Agency - finer details in the Indian context

Last updated: December 2020 | 10 min read

Source: The Indian Contract Act, 1872:

Agency signifies a relationship, which exists where one person has an authority to act on behalf of another occupying the position of principal, to create legal relationship between him and third parties.

The Indian Contract Act, 1872 makes statutory provisions governing rights and obligations of the principal and the agent.

Definition of an agent under the statute:

Section 182 defines “an agent” as 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”. But every person, who does something for the other is not necessarily an agent, for example, a contractor employed to carry on some construction work is not necessarily the agent of the principal. A servant may be technically an agent of the master but he is not strictly an agent in as much as he has to act entirely under the orders of the master as to how anything needs to be done. An agent has more authority and independence to function in comparison to that of a servant.

An agent is a person, who acts for and on behalf of the principal and under the latter’s express or implied authority and his acts done within such authority are binding on his principal and for his such acts, the principal is liable to the party with whom the agent has dealings as such agent.

Powers of an Agent:

An agent has authority to do all acts and things, which are expressly given to him but he has also implied authority to do all acts which are incidental to the main powers. S. 189 of the Indian Contract Act, 1872 provides that an agent also has powers to do all acts for the purpose of protecting the principal in emergency as would be done by a man of prudence in his own case. An agency can be granted orally or through writing and it can also be created through subsequent ratification of the acts done by one person for the other.

The duties of an agent:

  1. To conduct the business of the principal according to the directions given by the principal;
  2. To conduct business of the agency with as much skill as is generally possessed by persons engaged in similar business and to act with reasonable diligence and to make compensation to the principal in respect of the direct consequences of his own neglect for want of skill or misconduct;
  3. To render proper accounts to his principal on demand;
  4. To use all reasonable diligence in communicating with the principal and seeking to obtain his instructions;
  5. To pay to his principal all sums received by doing anything on his account, though in the course of the agency business and without the previous consent of the principal, that is in the event of his doing so he is liable to pay to the principal for the benefit, which may have resulted from the transaction. It may be stated that it is not necessary to include these in an agency agreement as these duties are not subject to any contract.

The Rights of the Agents:

  1. The agent has a right to certain monies in his hands held on account of the principal for the expenses incurred by him in the course of agency business;
  2. He has a lien on the goods of the principal for his dues;
  3. He has a right to adjust his commission or remuneration against the amount payable to the principal;
  4. All these rights are, however, subject to a contract to the contrary and therefore different provisions can be made in the agreement of agency.

Duties of the Principal:

  1. The principal is bound to indemnify the agent against any consequences of lawful acts done by such agent in exercise of the authority conferred on him;
  2. The principal is bound to indemnify the agent against consequences of the acts done by the agent in good faith though it may cause injury to the third persons;
  3. The principal is bound to make compensation to the agent in respect of any injury caused to such agent by the principal's neglect or want of skill;
  4. These duties are not subject to a contract to the contrary and, therefore, they cannot be avoided by an agreement.

Relevant Information:

Contracts lawfully entered by an agent on behalf of the principal are binding on the principal;

  1. What is done by the agent within authority is binding but what is done beyond authority is not binding on the principal but if both the acts cannot be separated, then both the acts are not binding on the principal;
  2. Notice to or information obtained by an agent in course of business is a notice or information to the principal;
  3. A contract entered into by an agent cannot be specifically enforced by him nor is he personally bound by it unless where the contract is for sale or purchase of goods or from a merchant abroad or unless the principal is not disclosed by the agent or unless the principal cannot be sued;
  4. In case of an undisclosed principal, the third party has the same right against the agent as he would have if the principal was disclosed. Similarly, in such a case a third party would not be bound by the contract if he could show that he would not have entered into the contract if he had known the principal;
  5. In the event of personal liability, both the agent and the principal would be liable.
  6. Even an act of fraud or misrepresentation done by an agent in the course of his agency business is binding on the principal;
  7. These provisions are not subject to any contract to the contrary between the principal and the agent.

Sub Agents:

Sub agents are generally of three types

  1. Those employed without the express or implied authority of the principal and by whose acts the principal is not bound;
  2. Those employed with express or implied authority of the principal but between whom and the principal there is no privity of contract;
  3. Those employed with the express authority of the principal and between whom and the principal there is a privity of contract and a direct relationship of principal and agent is accordingly established.

Overview of Sub Agents and their rights:

A sub agent is a person employed by and acting under the control of the original agent in the agency business. An agent cannot lawfully employ another person to perform acts which he has expressly or impliedly undertaken to perform personally unless by ordinary custom of trade a sub agent may or from the nature of the agency a sub agent must be employed.

