The article examines the characteristics and role of an agent under the
Indian Contract Act, 1872. An area of the paper likewise distinguishes between
agency and dealership, and how a dealer who may appear to be an agent is not an
agent. It attempts to talk about the connection between a principal, an agent, a
sub-agent, and a servant. The article highlights the role and duties of an
agent, servant, sub-agent, and substituted agent. This article analyses the role
of an agent under Indian law on contracts.
In contracts of agency, a legal relationship exists between two people where one
person acts on behalf of the other. The essence of a principal-agent
relationship is that the principal is too busy to perform various functions, so
an agent is hired on their behalf to do the same. This relationship is rooted in
the maxim Qui facit per alium facit per se
. An agency can be created by
express or implied consent, conduct, necessity, or through ratification of the
agentís act by the principal. The paper also distinguishes between agents and
servants, agents and sub-agents, and sub-agents and substituted agents.
In India, an agent and principal hold a contractual relationship hence, they are
governed by the terms and conditions of the contract between them. Chapter X of
the Indian Contract Act, 1872 provides the basic structure of rules and
regulations which govern the performance and formation of any type of contract
including the agency contract. In agency contracts, there exists a legal
relationship between two people whereby one person acts on behalf of the other.
The person acting on behalf of the other is called an agent, and the person from
whom the agent derives authority to act is called the principal.
The law of agency is rooted in the Latin maxim Qui facit per alium, facit per se,
which means, one who acts through another is deemed in law to do it themself
and principal are defined under Section 182 of the Indian Contract Act, 1872.
According to the section:
an agent is a person employed to do any act for
another or to represent another in dealings with third persons. The person for
whom such act is done, or who is so represented, is called the principal.
competent agent is legally capable of acting for the principal vis-ŗ-vis the
Who Can Become An Agent?
Section 184 answers this question. According to this section, any person can
become an agent, i.e., there is no need to have a contractual capacity to become
an agent. Therefore, a minor can also act as an agent. However, the minor will
not be responsible to their principal (Foreman v Great Western Rly Co
, (1878) 38
Under Indian law, various commercial agents have been identified, such as
brokers, auctioneers, del credere agents, persons entrusted with money for
obtaining sales, and insurance agents.
Creation Of Agency
There are four ways through which an agency can be created. These are as
By express or implied contract:
A principal may implicitly or expressly employ
an agent. The appointment may be expressed in writing, or it may be oral.
By the conduct of party or situation:
E.g., estoppel- Whereby a person allows
another to act for them to such an extent that a third party reasonably believes
that an agency relationship exists between the two.
Assent is given, either to an act done by someone who had no
previous authority to act or to an act that exceeded the authority granted to an
A person acts for another in an emergency without express
authority to do so.
Duties Of An Agent
The duties of an agent are as follows:
- Duty to execute a mandate
- Duty to follow instructions or customs
- Duty of reasonable care and skill
- Duty to avoid conflict of interest
- Duty not to make a secret profit
- Duty to remit sums
- Duty to maintain accounts
- Duty not to delegate
Rights Of An Agent
Right to remuneration:
As per Section 219, an agent is entitled to an agreed
remuneration per the contract. If nothing is mentioned, in the contract, about
remuneration, then they are entitled to reasonable remuneration. The
remuneration is only due after the completion of such an act. But an agent is
not entitled to any remuneration if they are guilty of misconduct in the
business of the agency.
Right of retainer:
An agent has the right to hold their principalís money until
the principal claims it. If any remuneration or advances made, or expenses
occurred during their ordinary course of business, the agent has a right to
deduct the amount due to them.
Right of lien:
An agent has a lien on goods, securities, or properties of their
principal in their possession concerning remuneration and for any expenses or
Right to indemnity:
An agent has the right to indemnity, extending to all
expenses and losses incurred while conducting his course of business as an
agency according to Section 222 and 223.
