If you have watched shows like “Suits” or “How to get away with murder” or other similar shows, you must have come across the term “Power of Attorney”. A common man’s understanding of power of attorney is different from its legal sense. So, what is Power of Attorney?
The definition of power of attorney lies in the “The powers of Attorney Act, 1882”. According to section 1A of the act, “Powers-of-Attorney” include any instrument empowering a specified person to act for and in the name of the person executing it. This means, a legal document which gives a person the power or legal authority to act for another person as their representative for banking, legal, financial investment, business and other purposes. Even though there is a separate central act pertaining to powers of attorney, the basic principles of such documents are governed by the various sections of the Indian Contract Act, 1872.
What is the need of Power of Attorney?
Sometimes it becomes almost impossible for a person to look after all its legal and business affairs; That can be a result of old age, poor health, lack of expertise or any other reason. This is when power of attorney comes to picture. It allows you to authorise a person to carry out either a particular act or all acts connected with your trade, business, employment etc. It acts as a helping tool for a person who is incapable of performing those acts due to above mentioned reasons.
Why Power of Attorney is dangerous if not given thoughtfully?
Power of Attorney include any instrument empowering a specified person to act for in the name of the person executing it. The concept of Power of Attorney is based on the legal maxim “Qui facit per alium facit per se” which means, he who acts through another does the act himself. It is no doubt that Power of Attorney is an extremely dangerous document which has high risks. Despite it being so dangerous and risky, power of attorney acts as a helping tool for people who cannot execute an act by themselves. This could be because the person is not physically present to execute the act as he lives abroad or is unwell, or that the person lacks the expertise in the area of which the act is to be executed, or it could be many other reasons.
To understand the importance of the power of attorney, let’s just assume that you live in USA, and want to sell your apartment which is in Mumbai. Now, it is not possible for you to go to Mumbai yourself and thus appoint your friend to execute the sale of our apartment. Here, you are giving the power of attorney to your friend, to execute the sale of your apartment. Your friend has the authority to sell the apartment to suitable buyers according to his own judgment. So, it would be wise to say that the power of attorney is a document on convenience for people who are old, medically ill, live far away and so on.
There are various types of power of attorney such as the General Power of Attorney (GPoA), Special Power of Attorney (SPoA), Durable Power of Attorney, Non-durable Power of Attorney, Revocable Power of Attorney and Irrevocable Power of Attorney. A principal can use any of these types according to his need. A GPoA, also called unlimited power of attorney is where the principal gives wide-ranging powers to the attorney or the agent which authorises them to do all acts connected with a particular trade, business or employment. For example- Z is the manager of B’s firm. Z’s authority extends to the doing of everything necessary for carrying out the business of B’s firm. Similarly, a SPoA is where the principal gives only specific powers to the attorney or the agent which authorises them to do only a single act. For example- A is employed by X, residing in Mumbai to recover a debt due to X in Delhi. A may adopt any legal process necessary for the purpose of recovering debt. Once the debt is recovered, special power of attorney comes to an end.
Coming to durable and non-durable power of attorney, a principal gives a durable power of attorney to an agent when he wants the power of attorney deed to continue even after his death. If there is no need for the power of attorney deed to continue after the death of the principal, it’s called non-durable power of attorney. Durable power of attorney is ideal for the elderly who stand a chance to become forgetful or mentally incapable due to illness or old age. Thus, durable and non-durable power of attorney is dependent on the time duration of the power of attorney deed. Lastly, there is revocable and irrevocable PoA. Power of attorney is said to be Revocable if it is revocable at the will of the principal and Irrevocable If it is not revocable at the will of the principal.
A busy adult may give someone trustworthy the Power of Attorney to make medical, banking, investment, financial legal decisions. Lawyers always suggest their client to give the power of attorney to someone who is trustworthy and loyal to them. One must give the power of attorney very thoroughly. This is because, the power of attorney deed is one of the most dangerous deed which could turn to a license to steal if the agent starts to act in bad faith and for his own interests. An agent has the ability to do anything that the principal would have and thus can sell a property, buy a property, can handle the bank accounts, can buy stocks and can even sell stocks.
Imagine, you give the power of attorney to a relative making him your agent, to make financial decisions on your behalf. If the agent is not trustworthy or loyal, he can go to your bank, withdraw some money and invest it in such place where you’d never approve of investing. Or else, the agent can even transfer the title of a property from your name to his name. Or just imagine what an agent could do if he has the authority to access your bank accounts and take banking decisions! When an agent abuses the power of attorney, it becomes license to steal authorised by you. You can always approach the court for relief, but you must understand, that it could take you years to get relief.
Choosing a person to give power of attorney is one of the most risky and important decision for a power of attorney deed as there is no limitations under the law that will restrict you from appointing a specific person as your Attorney. This decision could either make the power of attorney deed a bit in your favour or could be a subject to abuse of Power of Authority. There have been numerous cases where the agent changed colours and started to act against the Principal’s wishes which resulted in heavy loss for the principal. Power of Attorney makes the Principal liable for Agent’s action in the due course of the purpose. Thus, an agent’s fraud committed in the course of the power of attorney is equivalent to fraud committed by his principal.
For matters related to transfer of title of immovable property, the Supreme Court of India ruled that “a power of attorney is not an instrument of transfer in regard to any right, title or interest in an immovable property.
It all comes down to one question- would you take the odds of giving the power of attorney to a person whom you trust? If yes, then would that person have General Power of Attorney (Unlimited PoA) for your business/trade/financial/legal/medical decisions? If yes, then would that person have the authority to be your agent even after your death? If no, then what should be the time period of your Power of Attorney deed? Answering these questions would give you a clearer idea on who to give power of attorney and what should be the essence of your power of attorney deed.