Power of Attorney Rights and Limitations | Motilal Oswal

Things to remember when you give power of attorney to the person.

There are certain circumstances in which individuals cannot perform particular actions, either because they may not be physically present at a specific location, or indisposed otherwise. However, certain actions may have to be executed by a particular individual all the same. This does not mean that the individual in question has to forgo the action, say, like attending a significant meeting, or giving a vote. In such cases, the individual who has to perform and execute an action can choose a representative (another individual) to act on their behalf, in an official capacity, and for a distinct purpose. This is where a Power of Attorney or POA enters the picture. 

 

What is the Power of Attorney?

The Power of Attorney (POA) is all about giving the right to act on your behalf to a trusted friend or family member. A Power of Attorney allows the holder of the POA to take clearly defined actions and decisions on behalf of the donor in this case. The person who gives the power of attorney (POA) is known as the donor while the person who gets the POA is called the holder. However, you should be aware that  there are some precautions you need to take while signing the POA agreement and ensure that your interests are fully protected. 

 

What is the POA from a donor’s point of view?

Let us look at it entirely from the point of view of the donor. After all, it is the donor, the individual on whose behalf certain actions are conducted, that is important and has to draft the Power of Attorney agreement (document) in such a way as to protect their best interests, while simultaneously giving a level of authority or right to act on their behalf. If you are a donor, you have to pay close attention to details about what is included and excluded in the agreement of your POA document (agreement). Hence, you should know the Power of Attorney meaningfully well. Let us focus on things to know about power of attorney and the power of attorney rights and limitations. Above all, there are some basic rules you need to follow irrespective of whether you are giving the power of attorney to a family member or to a trusted friend.

 

8 Points to Keep in Mind when Giving Power of Attorney

 

1. First and foremost, understand the difference between Letter of Authority and Power of Attorney. The LOA is good for small tasks, but for more important tasks that involve larger amounts of money or asset values, it is always better to execute a Power of Attorney as the rights and duties are more enforceable in case of POA. You must clearly know the distinctions between terms as using the incorrect formats could result in some problems later on. Lawyers and advocates that draw up agreements typically know what documents and agreements should be made, depending on the exact purpose of your agreement document. 

2. Ensure that the Power of Attorney is duly registered, and the stamp duty prescribed by the state where the POA is executed has been paid. The legal jurisdiction should be the place where the POA is executed, and the stamp duty is paid. An unregistered POA is like an LOA and is not enforceable in a court of law.

3. Signatures and photographs of the principal and power agent must be affixed. This can be a useful source of information in case any of the transactions are disputed at a future date, or if the POA goes to legal recourse.

4. The holder of the POA should first check whether the principal or the donor, of the POA has a valid title to the property (in case the Power of Attorney involves a property matter) and that his/her name is reflected as the owner in government revenue records. Also, before accepting the POA he must check that the no-encumbrance certificate is obtained.

5. In case of a POA for property matters, the rights and obligations of the principal (donor) and the POA holder should be clearly laid out including decisions like leasing a property, hypothecating the property, and selling the property, etc. For availing loans based on a POA, check whether the power agent has the authority to sign loan documents, and can create an equitable mortgage in favor of banks/financial institutions on behalf of the principal.

6. Ensure that, as on the date of execution of any document based on the POA, the POA is in force and the principal is alive. Otherwise, the POA is void ab initio, and the Power of Attorney meaning in such a case will be nullified. Normally, POAs that are pre-dated or post-dated are not acceptable at the time of registration of the POA with the concerned authorities.

7. If the POA is 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. This is important since NRIs are those who normally give POAs to operate their local bank account and demat cum online trading accounts.

8. Last but not the least, make it a point to verify the availability of the original duly registered GPA (General Power of Attorney). You need to be clear that the rights are clear and unfettered. You also check whether the description of the property (schedule of property) is in order, with relation to a Power of Attorney for property issues. 

 

Other Things to Consider

Several individuals don’t quite understand how important a Power of Attorney can be. This is one of the most important legal documents today. It can give another person, however closely connected with the donor, a full and legal right to act on the donor’s behalf as regards financial matters, medical matters, and more. With a Power of Attorney, others may act on your behalf without your direct oversight. This is because the document gives them the ability to do so. Therefore, while you draft a POA, you should do so for only the specific purpose that it is supposed to serve. This limits the actions of the holder to act on your behalf. Your POA can also have limitations of time for execution, and drafting one with the utmost attention to detail keeps donors safeguarded. 

It is especially necessary to have your Power of Attorney drawn up with extreme caution when it specifies actions on your behalf relating to possessions that you own, such as bank accounts, shares, property, etc. Unfortunately, agents (some dubious ones) have been known to take advantage or misuse Power of Attorney documents to suit their own malicious aims. In such cases, you would have to legally fight out battles in court - not a good prospect. Hence, it would be wise to take the aid of appropriate legal counsel to draw up POA agreements thoroughly. 

Read More: Factors To Consider While Opening A Trading Account Online

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