| Reference Date | Version | January 30, 2024| 1.0 |
| Keywords | Power of Attorney, Coupled with interest, agency, revocation of power of attorney |
| Legislation(s) | 1. Powers of Attorney Act, 1882 2. Indian Contract Act, 1872 3. Registration Act, 1908 4. Notaries Act, 1952 3. Information Technology Act, 2000 4. Evidence Act, 1872 |
| Jurisdiction | India |
Introduction
Grant of authority by one person to another to act on their behalf can have significant consequences, both for the issuer and the person so authorised. Irrespective of the purpose for issuing a power of attorney, the extent of powers granted pursuant to a power of attorney, or the duration of its validity, it is important to be advised of the consequences and responsibilities attendant to a power of attorney.
This Article examines issues that ought to be considered by the issuer and the holder of a power of attorney.
What is a power of attorney?
The Powers-of-Attorney Act, 1882 (‘POA Act’) contains the law relating to powers-of-attorney. Under the POA Act, the holder (or donee) of a power-of-attorney may, if he thinks fit, execute or do any instrument or thing in and with his own name and signature, and his own seal, where sealing is required, by the authority of the issuer (or donor) of the power; and every instrument and thing so executed and done, shall be as effectual in law as if it had been executed or done by the donee of the power in the name, and with the signature and seal, of the donor thereof.
Section 182 of Contract Act 1872 (‘Contract Act’) defines an ‘agent’ as a person employed to do any act for another or to represent another in dealings with third persons. The person for whom such act is done, or who is so represented, is called the ‘principal’.
A power of attorney is thus an instrument which creates an agency.
Issues surrounding a power of attorney
Consideration and revocation
Section 185 of the Contract Act states that no consideration is necessary to create an agency. Often, it is misunderstood that a power of attorney coupled with consideration is irrevocable.
Section 202 of the Contract Act states that where the agent himself has an interest in the property forming the subject matter of the agency, the agency cannot, in the absence of an express contract, be terminated to the prejudice of such interest. Except in the foregoing case, the issuer of a power of attorney may revoke the same at any time before the authority is exercised to bind the issuer.
The Hon’ble Supreme Court took up the subject matter of power of attorney coupled with interest in the case of Seth Loon Karan Sethiya and Ors. v. Mr. Evan E John and Ors. (AIR 1969 SC 73).
In this case, the appellant executed a power of attorney in favour of the bank, stating that the appellant’s liability was partly secured by the pledge of goods and partly by the equitable mortgage of his and his mother’s immovable properties with the bank. The appellant agreed to appoint the bank to execute a decree and represent him in all acts, deeds, matters, and things related to the execution of the decree and the decree in the appeal.
The bank levied execution of the decree, and the execution application was filed in the appellant’s name but signed by the bank manager as his power of attorney holder. The appellant objected to the execution, claiming that the power in question had been obtained through false representation and assurances.
The issue before the Hon’ble Supreme Court was whether the power of attorney in question is a power coupled with interest.
The Court concluded that the power given by the appellant in favour of the bank is irrevocable, as it is clear from the tenor of the document and its terms. The Court also noted that the authority given to the bank could not be revoked when the agency is created for valuable consideration, and the authority is given to effectuate security or secure the agent’s interest.
In the case of Shri Harbas Singh v. Smt. Shanti Devi (MANU/DE/0112/1997), the Delhi High Court interpreted Section 202 of the Contract Act and, more particularly, the word ‘interest’ used therein.
The Court examined the concept of ‘interest’ and emphasised that it should be given a broad meaning to serve various purposes of the Contract Act. The Court also discussed the irrevocability of the powers of attorney, highlighting that the powers were granted for the benefit of the respondent and her nominee. It was established that the nominee had an interest in the property, and therefore, the agency could not be terminated due to the prejudice of their interest.
It was held that “Since the power of agency has been conferred not for the benefit of the principal but for the benefit of the agent representing a third party and not as representing the principal, the power becomes irrevocable.”
In the case of Amar Nath v. Gian Chand & Ors. ( 2022 (2) ALD 110), the issue before the Hon’ble Supreme Court was whether the special power of attorney issued by Plaintiff in favour of Defendant No.2 to execute a sale deed in favour of Defendant No.1 was cancelled before the execution of the sale deed.
The Hon’ble Supreme Court held that to revoke the authority, a power of attorney must be cancelled and it must be brought to the notice of the agent and the third party at any rate, otherwise such cancellation could not be said to be made out.
Scope
The scope of a power of attorney is to be understood from the terms of the power of attorney. The recitals giving the context for issuing power of attorney can play a significant role in its interpretation.
