Mandates Vs Power of Attorney

 

Mandates

Sometimes, an account holder appoints a third person to act on his behalf or to do certain acts, like drawing cheques or instructing the bank to debit his account for various purposes like issuance of drafts, mail transfers, or for carrying outstanding instructions. When such authority is given to the banker in the form of an unstamped letter, signed by the customer (account holder) and addressed and submitted to the bank, it is called a mandate letter.

The banker verifies the signature of the customer on the mandate letter and then, if satisfied, makes an appropriate note in his records. It may be noted that a mandate is issued by a customer generally for a short and temporary period. The bank does not accept mandate letters for a limited company, cooperative society, or trust account. In case of doubt or difficulty, with regards to the correctness of the mandate letter, the banker should insist that a power of attorney be issued in favor of the third person, which should be registered by the banker. The mandate comes to an end on death, insanity, insolvency, or bankruptcy of the account holder.

Power of Attorney

It is a document executed by one person 'donor' or 'principal' in favor of another person 'donee' or agent to act on behalf of the former, strictly as per authority given in the document. Two types of power of attorney, viz, special and general can be granted. A special power of attorney is issued for a specific purpose. Often, it is for a single transaction. Against this, the general power of attorney, empowers an agent to act in respect of more than one transaction and confers very extensive powers on him. A banker, while scrutinizing and registering a power of attorney must verify whether a specific mention is made in ti to sign cheques on behalf of his principal. The attorney can also stop the payment of the cheque.

Sometimes, the power of attorney authorizes the agent to sign documents for borrowal accounts on behalf of the principal. Bankers generally do not allow the agent to sign such documents on behalf of the principal and insist that the borrower himself signs the documents. The banker should obtain the original power of attorney for verification and a copy of the same should be retained for recording the same in its power of attorney register as well as in the relative account folio of the customer. The principal can withdraw or cancel the power of attorney given to the agent at any time. He, however, will be responsible to the bank for all the acts of the agent, till the bank receives the notice of cancellation.

Difference between Power of Attorney and Mandate

The document which has become an integrated part of the mercantile community and without which perhaps the wheels of the domestic and international trade may move further is the power of attorney which is executed for several reasons to avoid the presence of a person for a particular on and to provide a substitute for the said person who may attend on behalf of the former. A power of attorney connotes  "a delegation of authority in writing by which person is empowered to do an act in the name of another.,"

A power of attorney is to be distinguished from a mandate which is given by a customer to the bankers. On many occasions, the customers give power of attorney to a certain person to deal with their bankers. This power of attorney deals with several transactions. an ordinary mandate is that by which a customer gives instructions to his bankers authorizing his nominee to operate upon his account. A mandate confers authority to operate on or in connection with the customer's banking account under a power ane the right may apply to any legal transaction for which the donor of the power wishes to provide for. Whenever a mandate is given the bankers are informed that certain powers have been delegated whereas a power of attorney acts as a general notice and authority. Such a power may be special or general. The special attorney is for a single transaction whereas a general attorney is from more than one transaction or generally. IN some of the powers of attorney, there is a general clause by which the donor undertakes to ratify anything which is done may do on the donor's behalf.

In addition to it, a mandate relates only to a banking account and is addressed to a particular bank. A power of attorney has a wide range of power. A mandate is usually accepted for credit account whereas a power of attorney is insisted upon in the case of overdraft and cash credit accounts. Moreover, a  power of attorney may be only for a limited period ad it may be revocable e and irrevocable ie. when it can't be revoked except with the express comment of the agent. Hence, the following guidelines are very useful for bak which are as follows:

1. The power delegated must be expressly stated. A general power to transact the donor's business does not include authority to draw, accept and endorse bills of exchanges or to borrow money, or the authority to draw a bill does not import an authority to endorse one.
2. Whenever a bank receives a mandate or power of attorney, it should be recorded serially, index alphabetically and the instructions should be noted n the customer's ledger account.
3. In case an agent is authorized to open an account on behalf of the principal, it would be better than the application form for opening the account is signed by the principal himself, delegating authority to the agent to operate it.