Power of Attorney

A Power of Attorney hands your hands to somebody else. The person who grants it is the principal; the person who receives it is the agent, and from that moment the agent can do, in your name, whatever the document allows.

In the securities market the everyday use is convenience. When you sell shares, they have to leave your demat account on time. A PoA in favour of your broker or depository participant lets them move the shares and the funds without chasing you for a signature on every trade.

The workbook's own framing is the one to remember: it is "a document of high importance as it is capable of giving your rights and access over your accounts and money to somebody else".

There are two shapes, and the difference is the whole safety argument:

• A general power of attorney gives the agent power to accomplish anything the principal could do.
• A special (specific) power of attorney gives limited powers — the power to accomplish a specific transaction.

SEBI's position, stated in Chapter 5, is that a specific PoA as per SEBI guidelines may be executed in favour of the stock broker or depository participant, and that signing a PoA is not mandatory — it is purely optional and voluntary. You may sign one if you find it useful, and you can revoke it at any point of time.

The Do's and Don'ts annexure puts the corresponding warning in one line: "Don't issue general power of attorney (PoA) in favour of the Stock Broker / Depository Participant."

If shares move out of your account for any reason other than those you authorised under the PoA, take it up with the broker immediately; if no response comes or the response does not satisfy you, escalate to the depository or the exchange.

Rajesh holds Rs 4,20,000 of shares in his demat account and signs a PoA so his broker can deliver shares against his sales without a slip each time.

In March his depository SMS alert shows 200 shares of a company at around Rs 850 — Rs 1,70,000 worth — debited from his account. Rajesh placed no sell order.

Because his PoA is a specific one, limited to settlement of trades he has actually executed, this debit is outside what he authorised. He writes to the broker the same day. No reply comes in 48 hours, so he takes the matter to the depository and the exchange, and files a complaint on SCORES.

Had he signed a general PoA instead, the broker would have held authority to "accomplish anything the principal could do". The same debit would have been formally within the document he signed — and his complaint would have been arguing about conduct rather than about authority. Rs 1,70,000 turns on which of the two words was printed on the form.

Chapter 5 (Investment in Securities Market) covers the PoA in the account-opening section, and Chapter 7 (Pension, Retirement and Estate Planning) covers it again as an estate-planning instrument with the principal-and-agent vocabulary. Two facts are asked repeatedly: a PoA is not mandatory, and a general PoA should never be issued in favour of a broker or DP. Expect a question that offers "mandatory for trading" as a plausible-looking wrong option.

• Not mandatory. SEBI guidelines make it optional and voluntary. Any option saying a PoA is compulsory to trade is wrong.
• Revocable at any time. A PoA is not a one-way door.
• General is wide, special is narrow. General = anything the principal could do. Special = one specified transaction. The Do's and Don'ts warn against the first in favour of an intermediary.
• A PoA is not a nomination. A PoA operates while you are alive and lapses on death; a nomination operates only on death.
• A PoA does not transfer ownership. The agent operates the account; the securities remain yours.
• Signing the account-opening form is not the same as signing a PoA — the workbook asks you to give specific authorisation for the running-account facility and for the PoA separately, precisely to avoid later disputes.