UNDERSTANDING AGENCY UNDER INDIAN CONTRACT

LAW–PRINCIPLES, DUTIES, AND JUDICIAL TRENDS

SUBMITTED TO SUBMITTED BY
MS. GURPREET KAUR MANRAJ SINGH CHANDPURI
182/24
1ST YEAR, 2ND SEMESTER

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 TABLE OF CONTENTS

CONTENTS
A. CASE LAW ..................................................................................................................... 3
Indian ................................................................................................................................ 3
International ..................................................................................................................... 3
Books Referred .................................................................................................................. 3
Statutes and Bare Acts ...................................................................................................... 3
I. INTRODUCTION .................................................................................................................. 6
II. STATUTORY FRAMEWORK OF AGENCY UNDER THE INDIAN CONTRACT ACT, 1872 ................ 6
1. DEFINITION OF AGENT AND PRINCIPAL (SECTION 182)................................................... 7
2. SCOPE OF AUTHORITY: EXPRESS, IMPLIED, AND OSTENSIBLE ....................................... 7
4. DELEGATION OF AUTHORITY: SUB-AGENTS AND SUBSTITUTED AGENTS (SECTIONS
190–195) ................................................................................................................................ 8
5. DUTIES AND RIGHTS OF AN AGENT (SECTIONS 211–221) ................................................ 8
6. DUTIES AND RIGHTS OF A PRINCIPAL (SECTIONS 222–225) ............................................ 8
7. TERMINATION OF AGENCY (SECTIONS 201–210) ............................................................. 8
III. DOCTRINAL PRINCIPLES GOVERNING AGENCY UNDER INDIAN CONTRACT LAW ................. 9
IV. JUDICIAL INTERPRETATION OF AGENCY IN INDIA ............................................................ 12
1. AGENT’S AUTHORITY AND PRINCIPAL’S LIABILITY ...................................................... 12
2. RATIFICATION OF UNAUTHORISED ACTS ....................................................................... 13
3. AGENT’S PERSONAL LIABILITY IN UNDISCLOSED AND PRETENDED AGENCY .............. 13
V. CONCLUSION................................................................................................................... 15

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 INDEX OF AUTHORITIES
A. CASE LAW
Indian

1. Pannalal Jankidas v. Mohanlal, AIR 1951 SC 144

2. Syed Abdul Khader v. Rami Reddy, AIR 1979 SC 553
3. Kailash Nath v. State of U.P., (2015) 4 SCC 136
4. Hardie Trading Ltd. v. Addisons Paint & Chemicals Ltd., (2003) 11 SCC 92
5. Scindia Steam Navigation Co. Ltd. v. Golam Nabi, AIR 1961 Bom 240
6. Loon Karan Sethia v. Ivan E. John, AIR 1977 SC 336
7. Bharat Nidhi Ltd. v. Takhatmal, AIR 1969 SC 313
8. Raj Kumar v. Kesar Dass Rajinder Kumar, AIR 1985 Del 122
9. State of Nagaland v. Lipok Ao, (2005) 3 SCC 752
10. Lakshminarayan Ram Gopal & Son Ltd. v. Government of Hyderabad, AIR 1954 SC
364

International

11. Keighley, Maxsted & Co v. Durant, [1901] AC 240 (HL)

Books Referred

13. Pollock and Mulla, The Indian Contract Act (15th edn., LexisNexis 2021).
14. Anson, Anson’s Law of Contract (30th edn., Oxford University Press 2016).

Statutes and Bare Acts

16. The Indian Contract Act, 1872 (Act No. 9 of 1872), particularly Sections 182–238
(Chapter X).
17. The General Clauses Act, 1897 – for interpretative rules relevant to agency law.
18. The Specific Relief Act, 1963 – for remedies available against agents or principals.

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 LIST OF ABBREVIATIONS

ABBREVIATIONS ACTUAL TERM

& And

¶ Paragraph

¶¶ Paragraph

Art. Article

SC Supreme Court

Hon’ble Honourable

SCC Supreme Court Cases

AIR All India Reporter

v. Versus

Ltd. Limited

Co. Company

HC High Court

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 ACKNOWLEDGMENT

I would like to express my deepest gratitude to Ms. Gurpreet Kaur, my faculty

teacher and professor for the Contracts-II class, whose guidance and support have
been invaluable throughout the process of writing this paper. Her insights into
contract law theories and her passion for the subject have greatly inspired and
enhanced my understanding of the complexities involved in Contract Law. I am
incredibly thankful for her constructive feedback, encouragement, and fostering
an environment that encourages critical thinking and academic growth.

