December 3, 2020



An “agent” is a person employed to do any act for another, or to represent another in dealing with third persons. The person for whom such act is done, or who is so represented, is called the “principal”. The contract between Principal and Agent is called ‘Contract of Agency’.

Types of Agents

1. Special Agent- Agent appointed to do a singular specific act.

2. General Agent- Agent appointed to do all acts relating to a specific job.

3. Sub-Agent-An agent appointed by an agent.

4. Co-Agent- Agents together appointed to do an act jointly.

5. Factor- An agent who is remunerated by a commission (one who looks like the apparent owner of the things concerned)

6. Broker- An agent whose job is to create a contractual relationship between two parties.

7. Auctioneer- An agent who acts a seller for the Principal in an auction.

8. Commission Agent- An appointed to buy and sell goods (make the best purchase) for his Principal

9. Del Credere- An agent who acts as a salesperson, broker and guarantor for the Principal. He guarantees the credit extended to the buyer.

In P. Krishna Bhatta v Mundila Ganpathi Bhatta[1] J. Ramaswami explained the concept as “where he said that in legal terms and phraseology, any person who acts for another cannot be called an agent. If such a thing happens, a servant rendering his services to his master; or a person tilling anothers field or a person working in somebody elses shop or factory would be considered as their agent.”

In Syed Abdul Khader v Rami Reddy[2] the Supreme Court held that “the expression agency is used to connote the relation which exists where one person has an authority or capacity to create legal relations between a person occupying the position of principal and a third party”.

Test for determining the existence of agency

In Loon Karan Sohanlal v. John & Co.[3]Dhawan J. put forward the test for determining “whether there exists the relationship of agency. He explained that in American Jurisprudence it is clearly mentioned that mere use of the words agent and agency does not by itself create a relationship of agency and the same law is followed in India. He added that it has been held in several decisions that just because the parties have named their relationship as agency is not a conclusive proof unless the incidence of this relationship, as disclosed by evidence, justifies a finding of agency. He also said that the courts, while examining the evidence, must try to find out the true nature of the relationship and the functions and powers assigned to the so-called agent.”

Authority of an Agent : Authority of an agent can be both express or implied.

Express authority : According to Section 187, the authority is said to be express when it is given by words spoken or written.

Implied authority : According to Section 187, authority is said to be implied when it is to be inferred from the facts and circumstances of the case. In carrying out the work of the Principal, the agent can take any legal action. That is, the agent can do any lawful thing necessary to carry out the work of the Principal.

Implied authority is of four main types:

1. Incidental authority- doing something that is incidental to the due performance of express authority

2. Usual authority- doing that which is usually done by persons occupying the same position

3. Customary authority- doing something according to the pre-established customs of a place where the agent acts

4. Circumstantial authority- doing something according to the circumstances of the case

The rights and duties of the Agent are corresponding to the duties.


Rights of an Agent

1) Right to Receive Remuneration

According to Section 219 of the Indian Contract Act, An agent is entitle to his remuneration. But Section 220 of the said Act says that, an agent who is guilty of misconduct in the business of the agency is not entitled to any remuneration in respect of that part of the business which he has misconducted.

2) Right of Lien (Section221)

In the absence of any contract to the contrary, an agent is entitled to retain goods, papers, and other property, whether movable or immovable, of the principal received by him, until the amount due to himself for commission, disbursements and services in respect of the same has been paid or accounted for to him.

3) Right to Indemnity

Agent to be indemnified against consequences of lawful acts. Indemnity means promise make good the loss (See.. Contract of indemnity ) According to Section 222 of the Indian Contract Act, 1872 “The employer of an agent is bound to indemnify him against the consequences of all lawful acts done by such agent in exercise of the authority conferred upon him.

4) Right to Compensation :

According to section 225 of the said Act, an agent is entitled to claim compensation for the injuries suffered as a consequence or want of skill of the principal. Section 225 reads as follows – “The principal must make compensation to his agent in respect of injury caused to such agent by the principal’s neglect or want of skill.

Duties of an Agent :

1) Agent’s duty in conducting principal’s business (Section 211) :

An agent is bound to conduct the business of his principal according to the directions given by the principal, or, in the absence of any such directions, according to the custom which prevails in doing business of the same kind at the place where the agent conducts such business. When the agent acts otherwise, if any loss be sustained, he must make it good to his principal, and, if any profit accrues, he must account for it.

