General power of attorney
Also written General PoA
A power of attorney that lets the agent do anything the principal could do. The booklets warn never to give one to your stock broker or depository participant; give a specific one instead.
In plain language
A power of attorney lets someone act for you. A general power of attorney lets them act for you in everything.
The person giving the power is the principal; the person receiving it is the agent. Under a general power of attorney the agent can do "anything the principal could do": operate your bank accounts, sell your vehicle, buy property, take a home loan.
That breadth is useful when someone you trust completely must manage all your affairs. It is dangerous when given to a firm that already has access to your shares and money, which is why both booklets say: do not issue a general PoA to your broker or DP.
How it works
The two kinds (Chapter 7):
| General power of attorney | Special power of attorney | |
|---|---|---|
| Scope | Agent can accomplish anything the principal could do | Agent has limited powers, such as a specific transaction |
| Typical use | Someone managing all your affairs | One sale, one registration, one account operation |
Chapter 7 gives examples of what a power of attorney can include: accessing bank accounts, selling a vehicle, purchasing property or getting a home loan. It "ensures that important matters are dealt with by someone you trust if you are unable to deal with them yourself."
In the securities market (Chapter 5 and the securities-market booklet):
- A client may execute a PoA in favour of the broker or DP so they can operate the demat and bank account for delivery of shares and pay-in and pay-out of funds.
- A specific PoA, as per SEBI guidelines, may be executed in their favour.
- Signing a PoA is not mandatory. It is purely optional and voluntary, and can be revoked at any time.
- Don't issue a general Power of Attorney in favour of the Stock Broker / Depository Participant. Exercise due diligence by issuing a very specific one, if you want to issue a PoA.
- If shares move for any reason other than what you authorised under the PoA, take it up with the broker immediately, then the depository or exchange.
A worked example
Amounts and situations are illustrative.
A sensible general PoA: Colonel (retd) Mathew, 81, of Kottayam, is becoming frail. He gives his daughter Anna, who lives with him, a general power of attorney so she can operate his bank accounts, pay his hospital bills, and sell his old car for Rs 2,40,000. He trusts her with anything he could do himself, which is exactly what a general PoA gives.
A risky general PoA: his neighbour Joseph opens a trading account and the broker's kit includes a PoA. Joseph is about to sign a general one. Under it the broker could, in principle, do anything Joseph could do with the linked accounts, including moving his Rs 9,00,000 of shares.
Anna points him to the Don'ts: never give a general PoA to a broker or DP. Joseph either signs nothing (a PoA is not mandatory) or signs a specific PoA limited to delivering shares against sales he has actually made. Six months later he changes brokers and revokes it, which he can do at any time.
Why NISM asks about it
Chapter 7 (Pension, Retirement and Estate Planning) defines general and special power of attorney with the principal-and-agent vocabulary. Chapter 5 and the securities-market booklet's Do's and Don'ts warn against a general PoA in favour of a broker or DP. Expect a definition question ("anything the principal could do") and a Don'ts question.
Common exam traps
- General = anything the principal could do; special = limited, such as one transaction.
- Never a general PoA to a broker or DP. If you give one at all, give a very specific one.
- A PoA is optional and voluntary in the securities market, and revocable at any time.
- The principal gives; the agent receives. Options that reverse the roles are wrong.
- A PoA is not a Will and not a nomination. It lets someone act for you; it does not decide who inherits.
- A running-account authorisation and a PoA each need specific authorisation; neither is implied by signing the account opening form.
Where this is taught
Free preparation for NISM Series X-BRelated terms
- Power of AttorneyA legal document by which you authorise somebody else — often your stock broker or depository participant — to operate your demat and bank account on your behalf. It is optional, and revocable.
- Estate planningDeciding during your lifetime who is to receive which of your assets after your death, and documenting it — mainly through a Will and nominations — so heirs can claim them easily and cheaply.
- Special power of attorneyA power of attorney that gives the agent only limited powers, such as carrying out one specific transaction. SEBI guidelines allow a specific PoA to a broker or DP, never a general one.
- WillA written legal declaration of how a person wants their assets distributed after death. Registration is not compulsory but preferable; without a Will, assets pass under personal laws.
- Demat accountAn account with a depository participant of NSDL or CDSL that holds your shares and other securities in electronic form. Since April 1, 2019, shares must be in demat form to be transferred.
- Trading accountThe account you open with a SEBI-registered stock broker to buy and sell securities on a stock exchange. You get a Unique Client Code, a contract note within 24 hours of each trade, and alerts.