The issue of construction of a Power of Attorney was recently discussed by the Hon’ble Supreme Court in the case of K. Akbar Ali v. K. Umar Khan (MANU/SC/0261/2021). In this case, the first Defendant issued a Power of Attorney to maintain and administer the suit property in favour of her son. Based on this Power of Attorney, a pre-emption agreement was entered between the Plaintiff and the first Defendant. It was argued that the Power of Attorney did not authorise the son to enter into any sale or pre-emption agreement. The counsel for the Plaintiff relied on Clause 6 of the Power of Attorney, which authorised the son “to do all lawful, as my said attorney deems fit and just on my behalf authorises the attorney to take all steps which are necessary and proper, as considered by the attorney” and argued that the expression ‘to do all lawful acts’ included the act of sale of the property as well.
The Hon’ble Supreme Court held that the suit by the Plaintiff was not maintainable given the restricted scope of the Power of Attorney.
In the case of A.C. Narayanan v. State of Maharashtra and Another (MANU/SC/0934/2013), the Hon’ble Supreme Court held that unless there is a specific clause permitting delegation, a general power of attorney holder cannot delegate its functions to another. The position has been re-iterated recently in the case of Mita India Pvt. Ltd. v. Mahendra Jain (MANU/SC/0145/2023).
General v. specific power of attorney
The expressions ‘general power’ and specific power’ in the context of a power of attorney relate to the purpose for which the power of attorney is executed.
In a recent case of Vijay Kumar & Ors. v. Kamlesh & Ors. (MANU/HP/2013/2023), the issue before the High Court of Himachal Pradesh was whether the general power of attorney authorised the agent to execute a sale deed.
The High Court examined the contents of a power of attorney and opined that the power of attorney executed was only for a specific purpose, i.e., to pursue or defend the litigation and do all the acts which may be necessary on behalf of the Executant. It was held that:
“…The tone and tenor of the General Power of Attorney shows that it was for a specific purpose even though it was described as a General Power of Attorney…”
The Himachal Pradesh High Court further held that the Court has to see the effect of the words used by the parties in a document to construe it. In the instant case, since the general power of attorney did not authorise the disposition of a property, any such agreement to sell executed by the agent would not be binding.
Notarisation
The Notaries Act, 1952 does not require a power of attorney document to be compulsorily notarised. However, one may consider notarising the power of attorney document because under the Evidence Act 1872, a power of attorney executed before and authenticated by a Notary Public or any court, judge, magistrate, Indian Consul or Vice-Consul, or representative of the Central Government is presumed by the Court to be so executed and authenticated.
Registration
Section 17 of the Registration Act, 1908 (the central legislation) does not require the registration of a power of attorney even where such power of attorney is in respect of immovable property since the power of attorney itself does not create, declare, assign, limit or extinguish any such right, title or interest in immovable property. A power of attorney merely creates a right to obtain another document which will, when executed, create, declare, assign, limit or extinguish any such right, title or interest in immovable property.
However, the said Section 17 has been amended across States such as Kerala, Orissa, Gujarat and Rajasthan to require the registration of Power of attorney relating to immovable property.
It may be noted that Section 18 of the Registration Act, 1908 gives the parties an option to register “all other documents not required by section 17 to be registered”. Therefore, under certain circumstances, parties may decide to submit a power of attorney for registration even if not mandated by law.
Digital Signature
The Information Technology Act, 2000 (‘IT Act’) inter alia regulates the process of electronic signatures and electronic authentication of legal documents. The first schedule of the IT Act lists down instruments on which wet signatures are mandatory. The Ministry of Electronics and Information Technology on September 26, 2022, amended the First Schedule of the IT Act to permit the affixing of digital signatures in cases wherein a power of attorney is being issued to an entity regulated by the Reserve Bank of India, National Housing Bank, Securities and Exchange Board of India, Insurance Regulatory and Development Authority of India and Pension Fund Regulatory and Development Authority.
Takeaway
The concept of a power of attorney is simple – it authorises a person to act on one’s behalf as if acting itself. It follows that the power of attorney must set out the nature and extent of authority in clear and simple terms. Certain aspects to consider with respect to powers-of-attorney are as follows:
- If a power of attorney is intended to be irrevocable, the interest of the holder with respect to the subject matter of the power of attorney should be ideally set out in the power of attorney. Where the power-of-attorney is intended to be revocable, it may be useful for the power of attorney to specify an address (including an email ID) for receiving communication from the holder.
- It would be helpful to evaluate if the validity of a power of attorney should be restricted in time.
- If the power of attorney is used as a tool to secure a right of the holder, then it would be particularly useful to evaluate if the power of attorney may be registered or at least notarised.
- At times, a power of attorney takes the form of an authorisation clause in the agreement. In such a case, it would be particularly relevant to ensure that all relevant factors, including the foregoing, are duly considered. The implications of stamp duty would also be important to address.
Associate at Alaya Legal