2) Skill and diligence required from agent (Section 212) :

An agent is bound to conduct the business of the agency with as much skill as is generally possessed by persons engaged in similar business, unless the principal has notice of his want of skill. The agent is always bound to act with reasonable diligence, and to use such skill as he possesses; and to make compensation to his principal in respect of the direct consequences of his own neglect, want of skill or misconduct, but not in respect of loss or damage which are indirectly or remotely caused by such neglect, want of skill or misconduct.

In Jayabharthi Corp v. Sv P.N. Rajasekhara Nadar[4] it was held that “Section 212 covers another aspect which says that it is the duty of an agent to use all reasonable diligence to communicate with the principal in cases of difficulty and try his best to seek his instructions. In all such situations where the agent is misinforming the principal and a loss occurs due to his misconduct, he is liable to the principal.”

3) Duty to render proper accounts (Section 213)

According to Section 213 of Indian Contract Act 1872, An agent is bound to render proper accounts to his principal on demand.

4) Duty to communicate with principal (Section 214) :

It is the duty of an agent, in cases of difficulty, to use all reasonable diligence in communicating with his principal, and in seeking to obtain his instructions.

5) Not to deal on his own Account (Section 215)

Section 215 of the Indian Contract Act 1872 deals with right of principal when agent deals, on his own account, in business of agency without principal’s consent. Section 215 runs as follows – “If an agent deals on his own account in the business of the agency, without first obtaining the consent of his principal and acquainting him with all material circumstances which have come to his own knowledge on the subject, the principal may repudiate the transaction, if the case shows either that any material fact has been dishonestly concealed from him by the agent, or that the dealings of the agent have been disadvantageous to him.”

6) Not to make Secret Profits (Section 216)

Section 216 of Indian Contract Act, deals with Principal’s right to benefit gained by agent dealing on his own account in business of agency. An Agent, without the knowledge of his principal, should not deal in the business of agency on his own to make secret profit.

Section 216 of the Indian Contract Act,1872 reads as – “If an agent, without the knowledge of his principal, deals in the business of the agency on his own account instead of on account of his principal, the principal is entitled to claim from the agent any benefit which may have resulted to him from the transaction.”

7) Duty to pay sums received for principal (Section 218)

According to Section 218 of the said Act, An agent is bound to pay to his principal all sums received on his account.

8) Not to Disclose Secret :

It is duty of an agent to maintain secrecy of the business of agency and should not reveal the confidential matters.

The Supreme Court in Pannalal Jankidas v Mohanlal[5] it was held that “where the agent who was asked by the principal to get the goods insured and in fact charged the premium from the principal but never got the insurance, was held liable to compensate the principal when the goods were lost in an explosion.”

In John v Philip[6] it is held that “an estate agent cannot make a contract with a third party that would be binding upon his principal.”

In Yasuda Fire and Marine Insurance Co. v. Orion Marine Insurance Underwriting Agency Ltd.[7] it was held that “the obligation to provide an accurate account in the fullest sense arises by reason of the fact that the agent has been entrusted with the authority to bind the principal to transactions with third parties and the principal is entitled to know what his personal contractual rights and duties are in relation to those third parties as well as what he is entitled to receive by way of payment from the agent”.


From the above discussion it follows that an agent acting within the scope of his authority confers rights and imposes liabilities of a contract upon the principal. Where the agent makes a contract with a third person, acting on behalf of his principal, normally, the agent incurs no personal liability under the contract so entered into. Further, the agent also does not acquire contractual rights. That is, the contracts entered into through an agent and obligations arising from acts done by an agent may be enforced in the same manner and will have the same legal consequences, as if the contracts had been entered into and acts done by the principal in person.

[1] AIR 1955 Mad 648
[2] (1979) 2 SCC 601
[3] AIR 1967 All 308
[4] AIR 1992 SC 596
[5] AIR 1951 SC 144, 146
[6] (1987)2 KLT 50
[7] (1995) 3 All ER 211

Author Details: Tanu Kapoor (Student, Rajiv Gandhi National University of Law)

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