Power of attorney for consideration is irrevocable

Section 202 of the Indian Contract, 1872 provides that 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. This principle was further elaborated by the Hon’ble Supreme Court of India in its Order dated 25th April, 1968 in Seth Loon Karan Sethiya v/s Ivan E. John & Ors wherein the Apex Court while referring to Section 202 of the Indian Contract Act, 1872, held that it is settled law that where the agency is created for valuable consideration and authority is given to effectuate a security or to secure interest of the agent, the authority cannot be revoked.

The question which arises subsequently is regarding the validity of a power of attorney after the death of the donor which was executed in favour of the donee for consideration. The Hon’ble Delhi High Court has explicitly answered the aforesaid question by its Order dated 24th April, 2012 in Shri Ram Murti Singh Sisodia v/s Shri Pratap Singh Sisodia wherein the Court held that such a power of attorney which is given for consideration will remain valid even after the death of the executant, so as to ensure that entitlement under such power of attorney remains because the same is not a regular or a routine power of attorney but the same had elements of a commercial transaction which cannot be allowed to be frustrated on account of death of the executant of the power of attorney.

Registration of power of attorney

The Registration (Maharashtra) Amendment Act, 2010 came into effect in the State of Maharashtra on 1st April, 2013 whereby irrevocable powers of attorney relating to transfer of immovable property in any way, executed on or after the commencement of the Registration (Maharashtra Amendment) Act, 2010 requires compulsory registration under Section 17 of the Registration Act, 1908.

The aforesaid amendment was further analyzed by the Hon’ble Bombay High Court by its order dated 15th January, 2015 in S.D. Corporation Private Limited v/s Municipal Corporation of Greater Mumbai in respect of powers of attorney which were executed prior to the Amendment Act but were being acted upon subsequent to such amendment. The facts of the case were that a registered Development Agreement along with an unregistered power of attorney were executed prior to the aforesaid Amendment Act in favour of a developer by the society to carry out redevelopment of the society’s property. However, when the developer approached the municipal corporation for sanctioning of plans on the basis of such unregistered power of attorney, the municipal corporation rejected the application as a registered power of attorney was not presented to the corporation. The court held that though the amendment is prospective in nature, as permission was sought in the year 2014, i.e. after coming into force of the amended provisions of Section 17 of the Registration Act, 1908, the municipal corporation was justified in seeking a registered power of attorney for the purpose of development of immovable property.

Accordingly, all irrevocable powers of attorney relating to transfer of immovable property in any way, not only executed but also being utilized after the commencement of the of the Registration (Maharashtra Amendment) Act, 2010, i.e. on or after 1st April, 2013, will require to be registered.

Cancellation of power of attorney

The Hon’ble Supreme Court of India by its order dated 28th January, 2022 in Amar Nath v/s Gian Chand has held that a line drawn across a power of attorney does not amount to cancellation thereof. The court further held that even in the absence of a registered cancellation of the power of attorney, there must be cancellation and it must further be brought to the notice of the third party at any rate, failing which a cancellation is not made out.

Accordingly, a third party bona fide purchaser can safely assume the validity of a power of attorney, unless and until the same has been cancelled either by a register document or cancellation has been brought to the notice of such third party.

In light of what is stated above, the courts in India have taken a strong stand on the manner in which powers of attorney can be utilized across transactions. The position in law for the utilization of powers of attorney is constantly evolving with the courts setting the right checks and balances to ensure that there is no misuse of power. Each party utilizing a power of attorney in any transaction must ensure that the power is valid by being in compliance with the law so as to avoid knocking on the doors of the court at a later stage.

This article was originally published in The Times of India on 6 February 2023 Co-written by: Bhoumick Vaidya, Partner; Harshini Kotecha, Associate. Click here for original article

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