Right to compensation:
An agent has the right to be compensated for any injury
suffered by them due to the negligence of the principal or lack of skill as per
Agency V/S Dealership
In the law of agency, the legal relationship between an agent and the principal
is of utmost importance. A person cannot become an agent of another merely
because they advise the other. Any person acting on behalf of the other cannot
be an agent for another until there is an implied or explicit agreement between
them, leading to a legal relationship. Also, not all those who describe
themselves as agents will, in law, be considered agents. The dealer of a
particular make of cars, e.g., Mercedes, may be called an agent, but the dealer,
according to the law, is not an agent for the manufacturer.
This is so because,
in practice, the dealer purchases vehicles from the manufactures and sells them
on the dealerís account. No privity of contract exists between the manufacturer
and the buyer. This example highlights the difference between agency and
dealership. An agent market the principalís products for a fixed commission
determined according to the contracts. But, a dealer buys the product of a
company directly from its manufacturer in its name.
So, rather than matching up
the principal and the third party, the dealer acts as a principal and buys or
sells the stock for the dealerís inventory. An agent acts as an intermediary and
receives a commission for its services. But, a dealer acts on behalf of the firm
rather than acting as an intermediary. As mentioned in the above car example, no
contract exists between the dealer and the manufacturer. So there is no legal
relationship, which is of primary importance in the law of agency.
The description of an agent may look quite similar to that of a servant or
bailee but their duties, role, and liabilities are different. The Supreme Court
has underlined the distinctions between an agent and a servant in Lakshminarayan
Ram Gopal & Sons v. Hyderabad Government.
Section 191 of the Indian Contract Act, 1872 defines sub-agent as, a sub-agent
is a person employed by, and acting under the control of, the original agent in
the business of the agency. How an agent delegates the work to a sub-agent
determines the relationship between the principal and the sub-agent.
Thus there are two types of delegation:
- Proper delegation:
As per section 192, it is proper delegation when an agent
holding the authority to do so appoints a sub-agent.
- Improper delegation:
According to section 193, when an agent without authority appoints a
sub-agent, it is improper delegation
Sections 194 and 195 talk about substituted agents. When an agent having the
authority to do so, names another person to act for the principal in the
business of the agency, then such a person is called a substituted agent and not
a sub-agent. Thus a contractual relationship comes into existence between the
principal and the substitute agent, and therefore the substituted agent is
directly liable to the principal to perform their duties.
The distinction between a sub-agent and a substituted agent is important as an
agent is liable for the acts of a sub-agent but, an agent carries no liability
to the principal for the acts of the substituted agent.
The following tables enumerate the differences stated above:
|An agent is authorized to act on behalf of
his principal and create contractual obligations between the principal
and a third party.
||A servant does not have the authority to
create contractual obligations between the principal and a third party.
|The principal has the authority to direct the
agent as to what he has to do but he cannot direct how it is to be done.
||The master can direct a servant as to what
has to be done and also how it should be done
|An agent is paid in terms of commission
||A servant gets his salary or wages.
|An agent can work for different principals at
the same time
||A servant usually works under one master at a
given point in time.
|The agent offers and accepts new proposals
from the third party on behalf of his principal and thus new legal
relations are created in the law of agency.
||A servant cannot create any such legal
|An agent is appointed by a principal and is
under his control.
||A sub-agent is appointed by an agent and as
such is under the control of the agent.
|An agent acts under the principal.
||A sub-agent acts under an agent.
|The privity of contract exists between a
principal and an agent.
||No privity of contract exists between a
principal and a sub-agent.
|An agent can ask for remuneration from the principal.
||A sub-agent cannot ask for remuneration from
|An agent appoints a sub-agent and therefore a sub-agent
is under the control of an agent.
|| A substituted agent is only named by the agent but is
under the control of the principal.
|A sub-agent acts under the agent
|| A substituted agent acts independently for his
|A sub-agent cannot be held liable by the principal,
except in case of fraud.
|| A substituted agent can be held liable by his
| A sub-agent is not entitled to any remuneration from the principal.
|| A substituted agent can ask for his remuneration from
| No contract exists between a sub-agent and the principal.
|| A contractual relationship exists between the
substituted agent and the principal.
| An agent is liable for the acts of the sub-agent.
|| An agent is not liable for the acts of the substituted