Power of Attorney (Demat)
A Power of Attorney (PoA) in the demat context is a legal document through which a demat account holder authorises their broker to execute certain transactions in the demat account on the investor's behalf, including sale of securities for delivery obligations. Following SEBI's 2020 reforms, the broad PoA has been replaced by the more limited DDPI instrument.
For decades, the Power of Attorney was the primary operational mechanism linking a demat account with a trading account. When an investor placed a sell order and the trade was matched, the securities needed to move from the investor's demat account to the clearing corporation in time for settlement. Rather than requiring the investor to manually authorise each debit, brokers obtained a broad PoA from investors at the time of account opening, authorising the broker to instruct the depository participant (DP) to debit securities as needed.
The scope of the PoA was broad in practice. A typical PoA granted the broker the right to transfer shares from the investor's demat account, pledge shares, and operate the account for margin and collateral purposes. This breadth created significant risks. Several high-profile broker defaults and frauds in the 2015–2020 period revealed that brokers had used PoAs to transfer client shares to their own accounts or to pledge them for the broker's own borrowings without the client's knowledge. The KARVY Stock Broking case of 2019 was the most prominent, involving the unauthorised transfer of client securities worth over Rs 2,000 crore.
SEBI's response was the 2020 circular that restricted the scope of the PoA. The circular stipulated that any PoA executed in favour of a broker must be limited to: (i) debiting securities for executed trades in the delivery segment, and (ii) pledging securities for margin purposes—and even these functions were to be gradually replaced by the DDPI mechanism.
The PoA in its old, broad form was effectively retired for new accounts by mid-2022, when SEBI mandated that brokers transition to the Demat Debit and Pledge Instruction (DDPI) mechanism. Existing PoAs for legacy accounts were also reviewed and restricted. Investors with older accounts are encouraged to understand exactly what authorisation they have granted and to review whether their PoA has been superseded by the newer DDPI framework.