I. What is a Power of Attorney ?
(a) Definition :
(1) According to S. 1A of the Powers of Attorney Act, 1882 (POA
Act) a power of attorney includes any instrument empowering a specified person
to act for and in the name of the person executing it.
(2) Power of Attorney is also defined under S. 2(21) the
Indian Stamp Act, 1899 (Indian Stamp Act) according to which Power of attorney
includes any instrument (not chargeable with a fee under the law relating to
the Court fees for the time being in force) empowering a specified person to
act for and in the name of the person executing it.
(b) Power of Attorney as an Agency :
(1) A power of attorney is a delegation of authority in
writing by which one person is empowered to do an act in the name of the other.
The person who acts on behalf of another person (the principal) by his
authority, express or implied, is called an agent and the relation between him
and his principal is called agency.
(2) A power of attorney holder is nothing but an agent as
defined in S. 182 of the Indian Contract Act, 1872 (Contract Act). The
authority of an agent is his power to affect his principal position by doing
acts on his behalf. Actual authority is the legal relationship between the
principal and agent created by a consensual agreement to which they alone are
parties.
(3) A power of attorney is a document of convenience. Where
circumstances require appointing an agent formally to act for the principal in
a particular transaction, or a series of transactions, or to manage the affairs
of the principal generally, the necessary authority is conferred by a power of
attorney.
(4) In typical commercial transactions, a power of attorney
may also purport to act as security to enable the security holder to exercise
the powers conferred on him, which would be difficult for the donor to perform
at a subsequent time. This subsequent nature of a power of attorney is dealt
with herein.
Termination of a Power of Attorney :
(a) Generally speaking, a power of attorney can be
terminated or cancelled by the principal by revoking his authority or by the
power of attorney holder renouncing his authority.
(b) According to S. 201 of the Contract Act, an agency can
be terminated by the principal by revoking his authority or by the agent
renouncing his authority, unless such revocation is prohibited under S. 202 of
the Contract Act (quoted herein-below). S. 201 of the Contract Act also states
that an agency terminates, inter alia, by death of principal or agent.
(c) Now, the questions that arise are whether a power of
attorney can be irrevocable in nature, and, whether an irrevocable power of
attorney granted would terminate on death of a donor ? In such an event, would
the security holder under a power of attorney, cease to hold such security in
the event the donor dies ? III. When does a power of attorney become
irrevocable ?
(a) Legal provisions :
(1) The POA Act does not state when a power of attorney is
irrevocable. However, in various commercial transactions, a donor gives an
irrevocable power of attorney, on contractual basis, to secure the interest of
the donee of the power.
(2) Under S. 4 of the (English) Powers of Attorney Act, 1971
a power of attorney is irrevocable if it is expressed to be so and is given to
secure :
(i) a proprietary interest of the donee of the power; or
(ii) the performance of an obligation owed to the donee.
Then, so long as the donee has the interest or the obligation remaining
undischarged, the power cannot be revoked by the donor without the consent of
the donee, or by death, incapacity, insolvency, winding up or dissolution of
the donor.
(3) Illustration :
In a typical Mumbai scenario, where redevelopment of
property is common, A, being the owner of a piece of land over which he
resides, gives B, a developer, an irrevocable power of attorney to develop such
land and ultimately transfer the same in favour of a Society or Condominium or
such Association of Persons. Such a power of attorney is given for a valuable
consideration. In the event A dies whilst the property is in the process of
being redeveloped, such an irrevocable power of attorney granted by A to B
cannot be revoked or terminated and B is entitled to complete such
redevelopment.
(4) Where a power of attorney is given for a valuable
consideration and expressed to be irrevocable, or is given to secure a
proprietary interest of the donee of the power, or the performance of an
obligation owed to the donee, then, so long as the donee has that interest, or
the obligation remains undischarged, the power is irrevocable.
(b) Authority coupled with interest :
(1) S. 202 of the Contract Act lays down the rule that an authority
coupled with interest is irrevocable.
(2) S. 202 of the Contract Act states 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."
(3) Illustrations :
(a) A gives authority to B to sell A land, and to pay
himself out of the proceeds, the debts due to him from A. A cannot revoke this
authority, nor can it be terminated by his insanity or death.
(b) A consigns 1,000 bales of cotton to B, who has made
advances to him on such cotton, and desires B to sell the cotton, and to repay
himself out of the price the amount of his own advances. A cannot revoke this
authority, nor can it be terminated by his insanity or death.
(4) In the aforesaid illustrations, authority is given for
the purpose of being a security for a debt, therefore it is irrevocable.
(5) Where the authority of an agent is given by deed, or for
valuable consideration, for the purpose of effectuating any security, or of
protecting or securing any interest of the agent, it is irrevocable during the
subsistence of such security or interest.
