Power of Attorney

In the financial markets, or even in other contexts, there are certain things which we cannot do ourselves.

For example, we cannot buy shares from the stock exchange directly and would use a stock broker and his interface to do so.

In such cases, there is a powerful document that gives the authorization on our behalf to someone to do the work for us.

This is called the Power of Attorney.

For example, individual investors can entrust someone to do transactions on their behalf.

This granting can be done by executing a Power of Attorney (PoA).

This facility is generally used by nonresident investors who stay in a foreign country and are thus unable to manage their financial transactions, or by investors who like their brokers or advisors to manage their investments on their behalf.

Parties to PoA

There are two parties for a PoA

The grantor: Is the primary investor or account holder and grants the rights
The Attorney, or holder: Who is authorised to execute an agreed set of actions on behalf of the grantor.

In the financial markets, the grantor and the holder have to abide by the guidelines for PAN and KYC compliance.

Power of attorney holders usually exercise all the rights of an investor.

They can do normal transactions such as purchase, payment for purchase, sale, settlement of transactions and redemptions.

The rights of the holder depend on what the grantor is willing to delegate under the power of attorney and what is allowed for PoA transactions by the investment or service provider.

However, the attorney cannot appoint a nominee for the investment. The grantor of power of attorney can continue to operate the account even after giving a power of attorney.

Valid PoA

To be valid the PoA must be:

Typed on a non-judicial stamp paper.
Stamped according to the rules applicable in the state in which it is executed.
Signed by the grantor on all pages.
Signed by the grantor and the holder of the power of attorney on the last page.
Notarised by a notary public

This requirement varies among different product producers and intermediaries. For example, some mutual funds may require the PoA to be notarized, while a PoA to operate a demat account needs to notarized only if the depository participant so requires.

If the Power of Attorney is executed abroad, it can be typed on a plain paper, attested by a designated official of the Indian embassy abroad or by a notary abroad, signed on all pages by the grantor and sent to India for the holder of the power of attorney to sign on the last page. It is then stamped and notarized in India, if required. Since minors cannot enter into valid contracts, there can be no PoA for a minor’s transactions. The guardian plays a role similar to a PoA holder acting on behalf of the minor.

A certified copy of Power of Attorney, with signatures of both the parties has to be submitted to the entity where the PoA will be exercised. A PoA holder cannot open or close a bank or a demat account. The signatures of the holders of the account are necessary for this. The holder of the PoA can operate the account on the basis of the rights granted. In case of investments such as mutual funds, POS schemes, the PoA holder can make the initial investments and subsequent purchases and operate the account on behalf of the grantor. The grantor's signature is also recorded in the folio for purposes of verification. Typically, the grantor of the PoA can also conduct the transactions for which the PoA has been granted. A PoA holder cannot make or change nominations in an account or investment.

General Power of Attorney

A General Power of Attorney gives the agent the authority to handle all the affairs during a period of time when the investor is unable to do so, such as when he is travelling out of the country or when his physical and/or mental health are compromised.A General Power of Attorney is typically very broad, giving the agent extensive powers and responsibilities.

General Power of Attorney typically includes (but is not limited to):

Handling banking and other transactions
Filing tax returns
Buying, selling, or managing real estate and other property
Entering contracts
Settling claims

Specific Limited Power of Attorney

A Specific Power of Attorney gives the agent the authority to conduct a specific act or acts on the investor. Because this type of Power of Attorney is limited to the act or acts designated in the document, it is especially important to be very clear about the powers one wishes to give to the agent.

One may use a Special Power of Attorney to appoint an agent to act on his behalf in the event that if he become ill or disabled, are embarking on extended travel, or are otherwise unable to handle a specific type of task. He may designate any of the powers listed above (under General POA) to the agent, or any other powers he deem necessary.