Laws and Business

(a) It is an instrument;
(b) The instrument must be executed by some person, known as the donor of the power;
(c) It must empower a person specified in the instrument, known as the donee of the power; and
(d) The donee must be empowered to act for and in the name of the donor.

The Bombay Stamp Act, 1958, defines a power-of-attorney includes any instrument empowering a specified person to act for and in the name of the person executing it and includes an instrument by which a person, not being a lawyer, is authorised to appear on behalf of any party in any proceeding before any Court, Tribunal or authority. However, it does not include a vakalatnama given to an advocate which is stamped with the court-fees.

Effect

(a) executes any instrument or does any act;
(b) under his own name, signature and seal, if seal is required;
(c) but under the ambit of the authority conferred on him by the donor of the power-of-attorney; then such instrument or act would be treated in law as if it had been execution or done in the name, signature and seal of the donor. The legal effect of the power is that the acts of the donee, when done under proper authority, are treated as if they were done by the donor. This is an important provision of the Act, which gives legal sanctity to all acts done by a donee on behalf of the donor.

Thus, the position of the donee-donor is similar to that of an agent and his principal. A power-of-attorney’s origins may be traced to the legal maxim qui facit alium facit per se, i.e., what one can do directly he can also do through an agent. But one crucial difference as compared with an agent-principal relationship is that an agent must sign in the principal’s name while the power-of-attorney holder signs his own name.

The object of the aforesaid section and of the Act is to effectuate instruments executed by an agent, but not in accordance with the rule of the Contract Act. It does not confer on a person a right to act through an agent. It presupposes that the agent has the authority to act on behalf of the principal and protects acts done by him in exercise of that authority but in the agent’s own name — Rao Bahadur Ravulu Subba Rao v. CIT, 30 ITR 163 (SC).

In the case of Suraj Lamp & Industries P. Ltd. v. State of Haryana, (2012) 1 SCC 656, the Supreme Court has held that a power-of-attorney is not an instrument of transfer in regard to any right, title or interest in an immovable property. The power-of-attorney is creation of an agency whereby the grantor authorises the grantee to do the acts specified therein, on behalf of the grantor, which when executed will be binding on the grantor as if done by him. It is revocable or terminable at any time unless it is made irrevocable in a manner known to law. Even an irrevocable attorney does not have the effect of transferring title to the grantee.

In State of Rajasthan v. Basant Nehata, (2005) 12 SCC 77, the Apex Court held that a grant of power-of-attorney is essentially governed by the Contract Act. By reason of a deed of power-of-attorney, an agent is formally appointed to act for the principal in one transaction or a series of transactions or to manage the affairs of the principal generally conferring necessary authority upon another person. A deed of power-of-attorney is executed by the principal in favour of the agent. The agent derives a right to use his name and all acts, deeds and things done by him and subject to the limitations contained in the said deed, the same shall be read as if done by the donor. A power-of-attorney is, as is well known, a document of convenience.

Execution of a power-of-attorney in terms of the provisions of the Contract Act as also the Powers of- Attorney Act is valid. The donee in exercise of his power under such power-of-attorney only acts in place of the donor subject of course to the powers granted to him by reason thereof. He cannot use the power-of-attorney for his own benefit. He acts in a fiduciary capacity. Any act of infidelity or breach of trust is a matter between the donor and the donee and does not affect an outsider.

Revocation of a power

(a) The donor expressly revokes all powers given by him;
(b) The donor dies;
(c) The donor becomes of unsound mind; or
(d) The donor becomes insolvent.

In any of the above situations, the power comes to an end. In Prahlad v. Laddevi, AIR 2007 Raj 166 it was held that a power comes to an end on the demise of the donor. Any acts done by the donee thereafter in pursuance of such a power are invalid.

However, if the donee not being aware of the above situations, does any act or makes any payment in good faith pursuant to the power-of-attorney, then he shall not be liable in respect of such payment or act. But any person interested in the money so paid shall continue to have a right against the recipient and he will have the remedy against the recipient as he would have had against the payer, if the payment had not been made by him.

According to the Indian Contract Act where the agent has himself an interest in the property which forms the subject matter of the agency, the agency cannot, in the absence of an express contract, be terminated to the prejudice of such interest. Thus, in cases where the power-of-attorney is coupled with interest it is irrevocable. For instance, A gives authority to B to sell A’s land, and to pay himself out of the proceeds, the debts due to him from A. This power cannot be revoked by A. In State of Rajasthan v. Basant Nehata, (2005) 12 SCC 77, the Apex Court held that except in cases where power-of-attorney is coupled with interest, it is revocable.

Evidence of power-of-attorney

The Indian Evidence Act, 1872 provides that any Court shall presume that every power-of-attorney executed before and authenticated by a Notary Public, Court, Judge, Magistrate, Indian Consul or Vice-Consul was so executed and authenticated. This is the reason why powers-of-attorney are notarised. The presumption about the authenticity is a mandatory provision. The Delhi High Court in the case of Kamala Rani v. Texamco Ltd., AIR 2007 Del. 147 has held that the onus lies on the other side to prove that the power-of-attorney is not genuine.

A power-of-attorney holder cannot depose and be cross-examined in Court on matters which only the principal is expected to have knowledge of — Janki V. Bhojwani v. IndusInd Bank Ltd., 2005 Vol. 107 Bom. LR 28 (SC).

Power-of-attorney of married woman

A married woman who is not a minor has powers, as if she were unmarried to appoint an attorney on her behalf.

Can a donee sign under Income-tax Act for donor?