(6) To make the authority irrevocable, the agent must have
an interest in the property which forms the subject matter of the agency. 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 any express
contract, be terminated to the prejudice of such interest.
(7) The mere fact that a power is declared in the instrument
granting it to be irrevocable, does not make it irrevocable.
(8) The exceptional case dealt with here is that in which
the authority or power is coupled with an interest in the thing on which power
is to be exercised.
(9) Instead of the words authority coupled with an interest used
in the English and American systems of law, the Section contains the words the
agent has himself an interest in the subject mater of the agency. Under the
English law, what is meant by an authority coupled with an interest is this that
where an agreement is entered into on a sufficient consideration, whereby an
authority is given for the purpose of securing some benefit to the donee of the
authority, such an authority is irrevocable. [Clerk v. Laurie, 2 H & N
199].
(10) In Prahlad v. T. F. Kumari, AIR 1956 Pat 233 where,
under a document drawn in the form of a power of attorney, a lady agreed that
the debts raised by X for her should be realised out of the collections of a
particular estate and the effect of the document though not described as one of
agency was to create an agency in favour of X, it was held that the agency was
one coupled with an interest and therefore irrevocable and in substance
amounted to an allocation of the funds to be appropriated towards the repayment
of the debts.
(11) Similarly, when an agent is employed to enter into any
contract, or do any other lawful act involving personal liability, or is
expressly or impliedly authorised to discharge such liability on behalf of the
principal, the authority becomes irrevocable as soon as the liability is
incurred by the agent [Read v. Anderson, (1884) 13 QBD 779], and where an agent
is authorised to pay money on behalf of his principal to a third person, the
authority becomes irrevocable as soon as the agent enters into a contract, or
otherwise becomes bound to pay or hold such money to or to the use of such
person [Robertson v. Fauntleroy, (1823) 8 Moore 10].
(12) So, where a principal and agent agree for valuable
consideration or under a seal that the agent is to have authority, for example,
to collect rents in order to secure a loan [Spooner v. Sandilands, (1848) I Y
& C. Ch. 390], or to sell certain land and to discharge a debt owed to him
by the principal out of the purchase money [Gaussen v. Morton, (1830) IO B
& C 731], the principal thereby confers an interest on the agent, and the
agency cannot be revoked unilaterally.
(13) As decided in Pestanji Mancharji Wadia v. Matchett,
(1870) 7 BHC AC 10, where an agent is authorised to recover a sum of money due
from a third party to the principal, and to pay himself out of the amount so
recovered the debts due to him from the principal, the agent has an interest in
the subject matter of the agency, and the authority cannot be revoked.
(14) Illustration : A owes B a certain sum of money. A
authorises B to recover from C, the rent which C owes A, and to pay himself (B)
out of the rent recovered, the debts due to him from A. Such an authority
cannot be revoked by A, because such authority confers an interest on B.
(15) So also a vendor promoter of a company, who is to be
paid a commission out of the money raised by the issue of shares, has a clear
and direct interest in raising the capital. An underwriter who promises to buy
a certain number of shares from the promoter and authorises him to make the
necessary application, cannot revoke the authority, this being an authority
coupled with interest. [Carmichael case (1896) 2 Ch. 643]
(16) "If a borrower, in consideration of a loan,
authorises the lender to receive the rents of Blackacres by way of security,
the authority remains irrevocable until repayment of the loan in full has been
effected. This doctrine applies only where the authority is created in order to
protect the interest of the agent; it does not extend to a case where the
authority is given for some other reason and the interest of the agent arises
later." [Cheshire
on the Law of Contracts, 6th Ed.]
(17) Illustration :
A (lender) has given B (borrower) a certain loan. As a
security for repayment of the loan, B authorises A to receive all the rent
which B is entitled to — arising out of a certain property owned by B —
until such loan is repayed by B to A. Such an authority created to protect the
interest of A, is irrevocable.
(18) Further, the principle applies only to cases where
authority is given for the purpose of being a security or a part of the
security, and not to cases where the interest of the donee arises afterwards
and incidentally. In such cases there is no authority coupled with an interest;
but an independent authority, and an interest subsequently arising [Garapati
Venkanna v. Mallupudi Atchuta-ramanna, AIR 1938 Mad. 542].
(19) However, it is pertinent to note that mere right to
remuneration or commission does not constitute an agency coupled with interest.
(20) For example, the agents for the sale of cloth who are
entitled to keep for themselves any excess over rates that they might secure
from purchases have no interest in the property to be sold or in the sale
proceeds thereof, so as to attract S. 202 of the Contract Act [Dalchand v. Seth
Hazarimal, AIR 1932 Nag. 34].
(21) In another Bombay case, it was held that the mere fact
that the salary of an agent collecting rents was to be paid out of the
collections, did not create an interest sufficient to make the authority
irrevocable [Vishnucharya v. Ramachandra, ILR 3 Bom. 253].
