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.
A power of attorney is mainly of two types:
• General Power of Attorney: A general Power of Attorney gives wide-ranging powers to the attorney or the agent which authorise 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.
• Special Power of Attorney: A Special Power of Attorney gives only specific powers to the attorney or the agent which authorise 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.
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 properly?
When a person (A Principal/Donor) gives power of attorney to another person (An Agent/Donee), he authorises that person to carry out all the act in the name of the Principal. This means that the Agent would have full legal power to act in the name of the Principal and that the actions of the Agent would be considered as the actions of the Principal. This concept is based on the legal maxim “Qui facit per alium facit per say” which means, He who acts through another does the act himself. Giving a person power of attorney would mean that the principal would be responsible for his agent’s action.
Power of attorney is an extremely dangerous document if not given properly. It is very easy to misuse this authority for personal gains.
One must think thoroughly before giving someone the power of attorney. This is because, when a person appoints someone be their Agent, he is basically sharing the decision-making power with the Agent. For example- when the donee spends the donor’s money to benefit the donee, rather than the donor, without permission. Power of Attorney makes the donor liable for donee’s action in the due course of the purpose. Thus, an agent’s fraud committed in the course of the purpose is equivalent to fraud committed by his principal. To conclude we can say that it is very important for a person to choose his donee/agent very carefully.
Should there be any limitations for Power of Attorney?
The answer to this question would always be a yes. When selecting an agent, one must always consider the risks involved. In order to safeguard one’s interest, its important to limit the power of attorney so that the agent cannot misuse his power. Another way of limiting the scope of power of attorney is to make sure the document gives third parties the ability to exercise some supervision over the donee. There is no guarantee that an agent will always work in a bona fide manner. In order to be safe from agent’s fraud/bad intentions, one must limit the scope of the power of attorney. Not limiting the authority of the agent/donee may result in heavy losses.
A person does not have a direct control over its donee, and this makes power of attorney a very risky thing. For example- B, a donee of A has the power of attorney to manage A’s banking affairs. B can take a loan and buy a property in A’s name.
Due to all such risks, there must be certain limitation imposed on the donee in order to safeguard the donor’s interests.
What are the restrictions of Power of Attorney?
Not everyone can give power of attorney to a person. Only a person who is competent to enter into a contract can give the power of attorney to a person. According to section 11 of the Indian Contract act, a party is competent to contract if:
a) he is of the age of majority i.e 18 years of age;
b) he is of sound mind, and
c) he is not disqualified from contradicting by any law to which he is subject.
Usually, the power of attorney is revoked on the death of the principal or if the principal goes bankrupt or becomes insane. However, a person can extend the power of attorney till even after his death. Such intentions must be mentioned in the agreement.
Written By Ms. Vaishnavi S (Intern) and seen by Adv Lalit K Jain