Manraj Singh Chandpuri

[Link].B (Hons.)
2nd Semester

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 I. INTRODUCTION

Under the Indian Contract Act, 1872 of India, all contractual obligations derive their basic
structure from this legislation, which establishes guidelines for agreement creation and
implementation alongside specific consensual arrangement relationships. Agency stands as a
fundamental legal method to empower one individual to complete tasks on behalf of another
party. Agency functions as a key operational element in present-day commerce since
organisations need delegation as well as representation to complete their business activities
efficiently. The law of agency determines transactions at all levels in business operations
because corporate executives sign contracts for their organisations, while brokers handle
negotiations, and lawyers represent client interests.

The Indian Contract Act (Section 182 to Section 238) of Chapter X specifies all principles of
agency through statutes that include descriptions of agent-principal relationships together with
their powers and obligations and termination conditions. Indian judicial interpretation
developed the statutory provisions starting from common law traditions while adapting them to
contemporary trade requirements.

The study investigates the agency doctrine within Indian contract law through examination of
its legal foundation together with statutory definitions and judicial interpretation methods as
well as its modern applications. This section of the paper conducts an assessment of agent-
principal relationships to determine agent powers and responsibilities as well as the legal
impacts of authority limits. The project analyses agency principles and leading judicial
decisions alongside practical implementation issues to establish a detailed grasp of agency law
within the Indian contract obligation framework.

II. STATUTORY FRAMEWORK OF AGENCY UNDER THE

INDIAN CONTRACT ACT, 1872
To answer the above-posed question, the inquiry is posed not as a legal question but as a
jurisprudential one. In jurisprudence, various theories divulge sharply in determining whether
a law’s authority stems from its moral content or not. The question of whether serious moral

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wrongs—like serious fraud—can be resolved privately through arbitration is a gap wherein,
jurisprudential theories have to be leveraged.

The law governing the relationship of agency in India is codified in Chapter X (Sections 182–
238) of the Indian Contract Act, 1872. These provisions define the fundamental elements of
the agency relationship, the nature and scope of an agent’s authority, and the mutual rights and
obligations between the agent and the principal. The chapter reflects core principles drawn
from English common law, adapted to the Indian legal context.

1. DEFINITION OF AGENT AND PRINCIPAL (SECTION 182)

An agent is defined 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. The relationship is fiduciary in nature and is
grounded in mutual consent, though not necessarily in consideration.

2. SCOPE OF AUTHORITY: EXPRESS, IMPLIED, AND OSTENSIBLE

• Express authority arises when it is explicitly granted to the agent by the

principal, either orally or in writing.
• Implied authority is inferred from the circumstances of the case, the nature of
the business, or the position held by the agent (e.g., a branch manager).
• Ostensible (or apparent) authority is the authority which an agent appears to
have by virtue of the principal’s conduct, and for which the principal may be
estopped from denying liability.

3. CREATION OF AGENCY (SECTIONS 183–185)

The Act permits any person competent to contract (i.e., of sound mind and above the
age of majority) to appoint an agent (Sec. 183). Interestingly, the agent need not be
competent to contract (Sec. 184), meaning even a minor can act as an agent, although
he cannot be held personally liable. No consideration is necessary to create an agency
(Sec. 185), distinguishing it from ordinary contracts.

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4. DELEGATION OF AUTHORITY: SUB-AGENTS AND SUBSTITUTED AGENTS (SECTIONS 190–
195)

As per the general rule, an agent cannot lawfully delegate his authority (delegatus non
potest delegare), unless the nature of the agency permits it or custom, necessity, or the
principal’s consent allows it.

A sub-agent is appointed by the agent and works under his control. The principal is
generally not liable for the acts of a sub-agent unless such appointment was expressly
or impliedly authorized.

A substituted agent, on the other hand, is appointed with the knowledge and authority
of the principal and acts directly under the principal’s instructions, creating privity
between them.

