Before Mumbai-based Meenakshi Puri’s husband left for the US for a month in August this year, he gave her a letter of authority (LoA) in his name so that she could conduct the necessary bank work. In his absence, Meenakshi visited the bank to collect two things, a cheque book and the purchase agreement of their house from her husband’s bank locker. The bank willingly gave her the cheque book, but refused to hand over the purchase document, saying the LoA was not sufficient. It demanded a power of attorney (PoA) from her husband.
Understandably, the Puris were confused about the difference between the two authorising documents. Most people use these interchangeably, but each comes with its own privileges and powers. Here’s how to differentiate between the two.
PoA is a notarised document
An LoA can be used to conduct small tasks. Aakanksha Joshi, associate manager, Economic Laws Practice (ELP), says, “A letter of authority is a document meant for a specific purpose, where one person authorises another to perform a particular act. For instance, it can be used to collect or submit documents on your behalf.” However, when bigger transactions need to be carried out, you should opt for a PoA.
Says Ashish Bhakta, partner, Advaya Legal: “A letter of authority can be used for routine work. However, for bigger transactions, it is better to have a power of attorney because it sets out the manner in which the activity is to be performed. An LoA is not an authenticated document, while a PoA is a notarised document and has an additional edge.” PoA is revocable/irrevocable
A PoA can be of two types—general and special. “A ‘general’ power of attorney authorises a person to conduct some tasks on your behalf, such as representation before the Income Tax Department. It will be considered ‘special’ if the appointment is for specified acts. Also, it could be irrevocable or revocable,” says Bhakta. You do not necessarily need to register a PoA, especially if it is for mundane work, such as operating a bank account. However, it is mandatory to get it registered if you are dealing with immovable property.
Recently, a Supreme Court judgement ruled that general PoAs cannot be used to transfer immovable properties . “This judgement is likely to affect builders rather than inpiduals,” says Bhakta.
Power of donor
The person who appoints another to act on his behalf is known as the donor. For instance, if, say, Anil is unwell and appoints another person, Sushil, to act on his behalf, then Anil is the donor and Sushil is the holder. However, both LoA and PoA do not offer the donor the same power to control activities of the holder. The difference between the two is in terms of the relationship between the entities involved.
“A letter of authority usually depicts the relationship of a master and servant, whereas the attorney relation is more like that of a principal and agent. In the case of the latter, the principal has the right to direct as to what act one is expected to perform, whereas in the case of the former, a master has the right to direct ‘what’ as well as ‘how’ the work is to be done,” says Bhakta. The tasks that are specified in an LoA are usually carried out under the supervision of the person bestowing the authority and the grantee has to conform to all the reasonable orders in the course of that work, whereas in the case of a PoA, there is a greater scope for independence.
One should be very careful before handing over either document, LoA or PoA, to another person as one can do little to prevent its misuse. This is because these documents, especially the PoA, is accompanied by a ratification clause, which automatically results in vicarious liability. This means that it makes the donor responsible for the acts of the holder.
One of the key measures to avoid the misuse of an LoA or PoA is to have clarity. Bhakta says, “You should be very specific in granting the power of attorney for two reasons. One is that you should know the powers that you are giving the other person, and the second is that the person receiving the PoA should know the scope of his powers.” You must make clear the matters on which the holder can represent himself on your behalf.
Revocation of PoA
You should specify the duration of the PoA and how it is to be revoked. Says Joshi: “You must also make it clear why you are giving the power of attorney. For example, if you are ill and have asked somebody to act on your behalf regarding property matters, you must state this in the PoA. It is better if you place limitations. Specify when your PoA will stand revoked and under what circumstances the document can be used.”
Cancellation of document
You should cancel the document, be it the LoA or PoA, once the work is complete. You can simply cancel an LoA by issuing a fresh one that states this clearly. “The revocation should be intimated to the people dealing with the person who has the letter of authority. There cannot be an irrevocable letter of authority,” says Joshi.
However, in the case of a PoA, the procedure is more complex. If it is revocable, the document should mention the circumstances under which it can be revoked. Even if does not do so, you can revoke it by executing a document, cancelling it. “If the power of attorney was registered, you need a registered deed of cancellation,” says Joshi. It will be better if you put up a public notice in a newspaper stating that the PoA has been revoked.
However, this procedure is only possible if the PoA is revocable one. An irrevocable PoA should be made after due deliberation and is useful in circumstances when it needs to be operated upon after the death of the granter.
The holder of the document has a big responsibility. Bhakta says that the holder of an LoA or PoA should be aware of the task at hand as well as the purpose for which it is delegated and should act in conformity with these two parameters in order to avoid trouble. “The holder of a letter of authority or power of attorney should be careful not to act beyond the authority granted under the document,” says Joshi. The Supreme Court has said that the holder can act beyond his authority only in cases of emergency, and if it is beneficial to the donor.
“In cases other than an emergency, if the holder acts beyond his authority, the aggrieved party, that is, either the donor or another affected party, can file a suit in a court of law,” says Bhakta.