The license of Karvy Stock Broking Ltd was recently suspended by NSE for misusing the Power of Attorney to fraudulently pledge the shares of some of thier clients. It is estimated that more than 1 lakh clients have been affected by this scam. The funds raised through share pledging was transferred to one of its sister firms, Karvy Realty Pvt Ltd. The shares pledged belonged to clients and Karvy did not have the right to pledge them. However, it misused the power of attorney (PoA). So, in this blog, we will discuss what you need to know about the power of attorney (PoA) as an investor.
See Also: How your stock broker may cheat you?
Power of attorney (POA) is a legal document which gives legal authority to a person to act on behalf of someone.
Is Power of Attorney (POA) a mandatory requirement for investments?
Power of Attorney is not a compulsory requirement while investing in stocks. But, with the intention of making transactions convenient and hassle-free, many stockbrokers ask for it. As an investor, you have the choice to either give the POA or withdraw it. You can withdraw the Power of Attorney anytime by serving the notice period.
There are two types of PoA, they are Specific PoA and General PoA. Let us discuss each one of them in detail.
Under specific PoA, a single or limited range of power is given to a person to whom you have provided the PoA. If you are giving PoA to your stockbroker, it is advisable to give a specific PoA which is limited to certain things like transfer of securities for margin purposes or for settlement of trades done through a recognized stock exchange like NSE or BSE.
Under general PoA, the right to perform all activities is given to the person to whom the PoA has been granted.
1. If you want to give PoA only give specific PoA.
2. You must specify the period for which PoA is given.
3. Make sure there is a revocation clause.
4. Make sure you receive Contract notes, statements of accounts, Demat transaction statements to your permanent address.
1. Never allow opening or closing of accounts using PoA.
2. Never allow off-market transactions other than for margin purposes.
3. Never allow the transfer of funds account other than that of Trading members' Pool Account of Client Margin Account.
1. The right to open and close accounts must lie only with you.
2. You must give POA only in the name of the SEBI registered stockbroker and not in the name of an individual or any other entity.
3. You must not agree for the broker to use securities and your funds for their monetary needs or for the needs of their other clients.
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