The laws of physics encumber our ability to be in two places at the same time…
Why are we talking about this? Well… For an NRI investor in Indian property, not being present to manage the property in India is the gravest challenge! So, if only that were possible to be in two places at once.
But… we don’t live in a fantasy and the complexity of certain Real estate transactions warrant the presence of the NRI.
Deciding on whether to keep the invested property vacant, or to rent it out? Choosing the right tenants, ensuring that the property is maintained well with periodic upkeep, and dealing with the taxation and legal matters that go hand-in-hand with property transactions – all this needs time, effort and expertise. How could an NRI, residing in another country (or continent) altogether, possibly authorize so many details without being present there?
The POA (Power Of Attorney) is the perfect instrument to facilitate this.
In the simplest terms, a POA enables the principal (in this case, the NRI) grants the right (power) to an attorney (legal representative) to authorize dealings on his/her behalf.
The acts of the legal representative bind the principal. For instance, if the NRI investor decides to invest in a property in India, but cannot be physically present for the registration process, he can identify an individual and hand over the POA to him/her, who can then take the necessary action on the NRI’s behalf. (1)
Here are some things to remember before you decide to use a POA.
Things To Remember When Preparing A POA For Your Property In India
Let’s take a look at some of the factors an NRI investor must know about a POA.
1. Types of POA:
There are different types of POAs based on duration and the powers granted. Here are three of them.
- Special POA: This grants the representative limited powers, restricted to a specific purpose. It may be transaction specific, ceasing once the transaction was completed.
- General POA: Under a general POA, broad powers are granted to the representative to make decisions on behalf of the principal. The representative can carry out various activities on behalf of the principal without any limitation on transactions.
- Durable POA: Such a POA remains effective for a lifetime unless explicitly cancelled. In fact, a special clause can be inserted into the POA to ensure that it remains valid even if the principal happens to be incapacitated.
It is important to note that the Supreme Court passed a judgement in 2011, prohibiting the use of a General POA for real estate transactions.(2)
2. POA For Real Estate Transactions:
In the case of real estate, a POA is useful for the following purposes:
- Mortgage, exchange, sell, lease, collect rent, grant, borrow or purchase a property.
- Manage and settle disputes pertaining to any property
- Perform the transactional acts as required by banks, insurance companies, etc.
- For properties with more than 2 owners, granting the POA to a single owner makes it simple for all practical purposes. This person would be empowered to act on behalf of all the owners collectively.
3. Process Of Executing A POA (In India):
If an NRI is present in India, he/she can follow the steps given below to execute a POA:
- The NRI needs to get the POA matter drafted and typed on non-judicial stamp paper of adequate value which is generally Rs. 100.
- He/she will need to visit the Sub-Registrar’s Office with two witnesses and the chosen legal representative.
- All the persons going to the Sub-Registrar’s office must carry valid proofs of identity, along with the original copy and a photocopy of the POA.
- At the Sub-Registrar’s office, signatures, passport-sized photographs and fingerprints of the individuals involved will be taken.
- The NRI will be given a date (normally, 3-5 days after all the formalities are completed) to collect the registered POA from the Sub-Registrar’s office.
4. Process Of Executing A POA (From Outside India):
If the NRI cannot visit India for the purpose of executing a POA for whatever reason, he/she can execute it from the country where he/she is based in, through the Indian Embassy/Consulate. There are two ways he/she can do so:
- Legislation: Signatures of the notary or judge before whom the POA is executed are required to be authenticated by the duly accredited representative of the Indian Embassy/Consulate. Such a POA need not be stamped at the time of execution. However, it needs to be stamped within three months from the date of receipt of the POA in India. Stamp duty would be payable according to Section 2(17) read with Schedule-I of the Indian Stamp Act, 1899, when the deed is presented for registration in India.
- Apostilization: A POA can be executed outside India through the process of apostilization, which is governed by the Hague Convention, 1961. An apostille is a certificate which verifies and confirms the signature/seal of the person who has authenticated the document.
Take an example of executing a POA from the USA. The deed should be prepared in accordance with the laws of the state where the NRI resides. It also needs to be in accordance with the Indian laws, such as the Indian Registration Act, 1908, and the Power Of Attorney Act, 1882.
The next step is to get it notarized by a local Notary Public. Finally, the NRI will have to approach the U.S. Department of State Authentication Office to get an apostille stamp affixed in the document. Stamp duty is also payable on this.
5. Regulation Of A POA:
A POA must be interpreted to include all the powers necessary for its execution. No additional rights should be construed unless they are specifically mentioned. For example, The ‘right to lease’ cannot be construed to entail the ‘right to sell’.
The legal representative has to act within the scope defined in the POA, and cannot bind the principal by acts that are beyond his authority. An NRI will not be sued or held responsible for a fraud committed by the representative unless it is proven that the crime was committed in connivance with the NRI.
6. Revocation Of A POA:
If the NRI (principal) thinks that the legal representative is misusing the powers granted to him/her or is unable to discharge the duties assigned to him/her, the option to revoke the POA is always available. Revocation is also useful if the NRI is in a position to take care of his/her assets himself. Here’s when an NRI can revoke a POA:
- The POA can be revoked if the principal dies (unless there’s a clause stating otherwise), is declared insolvent or becomes insane.
- A POA can be revoked based on a mutual agreement between the principal and the legal representative.
- A POA is revoked when the particular transaction for which it was executed is completed.
Additionally, a POA may be revocable or irrevocable. A power of attorney is revocable if the principal reserves the right to revoke the power at any time. Once the principal revokes the power, the agent can no longer act on the principal’s behalf. But a power of attorney can be made irrevocable if the document includes a provision that specifically states that the principal gives up the right of revocation or otherwise indicates that the power is irrevocable. As a practical matter, an irrevocable power of attorney is rarely used and is typically limited to a specific purpose.
Here’s the process an NRI would need to follow to revoke the POA, in case of a dispute:
- Draft a Power of Attorney Revocation deed with the help of a trained lawyer.
- If the Power of Attorney had been notarized, the NRI will need to get the Revocation deed notarized as well.
- Send a copy to the legal representative. Ideally, the NRI should do this by registered post so that there is proof that he/she has received it.
- Send a copy of the revocation deed to all the institutions and banks where the legal representative has conducted transactions for the NRI.
- Also, send a copy to the deed registry office where the POA was originally issued.
The POA can be revoked by the NRI even if he/she is not physically present in India. He/she could issue a legal notice to the Sub-Registrar in India through post or through a lawyer stating the reasons for revocation.
If the interests of a larger number of people are affected, it helps to publish a notice in any well-known newspaper. A notice of the revocation should also be posted on the property, where it is visible to the general public.
It is important to remember that for properties where the owner only possessed the right of possession, and not of ownership, the sale would be considered illegal. The proper transfer of title and ownership cannot take place if the sale is done through a POA, and not by means of a sale deed.
For an NRI investor, nothing is more important than entrusting his/her property to someone who won’t just take care of the property, but also ensure that he/she is getting the maximum returns from it. And who could do this better than a real estate portfolio manager?
If you are an NRI looking for a solution to your real estate woes, get in touch with Homzhub today!