5. DUTIES AND RIGHTS OF AN AGENT (SECTIONS 211–221)

The agent is bound to act in accordance with the instructions of the principal, exercise
due skill and diligence, render proper accounts, and not deal on his own account without
prior consent. The agent also has a right to:

• Receive remuneration (Sec. 219)

• Exercise lien on principal’s property (Sec. 221)
• Be indemnified for lawful acts and acts done in good faith (Secs. 222–224)

6. DUTIES AND RIGHTS OF A PRINCIPAL (SECTIONS 222–225)

The principal is bound to indemnify the agent for acts done lawfully within the scope
of authority, including those done in good faith for the benefit of the principal—even if
they turn out to be injurious. However, no indemnity lies for acts done criminally (Sec.
224).

7. TERMINATION OF AGENCY (SECTIONS 201–210)

An agency may be terminated:

• By revocation by the principal or renunciation by the agent (Sec. 201)

• By completion of business

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 • By death or insanity of either party
• By insolvency of the principal

The termination must be communicated, especially to third parties, to avoid continued

liability under ostensible authority (Secs. 208–210).

III. DOCTRINAL PRINCIPLES GOVERNING AGENCY

UNDER INDIAN CONTRACT LAW

The law of agency in India is not merely a statutory framework confined to the INDIAN
CONTRACT ACT, 1872, but is also underpinned by deeper doctrinal principles that shape and
guide its application. These principles emerge from common law traditions, judicial
interpretations, and equitable considerations that recognise the unique nature of an agency
relationship—a relationship that is not contractual in the ordinary sense, but fiduciary and
representative in its essence.

1. THE FIDUCIARY NATURE OF AGENCY

At the heart of the agency relationship lies the principle of fiduciary duty. An agent
is expected to act in the best interests of the principal, exercising utmost good faith
(uberrima fides), honesty, and loyalty. This duty includes:

• Avoiding conflicts of interest,

• Not making secret profits,
• Disclosing material information to the principal,
• Not acting on one’s own account in matters connected with agency without the
principal’s consent.

The fiduciary nature of agency is affirmed in judicial decisions such as Pannalal

Jankidas v. Mohanlal, AIR 1951 SC 144, where the Supreme Court held that an
agent is liable for breach of duty if he fails to act with reasonable skill and fidelity in
the interest of the principal.

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 2. DOCTRINE OF AUTHORITY: ACTUAL, IMPLIED, AND APPARENT

A central doctrinal element of agency law is the concept of authority, which governs
the extent to which the agent can bind the principal.

• Actual authority refers to what the principal has expressly or impliedly conferred
upon the agent.
• Implied authority arises from the conduct of the parties, the nature of the
relationship, or the custom of trade.
• Apparent (or ostensible) authority is when the principal, by words or conduct,
leads a third party to reasonably believe that the agent has authority, even when he
does not.

The doctrine of estoppel plays a critical role here. If the principal’s conduct induces a third
party to rely on an agent’s supposed authority, the principal may be estopped from denying
such authority. This was upheld in Syed Abdul Khader v. Rami Reddy, AIR 1979 SC 553,
where the court imposed liability on the principal for the acts of an agent acting with ostensible
authority.

3. DOCTRINE OF RATIFICATION (SECTIONS 196–200)

The doctrine of ratification allows a principal to affirm an act done by a person who had no
authority at the time of the act, making it binding ab initio. For ratification to be valid, certain
conditions must be satisfied:

• The act must have been done on behalf of the principal,

• The principal must have been in existence and competent at the time,
• The principal must have full knowledge of all material facts at the time of ratification.

In Kailash Nath v. State of UP, (2015) 4 SCC 136, the Supreme Court observed that
ratification cannot validate acts that are void ab initio or performed without the intention of
benefiting the principal. The doctrine thereby promotes fairness and coherence in contractual
dealings, but also places limits to prevent abuse.

4. DOCTRINE OF DELEGATION: SUB-AGENTS AND SUBSTITUTED AGENTS

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The general maxim delegatus non potest delegare—a delegate cannot further delegate—
applies unless:

• The delegation is expressly or impliedly permitted by the principal,

• The nature of the business necessitates it,
• It is customary in the particular trade,
• An emergency makes delegation unavoidable.

A sub-agent, when lawfully appointed, binds the principal to third parties, though the agent
remains responsible for the sub-agent’s conduct. In contrast, a substituted agent is appointed
with the principal’s knowledge and consent, creating direct privity between the substituted
agent and the principal (Sec. 194–195).

