Three years ago, Ramchandra Goyal was surprised to know that he could not sell his US-based son’s flat in Pune despite having a letter of authority (LoA). “The document came handy when I had to help my son with some of his bank work,” he recalls. “Why couldn’t I sell the flat then, I thought.”
It didn’t take much time for Goyal to then learn that an LoA had limited use. In fact, what would have helped him was a power of attorney (PoA), that transfers authority. Many use the two documents interchangeably, but each comes with its own privileges.
Explains Vyapak Desai, head (international litigation & dispute resolution practice) at Nishith Desai Associates: “An LoA can be used for a procedural matter without any statutory requirement. However, it has no standing in property transactions, where your powers can be transferred only through a PoA.”
An LoA is used more for administrative convenience. So, use is limited to smaller tasks like filing or collecting documents or cheque book(s) on another’s behalf. The LoA donor (person who appoints another to act on his behalf) has to clearly mention what has to be done by the holder (person who is handed over the LoA) and how he would perform the work. The task is usually carried out under the supervision of the donor.
A PoA, is considered a more authentic document and allows greater independence to the holder.
Lawyers say one should opt for a specific or limited PoA, as against a general PoA. A general PoA authorizes, can be used widely and covers all tasks. “It is like giving a blanket authority to the holder and has greater chances of being misused, says Suresh Surana, founder of RSM Astute Consulting Group. “Use it only when the holder is someone you trust or in an emergency.”
Goyal had failed to sell his son's flat a second time, even after getting a PoA, because it was not registered. Typically, a PoA is legally valid even if it has not been registered or notarised. But lawyers advise notarising a PoAs as the signature is then considered authentic.
| SPHERE OF INFLUENCE The documents can’t be used interchangeably. Both have different privileges & limitations | |
| Cheque book issuance | Letter of Authority |
| Withdraw huge amounts of money / operate lockers | Power of Attorney |
| Collect / submit important documents to someone | Letter of Authority |
| Property deals | Power of Attorney |
| Income Tax | Power of Attorney |
| Investments / Redemption | Power of Attorney |
However, if like Goyal, one wants to deal in immovable property on another’s behalf, the PoA will have to be registered.
Dealings in immovable property also require an irrevocable PoA from the seller to the buyer. It is one of the many documents, apart from the deed of transfer of the property. The buyer uses it to get the municipal records or electric meters changed from the seller name into his/hers.
If the PoA is of a revocable nature, the donor needs to specify how long the PoA will be in effect, the reason behind handing over a PoA to the holder and also when it would be revoked.
“Even an irrevocable PoA can be revoked or cancelled if there is no monetary transaction involved,” explains Surana. “Else, it can be done only with the consent of the person to whom it is given.”
Once revoked, the donor should inform agencies (like banks, brokers) where the PoA might have been used by the holder. This is important because there is really no way any third party would the PoA has been revoked. In any case, once the person dies, his PoA ceases to exist and his will and probate will come into force.
One should be very careful before handing over either LoA or PoA, as these, especially the PoA, holds the donor responsible for whatever the holder does. Therefore, you should know the powers you are giving and the holder should be clear on the matters on which he/she can represent the donor.
