Power of attorney: how to avoid misuse

Power of attorney is issued to handle legal and business activities which is practically impossible for one individual to handle all of these activities. This can be due to old age, ill health, lack of knowledge, or any other reason. Power of attorney becomes relevant in this situation. It enables you to provide someone permission to carry out any or all actions related to your trade, business, employment, etc. For someone who is unable to execute such activities for the reasons listed above, it serves as a helpful tool.

There are many cases where a power of attorney (POA) is granted with a specific intent but with passage of time the attorney holder assumes much more control due to liberal or sometimes even deficient drafting of the POA.

Meaning of 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.

Types of Power of attorney

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.

Restrictions on the issue 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:

  • he is of the age of majority i.e 18 years of age;
  • he is of sound mind, and
  • he is not disqualified from contradicting by any law to which he is subject.

Factors which should be remembered to avoid misuse

To ensure you power of attorney is not misused or it does not become a source of concern or a loss for you, the following factors should be remembered:

  1. Ensure you know the attorney holder personally and do not issue a Power of Attorney to person you are not confident about. Identification details of the attorney holder such as a passport number, PAN or election card should be available with you.
  2. A Power of Attorney should never be irrevocable unless you are selling a property. Always ensure the Power of Attorney is revocable so that you can cancel it any time.
  3. The Power of Attorney should always be registered. This way it is easy to cancel or revoke it at the appropriate time.
  4. You should not give open ended and sweeping powers in the Power of Attorney. Avoid the use of words such as “all rights,” “and right”, “any action that the attorney holder deems fit”.
  5. You should identify to the purpose for which the Power of Attorney is needed and draft a Power of Attorney conforming to the duties and rights needed.
  6. Always ensure that the photograph of the executives and the attorney is fixed on the Power of Attorney.
  7. In case the powers to the attorney are needed only for a limited period then you should prepare the Power of Attorney for a fixed period only.
  8. A General Power of Attorney should be avoided unless absolutely necessary. You should grant a specific Power of Attorney at all times.

How to revoke a power of attorney

Revocation of a power of attorney is a necessary when the purpose of which the Power of Attorney is granted is no longer required or when the executants finds that the attorney is either misusing the powers under the Power of Attorney or is acting against the interest of the executant.

No reasons need to be assigned in case a Power of Attorney needs to be revoked. A Power of Attorney is operational during the pleasure and consent of the executants. It can be revoked at any point.

The procedure usually followed when revoking a Power of Attorney is as follows:
1. A notice of stop of use and cancelling of powers under the Power of Attorney so granted to the attorney has to be issued. This needs to be done by recorded delivery so that a valid date of cessation of powers is recorded.
2. Further the Power of Attorney has to be cancelled at the registrar’s office where it was originally registered at the time of issue.
3. In case the Power of Attorney had been in widespread use then it is always advisable to publish a public notice in a newspaper which has reasonable circulation in the city where the Power of Attorney was issued.
4. A Power of Attorneycan also be cancelled by destruction of the original document.

A Power of Attorney is difficult to cancel in the following cases:
a) When the attorney holder and the original Power of Attorney document is not traceable. Hence is advisable that the attorney is known to you.
b) When the Power of Attorney is not registered. This creates a lot of hassle in making the Power of Attorney non-operative.
c) A Power of Attorney which is irrevocable cannot be revoked unless there are suitable and justified grounds that the irrevocable Power of Attorney was issued fraudulently.
The key to having a control over the Power of Attorney you issue and revoking it at your convenience is, to follow all procedure and precautions at the time of issue of Power of Attorney.

When your Power of Attorney describes activities on your behalf regarding property that you own, such as bank accounts, shares, real estate, etc., it is extremely important that it be well drafted. Unfortunately, it is very uncommon for agents (some questionable ones) to abuse or take advantage of Power of Attorney forms to further their own nefarious objectives. You would have to litigate such disputes in court, which is not a smart option. Therefore, it would be good to engage the assistance of qualified legal counsel to carefully write Power of Attorney agreements.

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