What is Power of Attorney in India, Importance and Types

Remember Baazigar, the famous Bollywood movie which gave the industry one of the finest talents in the name of “The King Khan”?  Shah Rukh Khan was at his best in acting, but there was one term around which the movie revolved and that was Power of Attorney which turned to be rags to riches story for Dilip Tihlani and vice versa. Here, we won’t get into the analysis of the movie but discuss what is Power of Attorney and what role it plays in the business world.

Introduction

Business is no longer confined to a particular geographical area and time zone and one person cannot be present across the boards. Thus to fill in space and ensure that there is no hindrance in the flow of business activities, someone else is given the power to act as your legal representative and the document which legalises this is called Power of Attorney.

What is Power of Attorney?

Power of Attorney Act 1882 was passed on 24th Feb 1882 and it came into force on 1st May 1882. This Act lays down the framework which defines the rules, responsibilities and duties of the attorney and the principal. Power of Attorney is a legal document that authorizes a person to act as your legal representative in the business and legal world. This principal-agent relationship has to be carefully defined to avoid any sort of legal hassles in future. Once the Power of Attorney is signed by the donor or the principal, it gives the right to the agent or donor to take financial decisions on behalf of the principal. Thus, when the principal cannot be present because of illness, disability, age, or any other reason like he/she is residing abroad and is impossible to be present for the task, then authority is assigned to a second person through Power of Attorney to go ahead and take the deal forward.

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What is the importance of Power of Attorney?

Power of Attorney is like the principal’s proxy. Human beings cannot be omnipresent. But that doesn’t mean that they cannot enter into business transactions across the oceans. Power of Attorney gives the agent the right to sign the legal documents on behalf of the principal when the latter cannot be present. But Power of Attorney shouldn’t be confused with a Will because Will comes into effect when the person dies and Power of Attorney ceases to be effective in such a situation.

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What are the types of Power of Attorney?

Though The Power of Attorney Act 1882 has laid down the basic principles of the document, yet the Agency Law as mentioned in the Indian Contract Act governs this document. The classification is as under:

1) General Power of Attorney: When the principal authorizes the agent for taking forth general acts on his/her behalf, the Power of Attorney is said to be general. General Power of Attorney can be used to:

• Execute deeds, contracts, cheques, drafts, mortgages and bonds on behalf of the principal.
• Compromise and settle all the legal matters related to real estate.
• Collect rents, lease, mortgage, bargain or sell any property.
• Sell stocks, bonds and different securities.
• Sign income tax returns, insurance forms and other IT documents.
• Make health care decisions for donor and his/her minor children.
• Sue anyone on behalf of the principal.

2) Special Power of Attorney: In case a person is appointed by the principal for some specific tasks, then it falls under the category of Special Power of Attorney.

3) Durable Power of Attorney: In case the Power of Attorney clearly mentions that the power of the agent ceases to exist in the event of the principal becoming incapacitated to act or becomes incapable to act in future, then such a document is called durable Power of Attorney.

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What are the points to be considered while framing Power of Attorney?

• A person who is competent to enter into a contract can execute Power of Attorney.
• If the Power of Attorney hasn’t been executed, it doesn’t hold any value.
• Power of Attorney has to be notarized so that the mental soundness of the principal can be confirmed at the time of making the document. The Registration Act 1908 lays down the rules for the registration of the Power of Attorney.
• Power of Attorney must be written in a language that is understood by the donor. If the donor is illiterate, then an identifier needs to explain the contents of the document in a language that the donor understands and after this, the donor has to put his/her thumb impression of the aforesaid document. The administrative officer takes the oath from the donor once this is done and a sign or seal is put after the documents are verified.
• Power of Attorney will become valid once the court registers the document after signing and sealing it.
• Two or more persons can execute Power of Attorney in favour of one or more persons. In such a case, an authorization letter has to be given which clearly states that whether the attorneys need to act jointly or separately.
• The principal has the power to revoke the Power of Attorney at any given time. The circumstances of revocation can be:

• The principal becomes insane or mentally unstable
• Death of the principal
• The purpose for which the Power of Attorney was made has been fulfilled.

• A company must adhere to the Articles of Association while executing Power of Attorney and it must have the “Company Seal”.

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What is the use of GPA (General Power of Attorney) in real estate transactions?

GPA is a common route used in property transactions when the owner cannot be present and an Attorney is assigned to make the deals happen. However, it must be noticed that transferring the property through GPA is not valid. Despite this, many homebuyers purchase the property through GPA because sellers are in dire need to sell and buyers find this route attractive. But reading between the lines and ensuring that the deal doesn’t hamper their interest is important. GPA needs to be registered with the registrar to become legal. But that doesn’t mean that a registered GPA has the right to sell the property on behalf of the owner. Supreme Court of India has invalidated any such sale. Apart from selling the property, the GPA holder can carry out all other tasks as mentioned in the document. This method gave the sellers an umbrella to sell the property even when the title wasn’t clear and the buyers couldn’t resist the lucrative offers on such properties. But this is an illegal way of investing black money and thus, has ceased to be effective with the changing laws. The Supreme Court verdict in 2011 explicitly states that GPA is not an instrument to transfer the right, title and interest of immovable property.

Thus Power of Attorney is the document that vests the power in the Attorney to carry out the transactions which have been mentioned in the document on behalf of the principal. If the donor misuses his/her power he/she shall be liable to the donor.

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