Power of Attorney

Power of Attorney (PoA) is a written instrument through which a principal (the client) authorises an attorney (the adviser or a designated third party) to perform specified acts on the principal’s behalf. In the context of investment management, these acts may include buying or selling securities, signing transaction forms, and accessing account information.

The instrument must be executed on a non‑judicial stamp paper as per the Indian Stamp Act, and it becomes effective only when it is signed by the principal, the attorney, and two witnesses (unless a notary is involved). SEBI (Investment Advisers) Regulations, 2013, require that the adviser retain a copy of the PoA in the client’s file and verify its authenticity before acting on it.

Exam relevance: The NISM exam frequently asks which documents are mandatory for authorising transactions, the difference between a specific and a general PoA, and the consequences of acting without a valid PoA. Remember that a PoA is distinct from a mandate letter; the former confers legal authority, while the latter outlines service terms.

• PoA is a legal authority; mandate letter is a service agreement.
• Without a valid PoA, any transaction can be deemed unauthorised and attract penalties.

Two broad categories exist: General Power of Attorney (GPA) and Specific Power of Attorney (SPA). A GPA grants the attorney wide‑ranging powers to manage all investment‑related activities, whereas an SPA limits authority to particular transactions, such as the purchase of a specific mutual fund scheme.

In practice, advisers often use a Limited Power of Attorney (LPA) that authorises only a defined set of actions (e.g., executing SIPs for a particular scheme) and for a predetermined period. The LPA is preferred because it reduces the risk of misuse and aligns with SEBI’s emphasis on client‑centric authorisation.

Exam tip: Questions may present a scenario and ask which PoA type is appropriate. Choose SPA or LPA when the authority is confined to a single product or a short‑term activity; choose GPA only when the client explicitly wants the adviser to manage the entire portfolio.

• General PoA – broad authority across all investments.
• Specific PoA – authority limited to a particular transaction or product.
• Limited PoA – authority limited to defined actions and time‑frame.

The principal must be of sound mind and capable of understanding the consequences of granting authority. The PoA must be executed on non‑judicial stamp paper of the value prescribed by the respective state’s Stamp Act. Two independent witnesses are required, and the document should be signed in the presence of the witnesses.

SEBI’s Regulation 13(1)(b) mandates that the adviser obtain a certified copy of the PoA and maintain it for the duration of the client relationship. If the PoA is executed outside India, it must be apostilled or attested by the Indian Consulate, and a notarised translation in English is required.

Exam relevance: Questions may ask which of the following is NOT a requirement for a valid PoA. The correct answer will be any option that omits the stamp paper, witnesses, or the principal’s capacity.

• Stamp paper value varies by state – do not assume a uniform amount.
• Electronic PoA is not yet recognised under SEBI for investment advisory.

The scope of authority is defined explicitly in the PoA document. An attorney cannot exceed the powers granted; doing so may constitute fraud under the Indian Penal Code and attract SEBI penalties. Limitations may include prohibitions on transferring assets to third parties, borrowing against securities, or making changes to the client’s KYC details.

SEBI requires advisers to verify the exact powers before executing any transaction. If a client wants to add a new asset class, a supplementary PoA or an amendment must be obtained.

Exam tip: When presented with a scenario where an adviser sells a client’s equity without a specific clause, the correct answer is that the transaction is unauthorised and the adviser is liable.

• Always match the transaction with the authority listed in the PoA.
• Revocation can be immediate, but the attorney must be notified in writing.

Revocation can be effected at any time by the principal through a written notice addressed to the attorney and the adviser. The notice must be signed by the principal and, if possible, witnessed. Upon revocation, the attorney must immediately cease all actions and return any original PoA documents.

Termination may also occur automatically on the expiry date mentioned in the PoA, upon the death of the principal, or if the attorney becomes incapacitated. SEBI’s compliance checklist requires advisers to update the client file within 24 hours of receiving a revocation notice.

Exam relevance: A common question asks which event does NOT automatically terminate a PoA. The correct answer is a change in the market condition; only death, expiry, revocation, or attorney’s incapacity terminate it.

• Never assume a PoA remains valid after the principal’s death.
• Maintain a log of revocation notices for audit purposes.

Advisers must perform due diligence before acting on a PoA. This includes verifying the principal’s identity, confirming the PoA’s authenticity (original stamp paper, signatures, witnesses), and checking that the scope matches the intended transaction.

Record‑keeping is critical. SEBI mandates that the original PoA be retained for a minimum of five years after the client relationship ends. Digital copies are permissible if they are scanned from the original and stored securely.

From an exam perspective, remember the three‑step compliance check: (1) Verify document authenticity, (2) Match transaction with authorised scope, (3) Log the action in the client’s file with date and reference number.

• Failure to retain PoA can lead to penalties up to ₹5 lakh per breach.
• Advisers should obtain client confirmation for high‑value transactions even if PoA permits them.

SEBI (Investment Advisers) Regulations, 2013, prescribe a clear set of documentation and audit requirements for PoA. The checklist below summarises the key compliance points that an adviser must verify before acting on a PoA.

Adhering to this checklist not only ensures regulatory compliance but also protects the adviser from potential civil and criminal liabilities arising from unauthorised transactions.

Exam focus: Many multiple‑choice questions test your knowledge of the checklist items, especially the need for original documents, witness signatures, and periodic review.