Power of Attorney and Letter of Authority

Posted by Reading Time: 3 minutes

Dec. 15 – A Letter of Authority (LOA) can be used for most tasks, but should not be used for tasks that are more complicated. When large transactions are involved Power of Attorney (POA) is a better option because POA sets out the manner in which an action is to be carried out. An LOA may or may not identify how an action is to be carried out. In addition, POA is a notarized certificate with an added perimeter, while an LOA is not an authenticated document. An LOA merely authorizes one person to do a particular act for another person. Therefore, it is best used for a very specific purpose. It can be used, for example, when collecting or submitting documents on the authorizing person’s behalf. Experts agree however, that when large transactions need to be made, the authorizing person should opt for POA instead. There are two types of POA — general and special. POA is considered “special” if the appointment of POA is made for a single specified act or acts. POA is “general” if it is intended to grant general decision-making power with regard to certain acts, e.g., representation before the income-tax department. Additionally, POA may be revocable and irrevocable.

POA may or may not require registration. A POA dealing with immovable property requires mandatory registration. For example, POA that accompanies a development agreement would require registration while the power to operate a bank account may not. A Supreme Court judgment ruled that general POA cannot be used for transfer of immovable properties. The Supreme Court held that general POA has no legal sanctity and immovable property can be sold or transferred only through registered deeds.

Power of Donor
The person who appoints another to proceed on his/her behalf is known as the donor. The person who is appointed to act on behalf of the donor is known as the holder. Both LOA and POA offer different powers with respect to donor’s control over the activities of the holder. The difference stems from the way LOA and POA define the relationship between the donor and the holder. The relationship according to a LOA may be thought of as similar the relationship of master and servant whereas the POA relationship is more like that of principal and agent. In the LOA relation, the master (the donor) has the right to direct what acts the servant (the holder) is expected to perform. In the POA relation, the principal (the donor) has the right to direct what acts the agent (the holder) is expected to perform (general POA) as well as how the acts are to be done (special POA). The tasks that are specified in an LOA are usually carried out under the supervision of the person granting authority and the grantee must conform to all reasonable requests within the scope of the assigned task. In the case of a POA, there is greater scope for independence.

POA is accompanied by a confirmation clause, which involuntarily results in vicarious accountability. This means that the donor is responsible for the acts of the holder. One of the key ways to prevent misuse of LOA and POA is to have simple, clearly defined contracts. There are two additional reasons why great care must be taken in granting POA. Because the person granting power will be held responsible for the grantee’s actions, this individual should define well the powers that are being given, so that the legal risks for the granting person are well understood. Secondly, the person receiving POA should also understand the scope of the powers being granted so as to avoid any transgressions. In sum, the donor must make very clear the matters which the holder can represent the donor on and their scope.

Revocation of POA
It is also import to indicate the duration of POA and the conditions according to which it may be revoked.

Cancellation of document
After completion of the assigned work the documents must be cancelled. An LOA may be cancelled by issuing a new LOA that states the previous one has been cancelled. Alternatively, an LOA may be revoked by the holder of the LOA. An irrevocable LOA is not permitted. In the case of a POA, the procedure is more complex. If the POA is revocable, the document should state the circumstances under which it can be revoked. If the document does not state the conditions for revocation it may be revoked through execution, effectively cancelling it. If the POA was registered, a registered deed of cancellation is also necessary. If this is the case, it is common practice to place a public notice in a newspaper stating that the POA has been revoked. If the POA is irrevocable, cancellation should only be made after due consideration and usually may only be carried out after the death of the donor.