PRECAUTIONS TO BE TAKEN IN TRANSACTIONS INVOLVING POWER OF ATTORNEY

The term attorney refers to a person, typically a lawyer, appointed to act for another in business or legal matters. Power of Attorney is a written document providing such “attorney”, (representative) with the power to act on behalf of the principal.

PoA is governed under The Power-of-Attorney Act, 1882 wherein under Section 1A defines “Power-of-Attorney” includes any instrument empowering a specific person to act for and in the name of the person executing it.

It is mandatory to be cautious when a contract or deal is being made with the holder of a PoA rather than the donor himself. Therefore, it is suggested that we take the necessary precautions such as contacting the donor directly by way of e-mail or phone before finally sealing the deal. Further, the PoA deed should be carefully examined wherein, it is mandatory to ensure that there is a paragraph explicitly providing the holder of the PoA the absolute power to execute the required deed.

While indulging in a Power of Attorney it is necessary to observe the following precautions:

1. The signature and the photo of the principal and agent has to be affixed.
2. The PoA is to be duly registered and the stamp duty is to paid in accordance with the Sate Act where the deed is executed.
3. Verify the ownership of the property or asset, i.e. make sure that the principal is the actual owner of the asset.
4. Verify all the clauses of the contract and examine its validity.
5. Ensure that on the date of execution of the PoA the principal is alive.
6. In case of PoA being executed abroad, ensure that it is either notarised or signed before Indian Consulate officials and then duly adjudicated within 120 days from the date of execution of the said POA.
7. its execution being verified by affidavit, statutory declaration or other sufficient evidence, may, with the affidavit or declaration, if any, be deposited in the High Court [or District Court] within the local limits of whose jurisdiction the instrument may be.

The PoA may be revoked if:

1. Death of the donor.
2. Donor’s condition is that of unsoundness of mind.
3. The donor is declared as insolvent.

A very good example of a PoA is the Vakalatnama which provides advocates the right to fight a case on behalf of their clients.

The holder of the PoA is an “agent” as defined under The Indian Contract Act, 1872. Therefore, incase of any default on the side of this agent, the provisions of The Indian Contract Act, 1872 will come into play. A few remedies which are helpful are:

1. In case, the contracting party is unaware that they have signed the agreement with an agent, the contracting party can take action against the debtor. Also, if the debtor later informs about the agent being involved in the contract, the contracting party may refuse to fulfill such contract.
2. In case, the agent has any personal liability due to the contract, the contracting party may sue, the agent or donor or both.
3. Even if the agent, acting as the donor, has done any act without authority, the principal will be liable for such acts if the act done were within the scope of the agent’s authority.
4. In case while exercising the authority provided by the PoA the agent commits any misrepresentation or fraud, the donor will be liable, however, if this act exceeds the scope of authority provided under the PoA the agent, themselves, is liable. 

The stamp duty is firstly mentioned under the Schedule VII Entry 91, Part 1 of The Constitution of India, 1950 wherein, rates of stamp duty in respect of bills of exchange, cheques, promissory notes, bills of lading, letters of credit, policies of insurance, transfer of shares, debentures, proxies and receipts will all come under The Indian Stamp Act, 1899.

The stamp duty payable for a POA is Rs. 500 (Five Hundred Rupees Only). Earlier the stamp duty was Rs. 100 (One Hundred Rupees Only), however, since 24.04.2015, the amount has been increased to Rs. 500 as per The Maharashtra Stamp Act, 1958.

The Supreme Court held that, “a PoA cannot be used as an instrument of transfer in regard to any right, title or interest in any immovable property. Power of attorney is creation of agency whereby grantor authorizes grantee to do acts specified therein, on behalf of grantor, which when executed will be binding on grantor as if done by him.” (Suraj Lamp and Industries Pvt.Ltd. Versus State of Haryana and Another., 2012 AIR(SC) 206 : 2012 (1) All.M.R. 464 :2012 (1) Bom.C.R. 293 :2011 (12) JT 564 :2011 (11) Scale 438 :2012 (1) SCC 656 :2012 (1) WLC 43 : 2011 (6) ALT(SC) 1 : 2011 AIR(SCW) 6385).

Regards,

Adv. (Dr.)Rajkumar S Adukia

International Legal Counsel, Motivational speaker and Growth Coach

Author of 300 plus books, 

B.Com (Hons.), FCA, FCS, FCMA, LL.B, MBA, M.Com, IP, MBF, DipIFRS (UK), DLL&LW, DIPR, Dip in Criminology, Ph.D.

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