is regulated by the Power of Attorney Act, 1882, and other relevant laws in India.
Power of Attorney may be both oral or in writing depending upon the type of authority granted. However, as a matter of general practice, it is usually in the form of a written document as the same is preferred by several institutions.
The Meaning of Power of Attorney
According to Section 1A of The Powers-of-Attorney Act, 1882 –
“Power-of-Attorney” includes any instrument empowering a specified person to act for and in the name of the person executing it.
Power of Attorney is a legal document by which an individual who is unable to perform any transaction gives the right to another person to transact on his behalf. These transactions may relate to matters pertaining to banking, judicial proceedings, tax payments etc.
Principal/Grantor – The person who grants the authority to the other person to act on his behalf is known as the Principal or Grantor.
Attorney/Agent – The person to whom the authority to act is granted is known as the Attorney or Agent.
Thus, the Power of Attorney is a legal instrument authorizing the Agent to act on behalf of the Principal.
When Can It Be Used?
There could be several reasons due to which a person becomes incapacitated to perform his own duties. However, the most common reasons that compel an individual to execute POA are as follows:
- Residing abroad and unable to physically present oneself
- Illness or bedridden
- Old age or senior citizens with extreme health problems.
- Any other reason for making a person unfit to transact or perform his duties.
Types of Power of Attorney
The various types of POA are as follows:
- General Power of Attorney – It is the general authority or power given to the Agent to act on behalf of the Principal. The term “GENERAL” states that the authority given is general and not specific in nature. It grants the Agent wide powers including handling business affairs and financial transactions, tax payments, registration matters, buying life insurance, making gifts, settling claims, etc.
- Special Power of Attorney – It is the authority or power given to the Agent to perform a specific task or act on behalf of the Principal. The Agent, herein, is allowed to perform only those functions limited to a certain specified area. Once the specifies task is complete, Special Power of Attorney ceases to exist.
- Durable Power of Attorney – Usually the Agent becomes unauthorized to perform any task assigned to him by the Principal if the Principal becomes mentally incapacitated. But if there is any clause mentioned in the legal document stating that the Power of Attorney would remain intact in the future even if the Principal becomes mentally incapacitated then it is known as Durable Power of Attorney.
Duration of Power of Attorney
A Power of Attorney does not cease to exist unless it is expressly revoked or determined by the death of either the Principal or the Agent. Moreover, it also depends upon the type of power granted to the Attorney, say, there may be a fixed time given by the Principal to the Agent to perform a specific task.
Two or More Power of Attorney Holders
The legal document of Power of Attorney may be executed by two or more persons jointly in favor of two or more persons. However, there must be a clause specifically stating all the Attorneys to either function separately or jointly.
The Indian Contracts Act vis-à-vis the Power of Attorney
- Revocable Power of Attorney
Generally, the Principal has the right to revoke or terminate the Power of Attorney at his own will. However, Section 201 of the Indian Contract Act, 1872 lays down certain conditions for revocation which are as follows-
- When the Principal revokes the authority given to the Agent.
- When the Agent renounces the business of the Agency.
- When the purpose for which the power was granted gets completed.
- When either the Principal or the Agent dies, becomes of unsound mind, or is/are adjudicated insolvent by the court. [i]
Power of Attorney may also be revoked when the purpose for which the Authority has been granted is time-barred on the expiration of the term or when there is an implied condition of revocation of Power of Attorney.
2. Irrevocable Power of Attorney
Irrevocable Power of Attorney is the one which cannot be terminated at the will of the Principal. The legal document of Power of Attorney may contain a clause affirming that the authority is irrevocable. However, a Power of Attorney shall not be deemed to be irrevocable merely on the basis of the presence of such clause in the legal document and the authority in such a case may be revoked through the procedure established by law.
In the case of revocation of irrevocable Power of Attorney, the principal needs to issue a public notice through local newspapers without which the revocation shall stand void.
However, there are certain exceptions wherein the Principal cannot revoke the POA. These are: [ii]
- Section 202 of the Indian Contract Act, 1872 – Where the agent has himself an interest in the property which forms the subject-matter of the agency, the agency cannot, in the absence of an express contract, be terminated to the prejudice of such interest.
- Section 204 of the Indian Contract Act, 1872 – The principal cannot revoke the authority given to his agent after the authority has been partly exercised, so far as regards such acts and obligations as arise from acts already done in the agency.
Consequences Or Risks Associated With Execution Of a Power Of Attorney
Although POA is a very useful instrument in the hands of a person who is incapacitated to perform his own duties on one hand but on the other hand the same does not come risk-free.
- Vulnerable to Abuse – In the case of a General POA, a wide range of power is granted to the Attorney relating to payments, managing finances, decision-making, etc. The Agent may change his mind once the POA is executed and start acting in a manner which is deteriorating to the interests of the Principal.
- No direct control over the Agent- When a POA says in respect to a property is executed, the Agent is granted the same power as the Principal has regarding that property. In such a case the Principal has no direct control over the Agent and with this, the odds of committing fraud and crimes stand increased.
- Information of revocation is a must – Once the Agency is terminated, the Agent is no longer entitled to function on behalf of the Principal. In this case, it becomes indispensable to inform every third party about the revocation to prevent any misuse of power by the Attorney.
- If any fraud or misrepresentation committed by the Agent falls within the limits of the authority provided to him, the principal shall be held liable, however, if it falls outside the limits of the authority granted by the Power of Attorney, he shall be held solely liable for such fraud/misrepresentation. The principal is not liable for any act by the agent which exceeds the authority granted to him.[iii]
Conclusion
Power of Attorney, indeed, is a fundamental legal document allowing a person to facilitate his transactions without even being physically present for the same by granting the authority to another person to act on his behalf. But at the same time, it paves a smooth way in for the Agents to the bank accounts, properties, etc. of the Principal along with having authority to make decisions that might substantially affect the interests of the Principal. Therefore, in order to prevent the Agent to make decisions that are detrimental to the interests of the Principal, the Principal is vested with the right to terminate the agency subject to certain exceptions. Usually, POA is granted by the Principal to the person he has the utmost faith in so as to avoid the consequences associated or to prevent the misuse of the power.
[i] Section 201 of the Indian Contract Act, 1872
[ii] Section 202 and 204 of the Indian Contract Act, 1872
[iii] Section 227 of the Indian Contract Act, 1872
Article by Ms. Purvi Devpura under internship of Adv Shankarlal Raheja
The Views herein are personal and while careful attention has been given to ensure that the information is accurate and assume no liability or responsibility for any reliance thereon. This article is merely information and knowledge sharing activity and is not a substitute to legal advice. We shall not be liable for any loss or damage caused due to any reliance thereof