A power of attorney (“POA”) in essence establishes a relationship of agency between the executor (being the principal) and the holder of the POA (being the agent). Thereby, the basic principles of a POA are derived from Chapter X of the Indian Contract Act, 1872 (“Contract Act”). Agency is a fiduciary relationship in which one party, either expressly or implicitly, authorizes another to act on their behalf in matters affecting legal relations with third parties, and the other party agrees to do so based on this authorization. It is settled that a POA establishes an agency, allowing the grantor to delegate specific actions to the holder, whose acts are legally binding on the grantor as if performed by them personally.

POAs are broadly classified as revocable or irrevocable. Under Section 201 of the Contract Act, all agency contracts are revocable unless excluded by Section 202, which protects an agent’s interest in the subject matter. If the agent has such an interest, the POA remains irrevocable even upon the principal’s death or insanity, unless expressly stipulated otherwise.

A POA serves as an essential legal instrument, allowing individuals or entities to delegate authority to trusted agents for conducting transactions on their behalf. This is particularly useful in property dealings, financial transactions, corporate affairs, and lending arrangements, or where the principal may not always be available to execute documents personally. The significance of a POA lies in its ability to ensure continuity, efficiency, and legal validity in such transactions.

In lending transactions, an irrevocable POA is commonly used by lenders to secure their interests and facilitate enforcement mechanisms. Borrowers often execute an irrevocable POA in favour of the lender or security trustee, granting them the authority to act on their behalf in relation to specific financial and security-related matters. This is particularly relevant in financing transactions, where lenders seek greater control over the assets under security. The lender, acting through the POA, can sell, transfer, or take possession of secured assets (e.g., shares, real estate, or other collateral) without requiring further consent from the borrower.

Additionally, in mortgage structures, an irrevocable POA allows the lender to step into the shoes of the mortgagor and act on behalf of the mortgagor to ensure completion of the construction and/ or securing approvals. This facilitates the enforcement of security in an efficient manner, thereby reducing delays. However, under Indian law, an irrevocable POA must be properly stamped and registered, wherever applicable, to be enforceable, and its validity is subject to judicial scrutiny, particularly regarding its compliance with Section 202 of the Contract Act (POA coupled with interest).

While irrevocable POAs assures the lenders easy enforcement, they must be crafted such as to avoid legal challenges related to unconscionability, fraud, or conflict with statutory rights. Courts in India have upheld such POAs in lending transactions, provided they are executed for legitimate security purposes and do not violate public policy or contractual fairness principles.

Recently, the Supreme Court in V. Ravikumar v. S. Kumar emphasized the binding nature of transactions conducted under a validly executed PoA. In this case, the Court ruled that the cancellation of a POA does not invalidate past transactions lawfully executed before its revocation. The Court also reaffirmed that unless allegations of fraud or coercion exist, actions performed under a POA remain legally binding, even if the principal later challenges them. Furthermore, the Limitation Act, 1963, restricts the timeframe within which a principal can challenge transactions executed under a POA, ensuring legal certainty and protecting third-party rights.

The Supreme Court in another case of MS Ananthamurthy & Anr. v. J. Manjula (“MS Ananthamurthy Judgment”), addressed the validity of a General Power of Attorney (“GPA”) coupled with an Agreement to Sell and whether it could be considered irrevocable. The dispute involved an immovable property originally owned by Muniyappa, who, in 1986, executed a GPA and an Agreement to Sell in favour of A Saraswathi. After Muniyappa’s death in 1997, Saraswathi executed a registered sale deed in favour of her son in 1998. Meanwhile, Muniyappa’s legal heirs sold the property to a third party in 2003 by a registered sale deed to another party (respondent no. 7), who further transferred the property to another person (respondent no. 8) by a registered gift deed.

When the appellant discovered the respondent’s possession in 2007, he filed a suit for ownership and possession, while the respondent sought an injunction to protect possession. The Trial Court and High Court ruled in favour of the respondents, holding that the 1998 sale deed was invalid since the GPA had terminated upon the principal’s death. The Supreme Court upheld these rulings, reaffirming that a GPA not coupled with a legal interest does not survive the death of the principal, and that property transactions must comply with registration and transfer laws under the Registration Act, 1908, and the Transfer of Property Act, 1882.

The Supreme Court in the above matter reiterated the principles for determining when a POA can be considered to be irrevocable. The Court stated a two-fold test for determining the irrevocability of an agency as contemplated under Section 202 of the Contract Act. Firstly, there shall be a ‘principal-agent’ relationship between the parties, and secondly, the agent shall be interested in the subject matter of the agency. If both the said conditions are fulfilled, then the agency becomes irrevocable and cannot be unilaterally terminated at the behest of the principal. The Court, while highlighting its decision in Timblo Irmaos Ltd., Margo v. Jorge Anibal Matos Sequeira, further observed that while analysing the nature of a document, the title or nomenclature of the same is not an essential factor. The Court, in such cases, needs to see the contents of the documents to determine the intention of the parties based on the terms contained within the said documents as well as the circumstances under which the said document was entered into, i.e., the POA need to be read as a whole. Mere use of the word ‘irrevocable’ does not make the POA irrevocable. If a POA is not coupled with interest, no express statement can make it irrevocable. Similarly, in the absence of an express statement, a POA can be considered to be irrevocable if the contents of the documents demonstrate a coupled interest.

From the above, it becomes pertinent to analyse what qualifies as an interest in the subject matter of the agency. In Kondayya Chetti v. Narasimhulu Chetti, the Madras High Court stated that 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 dealings between the parties.

An agent’s interest in the subject matter of a POA is determined by whether it secures an existing right, benefit, or financial stake in the transaction or property. Under Section 202 of the Contract Act, an agency is irrevocable only if the agent has a tangible interest beyond mere authority to act. Courts assess this by considering: (i) whether the agent has a financial stake, such as paying consideration or holding a monetary claim against the principal; (ii) whether the POA protects an existing right rather than being for convenience; and (iii) whether it is linked to an underlying transaction like a sale, loan, or mortgage. A mere mention of ‘irrevocability’ is insufficient—interest must be explicitly stated or clearly inferred. Courts have ruled that an agent’s right to commission alone is not an interest, but an authority to recover advanced funds may qualify. To establish a POA as coupled with interest, the agent must have a legal, financial, or proprietary stake, and the POA must be executed to protect that stake. Courts closely scrutinize its language and context to determine if it qualifies as irrevocable under Section 202.

When drafting a POA, clarity, enforceability, and legal compliance are crucial. The scope of authority must be well-defined to prevent misuse. An irrevocable POA should explicitly state its basis under Section 202 of the Contract Act and specify the agent’s financial or legal stake. Duration and termination clauses must be clear, particularly regarding the principal’s incapacity or death. Proper stamping and registration, especially for immovable property, are essential. For lending transactions, compliance with banking regulations and debt enforcement laws is necessary to avoid disputes.

A POA is a vital legal tool for delegating authority in financial and commercial transactions. However, its enforceability hinges on whether it is coupled with an interest or whether it is merely a revocable agency. The MS Ananthamurthy Judgment reaffirmed that a POA without an interest is revoked upon the principal’s death, underscoring the need for precise drafting. Courts prioritize the substance of the document over its title, recognizing only those genuinely tied to a legal or financial interest as irrevocable. Thus, careful drafting is essential to avoid disputes and ensure smooth execution of transactions.

This article published by Bar & Bench is authored by Aniket Sawant, Associate Partner and Parvathi Menon, Senior Associate at SNG.

Disclaimer: The opinions expressed in this article are those of the author(s). The opinions presented do not necessarily reflect the views of Bar & Bench.