A power-of-attorney agent cannot bind the principal by mortgaging property beyond express authority.

The first plaintiff held title to the suit property, including an alternative site allotted to him after acquisition of his earlier property. In 2000, he executed a power of attorney in favour of the first defendant, his father-in-law, for managing the property. The plaintiffs’ case was that the power did not authorise a mortgage and had been revoked in 2002. In 2003, the first defendant deposited the title deeds as security in favour of the second and third defendants, his son and son-in-law, respectively, for an alleged loan of ₹20 lakhs. The plaintiffs sought a declaration that the mortgage was sham and nominal and not binding on them, and return of the original sale deed.

The trial court dismissed the suit, and the first appellate court affirmed that decision. The plaintiffs brought this second appeal.

Whether a power agent could validly mortgage the property when the power of attorney contained no authority to do so

Whether the power agent could rely on the power of attorney after its revocation, where prior notice of revocation to the agent was not established

Under the principles governing agency in Chapter X of the Indian Contract Act, 1872, and the Powers-of-Attorney Act, 1882, an agent may exercise only the authority granted by the principal; acts beyond that authority do not bind the principal. A power of attorney is an agency instrument, not a transfer of title, and is generally revocable unless coupled with an interest. The Court relied on Suraj Lamp and Industries Pvt. Ltd. v. State of Haryana and Kasthuri Radhakrishnan v. M. Chinniyan for these principles.

It also considered Sections 25(d) and 40 of the Tamil Nadu Court-Fees and Suits Valuation Act, holding that Section 40 did not apply because the principal had not authorised the agent to execute the mortgage and was therefore not treated as a party to it.

The power of attorney authorised the first defendant to manage the property but contained no recital empowering him to mortgage it; nor did it show that consideration had passed so as to make it a power coupled with an interest. The mortgage therefore exceeded the agent’s authority and could not bind the first plaintiff, irrespective of whether the first defendant had received notice of the revocation before executing it.

The Court also found no sufficient evidence that the alleged mortgage money had been paid to the plaintiffs, and noted that the mortgagees had taken no steps to recover the alleged loan over the ensuing years. The disputed notice of revocation was consequently immaterial to the validity of a mortgage the agent had never been authorised to create.

It allowed the second appeal, set aside the judgments of both lower courts, and decreed the suit. The mortgage dated 25 May 2003 was declared sham and nominal and not binding on the first plaintiff; the second and third defendants were directed to return the original sale deed to him within one month. There was no order as to costs.