Table of Contents
What is Power of Attorney?
A power of attorney (POA) is a legal document that allows an individual to give authorities to another individual to act on their behalf. In India, registering a power of attorney is not mandatory. However, it is always recommended in order to improve the authenticity of the agreement. In legal terms, the person assigning the authorities is referred to as the ‘principal’ and the person given the authority is the ‘agent’ or the ‘attorney-in-fact’. Depending on the types and terms of the POA, the agent can have either extensive legal authorities or very exclusive legal authorities.
How does Power of Attorney Work?
A power of attorney is created when the principal is, for any reason, unable to act on their own behalf for the said property. The authorities being delegated could be relating to finances, property matters, tax payments, other legal procedures, etc. Usually, a Power of Attorney comes into effect as soon as it is signed by the principal. In other situations, it may be the case that the principal specifies a future event that will determine when and how the Power of Attorneys comes into effect.
Power of Attorneys in India is governed by the Powers of Attorney Act, 1882. Theoretically, a broad POA would grant all powers to the agent that the principal has. The agent can be given authority to:
- Execute all contracts, deeds, bonds, mortgages, notes, checks, drafts, money orders.
- Manage, compromise, settle, and adjust all matters pertaining to real estate.
- Lease, collect rents, grant, bargain, sell, or borrow and mortgage.
- Sell any and all shares of stocks, bonds, or other securities.
- File, sign all tax returns, insurance forms and any other documents.
- Enter into contacts, and to perform any contract, agreement, writing, or thing to make, sign, execute, and deliver, acknowledge any contract, agreement.
- Make health-care decisions for the donor or his minor children.
- Sue on behalf of the principal.
Although the agent may have the authority to perform all acts listed here, not all Power of Attorneys are created for this purpose. Depending on the needs of the agent, there are several different types of Power of Attorneys that may be used for the said property type.
Types of Power of Attorney
1. General Power of Attorney
As the name suggests, this form of power of attorney covers a very broad spectrum of authority given to the agent. This means that the principal gives the agent to fully act on behalf of him or her in the required matters such as finance, taxation, property management, etc. A general POA is very commonly used for buying and selling properties. It is useful in the situation where the buyer or the seller is out of town or country and needs an agent to act on behalf of them for the said property.
2. Special Power of Attorney
Also known as a limited power of attorney, this type of POA is used when the authority given to the agent needs to be only in a specified area or on a specific transaction. Once the purpose of the POA has been fulfilled, it immediately comes to an end as the agent no longer has the authorities to act on the principal’s behalf.
3. Durable Power of Attorney
Normally, a power of attorney comes to an end when its purpose has been fulfilled, or when the principal dies. However, it may be required for the agent to continue acting on behalf of the principal even after the event of their death. In order to ensure that the agents continue to perform their duties on behalf of the principal even after the death of the latter, it must be mentioned in the agreement.
4. Medical Power of Attorney
Finally, another commonly used type of power of attorney is the medical power of attorney. This falls in the category of a durable power of attorney. Typically, when a medical POA is signed, it does not immediately come into effect but rather only becomes valid after the principal is no longer of sound or conscious mind.
Now that you know the different types of POAs used in different situations, it is important to understand and evaluate the risks of powers of attorney before you make a finalized decision on the said property or assets.
Risks of Power of Attorney
Deciding who your agent should be is a very critical decision as it must be an individual who is trustworthy and reliable. It is a wise decision to include in your POA agreement that the agent is required to regularly report to a third party such as a trusted accountant or an attorney. Especially in the case of general Power of Attorneys, it would be wise to take adequate precautions to avoid any complications.
Additionally, you should also make sure to check with all institutions that your agent will be interacting with on behalf of you. This is to ensure that no problems arise and also because some banks and financial institutions may have their own requirements to be satisfied before an agent can interact with them on behalf of you.
Misinformed decisions, lack of attention to detail, and negligence can lead to the benefits being overpowered by the risks. However, overall, a POA is a document that serves the purpose of simplifying legal proceedings for the principal and if drafted correctly and carefully is a powerful tool.
Not only are powers of attorney relieving to have but in case the principal becomes incapacitated, they are very necessary to protect their legal interests for the said property.
How to Register a Power of Attorney?
In India, it is not compulsory to register a power of attorney. However, if a POA is in respect of immovable property of more than ₹100 in value, it is required that it must be registered. Additionally, in order for it to be legally valid, a POA must be authenticated by a sub-registrar or it must be notarized by the notary especially wherein case power to sell land is granted to the agent. It is always recommended to register a power of attorney to improve its authenticity. It is a basic rule that a POA should be rigidly constructed to avoid any loopholes. Furthermore, here are a few components that should always be included in a POA:
Components of a POA
- Full name of the principal
- Full name of the agent(s)
- Full name of two witnesses
- Age and address of the principal and the agent along with valid proof
- Duration of the POA (if applicable)
- Specifications about the extent of authority given to the agent
Under section 48 of schedule 1 of the Indian Stamp Act, 1899, stamp duty must be paid on the power of attorney. Depending on the requirements of each state, these charges are paid either by the principal or the agent.
How to Validate a Power of Attorney?
In order to validate a power of attorney by registering it in India the first step is to draft the POA and then submitting it at the sub-registrar’s office along with the following documents:
- Identification proof of the principal and the agent (Aadhar Card, Voter ID, Driver’s License, etc.)
- Address proof of the principal and the agent
- Passport-sized photographs of the principal and the agent
- In case of a property related POA, electricity bill or tax receipt of the property
After the documents have been submitted, the POA can be approved by the sub-registrar once it has been attested by two witnesses.
Power of Attorney for NRIs
A power of attorney can be used by a non-resident Indian for the sale or purchase of property, managing finances, and investments, etc while abroad. To validate a POA for NRIs it must be executed on a stamp paper according to the regulations of the country it is executed in. Additionally, the signature of the person making the POA must be authenticated by the Indian Embassy in the country.
For NRIs, specifically in property matters, it is mandatory to get the POA registered.
Although creating a power of attorney is tricky, yet by keeping in mind the points made in this blog you can ensure that your POA is strongly drafted and legally valid.