(22) For instance, as held in Lakshmichand Ramchand v.
Chotooram Motiram, (1900) 24 Bom. 403, the interest which the agent has in
effecting a sale and the prospect of remuneration to arise therefrom, do not
constitute such an interest as would prevent the termination of the agency.
(23) If any such interest were to be created for the benefit
of the agent, it should be contemporaneously provided for in the instrument of
agency itself and should not only be express but also be explicit. It should
not give any room for doubt, nor could it be a matter of interpretation. An
agency to be irrevocable should therefore create in the agent an interest in
the subject matter contemporaneously with the document wherein such agency is
created and it cannot be left to chance or guess or inference.
(24) In Corporation Bank v. Lalitha H Holla, AIR 1994 Kant.
133, held : the fact whether the power of attorney is given for securing the
interest of the agent, can be ascertained from the facts de hors the express
terms of the contract.
(25) In Kondayya Chetti v. Narasimhulu Chetti, (1986) 20
Mad. 97, held : The interest of the agent in the subject matter of the agency
may be inferred from the language of the document creating the agency, and from
the course of the dealings between the parties, it need not be expressly given.
It is the existence of the interest and not the mode in which it is given, that
is of importance.
(26) In Mariyakutty v. Chalandian Bank Ltd., AIR 1957 TC
174, the hypothecation deed showed that the shares and the right to the
dividends on the same were all charged for the amount borrowed. It was further
stipulated that as long as the debt was in existence, the pledgee was authorised
to receive directly from the bank any dividend declared and appropriate the
same towards interest. It was held that these words clearly created an agency
in favour of the pledgee in view of the hypothecation deed which clearly
authorised the pledgee to represent the owner of shares with regard to receipt
of dividends from the bank, and that the agency created was one contemplated in
S. 202, and could not be determined at the instance of the principal alone. IV.
Whether an irrevocable power of attorney would terminate on death of donor ?
(a) Indian Law :
(1) The Supreme Court of India, in the case of Seth Loon
Karan Sethiya v. Ivan E. John, AIR 1969 SC 73, held : 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. 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.
(b) English Law :
(1) According to S. 4(1) of the (English) Powers of Attorney
Act, 1971 a power of attorney is irrevocable if it is expressed to be so and is
given to secure :
(i) a proprietary interest of the donee of the power; or
(ii) the performance of an obligation owed to the donee.
Then, so long as the donee has the interest or the obligation remaining
undischarged, the power cannot be revoked by the donor without the consent of
the donee, or by death, incapacity, insolvency, winding up or dissolution of
the donor.
(2) According to S. 126 of the (English) Law of Property
Act, 1925 (15 & 16 Geo. V, c.20) Powers of attorney, which are given for a
valuable consideration and which are stated in the instrument creating them to
be irrevocable, cannot be revoked at any time either by any thing done by the
donor of the power without the concurrence of the donee, or by the death, disability,
or bankruptcy of the donor of the power. Any purported revocation will be
ineffective both as regards the donee and a purchaser for value.
(3) Adopting the classical statement of the rule given by
Wilde, C.J. in Smart v. Sandars, (1848) 5 CB 895, 917, Bowstead on the Law of
Agency, 14th Edition, page 423, states as follows : ]
"(i) Where the authority of an agent is given by deed
or for valuable consideration, for the purpose of effectuating any security, or
of protecting or securing any interest of the agent, it is irrevocable during
the subsistence of such security or interest. But it is not irrevocable merely
because the agent has an interest in the exercise of it or has a special
property in, or lien for advances upon, the subject matter of it, the authority
not being given expressly for the purpose of securing such interest or advances
:
(ii) Where a power of attorney whenever created is expressed
to be irrevocable and is given to secure a proprietary interest of the donee of
the power, or the performance of an obligation owed to the donee, then, so long
as the donee has that interest, or the obligation remains undischarged, the
power is irrevocable;
(iii) Authority expressed by this article to be irrevocable
is not determined by the death, insanity or bankruptcy of the principal, nor .
. . where the principal is an incorporated company, by its winding or
dissolution, and cannot be revoked by the principal without the consent of the
agent."
V. Conclusion :
What emerges from the above is that an irrevocable power of
attorney creating an agency, wherein the agent (the donee) has an interest in
the property and which forms the subject matter of such agency created for
valuable consideration, the agency cannot be terminated to the prejudice of
such interest, unless there is an express contract to the contrary. It can,
therefore, be inferred that an irrevocable power of attorney granted in
relation to a subject matter in which the donee has an interest, cannot be
revoked by the donor, nor can it be terminated by the death, unsoundness of
mind or insolvency of the donor to prejudice such interest created by the donor
in favour of the donee.
Source: P.V.Poornima,
Lawyers Club