A sub agent cannot be appointed ordinarily by the agent without the express or implied consent of the principal. When a sub agent is appointed with the consent of the principal, he is, as regards the third persons, represented by the sub agent also and is bound by and responsible for the acts of the sub agent as if he were an agent ordinarily appointed by the principal. Otherwise it is the agent who is responsible to the principal for the acts of the sub agent and the sub agent is responsible for his acts to the agent and not to the principal except in case of fraud or willful wrong. The principal is not responsible for the acts of the sub agent if the sub agent is appointed without his consent.

Types of Agency:

  • The most common types of agents are:
  • Sole selling agent;
  • Sub agent;
  • Mercantile agent;
  • Factor;
  • Forwarding or Clearing Agent;
  • Insurance Agent;
  • Director Agent;
  • Auctioneer;
  • Estate Agent;
  • Broker etc

Brief description:

Sole Selling Agent:

In case of sole selling agent, the relationship between the principal and the sole selling agent is more or less of a seller and buyer and therefore, when a sole selling agent sells the goods to his buyer the relationship between the sole selling agent and the buyer may be of the vendor and purchaser unless the agency is disclosed.

Mercantile Agent

A mercantile agent is one having authority in the course of business to sell goods or consign goods for the purpose of sale or to buy goods and even to raise money on the security of goods. A mercantile agent is also called a commissioner agent.


A factor in ordinary course of business is entrusted with possession of the goods or with possession of documents of title to goods;


He only brings about the transaction between the principal and the buyer or seller but the possession of the goods or document of title to goods is not given to him. He is, therefore, an agent, who in ordinary course of business is employed to make contract for the purchase or sale of shares or goods.

Forwarding or Clearing Agent

A forwarding agent, also called shipping agent or clearing agent acts as agent of the principal, who wants to export goods outside the country or to clear the goods imported by the principal and all the functions for exporting or clearing and taking possession of imported goods are done by this agent.

Estate Agent

An estate agent generally deals as intermediary in the transaction of sale and purchase of immoveable property or in management of any property.


An auctioneer is in law an agent of the person whose property is to e sold by auction through him. He also becomes the agent of the auction purchaser when the bid is struck down in his favor.

Agents under the Companies Act

There are three types of Agents under the Companies Act, 1956.

  1. Sole Selling Agent;
  2. Managing Director;
  3. Manager;

The legislation puts certain restrictions on appointment:

In respect  sole Selling agent:

  1. The term of appointment of a Sole Selling agent cannot be for more than 5 years; though renewable.
  2. The appointment, as such, is subject to the approval of a general body of share holders of the company prior to appointment or subject to ratification subsequent to the appointment;
  3. The terms and conditions of the appointment of a sole selling agent are subject to approval by the Central Government, which has the power to vary the same in the event they are found to be prejudicial to the interests of the Company;
  4. The Company can appoint more than one such agents, however, the Government has a right to declare any of them as the sole selling agent of that area;
  5. A company cannot appoint as sole selling agent an individual, firm or body of persons if it has any substantial interest in the company without the Government approval;
  6. A Company having a paid up capital of Rs. 50 Lakhs or more cannot appoint such agent without Government consent;

In respect of the Managing Director:

  1. No person can act as managing director for more than two companies;
  2. No managing director can be appointed for more than five years at a time unless reappointed;
  3. a managing director will not be entitled to remuneration for loss of office in cases as are mentioned above in the case of a sole selling agent;
  4. monthly salary or other remuneration payable to the managing director are controlled by the Act.

In respect of Manager;

1.    The conditions that govern the appointment of a Manager are similar to the ones applicable to the Managing Director.

Stamp duty:

An agency agreement, falling under the general item category of Article 5 of the Indian Stamp Act, would not attract any specified ad-valorem stamp duty and is treated like any other ordinary agreement.


Registration of the Agency agreement is not mandatory.

Net Lawman:

Net Lawman documents comply with the aforestated legal requirements when dealing with the concept of Appointment of Agent / Dealer / Distributor / Franchisee. Some examples of all time best creations in the area of Appointment of Agent / Dealer / Distributor / Franchisee are as follows:

One of these may definitely suit your requirements. In the event that your requirements and expectations are different, we also offer a service to draft legal documents to specific requirements of the clients, where we guarantee client satisfaction so that you can return to us for your future needs. We therefore invite you to kindly visit Contract drafting service to find the necessary help and assistance.

© 1999 - 2024 Net Lawman Limited.
All rights reserved