If the Income-tax Act or the rules made thereunder specifically require the personal signature of the assessee, then the same cannot be delegated by way of a power-of-attorney. This is would be a circumcision of the field of operation of the Power-of-Attorney Act and such a curtailment of powers is not ultra vires — Rao Bahadur Ravulu Subba Rao v. CIT, 30 ITR 163 (SC). All that section 2 of the Act provides is that there can be a delegation of powers and the manner of doing so. However, if any other enactment requires a personal presence or signature, then the two Acts operate in separate fields. The Court laid down this principle under the 1922 Income-Tax Act in relation to signing an ap-plication for registration of a firm. The rules required the partner to personally sign the application. It may be noted that Rule 22(5) now expressly permits such an application to be signed by a power-of-attorney holder in the case of a person absent from India.

Stamp Duty

Under the Bombay Stamp Act, 1958, a power-of-attorney is liable to be stamped as follows:

(a)    When executed for the sole purpose of registering documents — Rs.100. Most of the builders give a power-of-attorney in favour of their employees for registering the agreements for sale/flat ownership agreements with buyers.

(b)    When authorising a person to act in a transaction — Rs.100.

(c)    When given without consideration authorising specified relatives to sell or transfer immovable property — Rs.500.

(d)    When any person other than cases covered by (c) above authorising to sell or transfer immovable property — the same duty as on a conveyance on the market value of the immovable property, e.g., 5% on the stamp duty ready-reckoner value. One of the ways to avoid payment of stamp duty was to give a power-of-attorney to a person authorising him to sell the property and receive consideration equal to the market value of the property for such a power. This method is very prevalent in Northern India. In 2008, the Bombay Stamp Act was amended to increase the duty on such a power from 1% to 5%. Thus, now such powers are at par with a conveyance of immovable property.

A power-of-attorney given to manage and sell an immovable property and hand over the consideration to the owner cannot be treated as a conveyance for consideration and hence, charged with stamp duty as on a conveyance — Suman Kumar Sinha v. State of Jharkhand, AIR 2009 Jharkand 53.

It is not necessary that every power-of-attorney ex-ecuted abroad must be presented before the Collector for adjudication of stamp duty. Only those powers which have been executed abroad and on which no stamp duty has been paid need to be adjudicated. If proper duty has already been paid, then nothing further needs to be done — Anitha Rajan v. Revenue Divisional Officer, AIR 2010 Kerala 153.

A power-of-attorney is to be compulsorily registered only if it creates an interest in immovable property and not otherwise — B. Maragathamani v. Member Secretary, Chennai Metropolitan Development, AIR 2010 Madras 61.

Transfer of property by power of attorney

A very popular mode of transferring immovable property in Northern India was by adopting a combination of a sale agreement, general power-of-attorney and a will. This facilitated the avoidance of a conveyance and thereby saving on stamp duty for the buyer. The modus operandi in such transactions was for the owner to receive the agreed consideration, deliver possession of the property to the purchaser and execute the following documents or variations thereof:

(a)    A sale agreement by the vendor in favour of the purchaser.
(b)    An irrevocable general power-of-attorney by the seller in favour of the purchaser authorising him to manage, deal with and dispose of the property without recourse to the seller.
(c)    A will bequeathing the property to the purchaser (as a safeguard against the consequences of death of the seller before the transfer is effected).

The Supreme Court had in the case of Suraj Lamp & Industries Pvt. Ltd. v. State of Haryana, (2009) 7 SCC 363 referred to the “ill effects of what is known as general power-of-attorney sales”.

In its latest decision in the case of Suraj Lamp & Industries P. Ltd. v. State of Haryana, (2012) 1 SCC 656, the Court has held that there cannot be a sale of immovable property by execution of a power-of-attorney, nor can there be a transfer by execution of an agreement of sale and a power-of-attorney and will. It held that these kinds of transactions were evolved to avoid prohibitions/conditions regarding certain transfers, to avoid payment of stamp duty and registration charges on deeds of conveyance, to avoid payment of capital gains on transfers, to invest black money’ and to avoid payment of ‘unearned increases’ due to Development Authorities on transfer.

It also held that the observations of the Delhi High Court, in Asha M. Jain v. Canara Bank, 94 (2001) DLT 841, that the “concept of power-of-attorney sales have been recognised as a mode of transaction” when dealing with transactions by way of sale agreement/ general power of attorney/will are unwarranted, unjustified and unintendedly misleading the general public into thinking that such transactions are some kind of a recognised or accepted mode of transfer and that it can be a valid substitute for a sale deed. Such decisions to the extent they recognise or accept transactions by way of by way of sale agreement/ general power-of-attorney/will as concluded transfers are not good law.

The Apex Court however, carved out a niche for genuine transactions where the owner of a property grants a power-of-attorney in favour of a family member or friend to manage or sell his property, as he is not able to manage the property or execute the sale, personally. It also held that a power-of-attorney holder may however execute a deed of conveyance in exercise of the power granted under the power-of-attorney and convey title on behalf of the grantor.

It only clamped down upon transactions, where a purchaser pays the full price, but instead of getting a deed of conveyance gets a sale agreement/general power-of-attorney/will as a mode of transfer, either at the instance of the vendor or at his own instance.

Registering a property under a power

The Sub-Registrar of Assurances permits a power-of-attorney holder to register an instrument on behalf of the donor. However, the power must first itself be registered before the Sub-Registrar. For this purpose the donor and the donee must both go to the Sub-Registrar. Further, the Sub-Registrar insists that both the donor and the donee sign the power before him.

Conclusion

To sum up, a simple power-of-attorney has been the subject matter of great controversy and litigations. Chartered Accountants would be well advised to consider whether the power-of-attorney relied upon by their clients is valid or not. When in doubt, they should consider obtaining an opinion. One is reminded of the quote by W. H. Auden which ended as follows:

“……There is always another story, there is more than meets the eye.”