5. PERSONAL LIABILITY OF AGENT

While agents usually act on behalf of the principal, in certain circumstances they may be
held personally liable, such as when:

• The agent acts for an undisclosed or unascertainable principal,

• The agent exceeds his authority,
• The agent contracts in his own name,
• There is no intention to bind the principal.

This distinction was emphasised in Keighley, Maxsted & Co v. Durant [1901] AC 240 (HL),
a leading English case which has influenced Indian jurisprudence.

6. AGENCY DISTINGUISHED FROM OTHER LEGAL RELATIONSHIPS

• Agency vs. Employment: An agent represents and can bind the principal to third
parties, while an employee generally cannot, unless specifically authorised.
• Agency vs. Bailment: A bailee holds goods for safekeeping but cannot act on behalf
of the bailor in contractual matters.
• Agency vs. Partnership: In a partnership, every partner is an agent of the firm and of
the other partners, but the relationship is mutual and co-extensive, unlike in agency
where one acts solely on behalf of the other.

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 7. AGENCY COUPLED WITH INTEREST

An agency coupled with interest refers to situations where the agent has a personal interest in
the subject matter of the agency. Such agency is irrevocable to the extent of that interest, even
if the principal revokes it or dies. Section 202 of the Contract Act codifies this rule. The
rationale is to protect the agent’s vested economic interest.

This concept was examined in Loon Karan Sethia v. Ivan E. John, AIR 1977 SC 336, where
the Court protected the agent’s irrevocable interest arising from a commercial arrangement.

IV. JUDICIAL INTERPRETATION OF AGENCY IN INDIA

The Indian judiciary has played a vital role in interpreting and shaping the law of agency
through a series of landmark judgments. These judicial decisions have clarified the contours of
agency relationships, tested the boundaries of an agent’s authority, and reinforced fiduciary
principles. While the statutory framework in the Indian Contract Act, 1872 provides the
foundation, judicial reasoning breathes practical meaning into these provisions.

1. AGENT’S AUTHORITY AND PRINCIPAL’S LIABILITY

In Pannalal Jankidas v. Mohanlal, AIR 1951 SC 144, the Supreme Court held that a principal
is liable for acts done by an agent within the scope of his actual or apparent authority. The
agent had issued a guarantee beyond his express authority, and the Court observed that the
principal, having led third parties to believe in the agent’s authority, could not deny liability.
This case reinforced the doctrine of apparent authority and estoppel, providing protection to
third parties dealing in good faith.

Similarly, in Syed Abdul Khader v. Rami Reddy, AIR 1979 SC 553, the Court applied the
principle of ostensible authority and held that the principal was bound by the acts of the agent
even though there was no express authority. The decision recognized that third parties are
entitled to rely on the principal’s conduct and are not expected to investigate internal
authorizations.

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2. RATIFICATION OF UNAUTHORISED ACTS

The principle of ratification was judicially interpreted in Kailash Nath v. State of UP, (2015) 4
SCC 136, where the Supreme Court emphasized that an act done without authority can be
ratified only if:

• It was done on behalf of the principal,

• The principal was in existence and competent at the time,
• Ratification is based on full knowledge of material facts.

In this case, the state’s acceptance of a contractor’s bid was held invalid as the act was not
capable of ratification, having not been performed on the state’s behalf. The judgment
reinforces that ratification cannot cure acts not originally done in the principal’s name,
nor acts that are ultra vires or contrary to law.

3. AGENT’S PERSONAL LIABILITY IN UNDISCLOSED AND PRETENDED AGENCY

In Hardie Trading Ltd. v. Addisons Paint & Chemicals Ltd., (2003) 11 SCC 92, the Supreme
Court elaborated on undisclosed principal cases. It ruled that when an agent contracts without
disclosing the principal’s identity, both the agent and the principal can be held liable at the
election of the third party. However, once the principal is disclosed, the third party cannot
simultaneously claim against both.

Furthermore, Section 230 of the Indian Contract Act, 1872 provides that an agent is personally
liable where:

• The principal is undisclosed,

• The principal, though disclosed, cannot be sued,
• There is an express agreement making the agent liable.

This position is reiterated in the Bombay High Court’s judgment in Scindia Steam Navigation
Co. Ltd. v. Golam Nabi, AIR 1961 Bom 240.

4. DOCTRINE OF AGENCY COUPLED WITH INTEREST

In Loon Karan Sethia v. Ivan E. John, AIR 1977 SC 336, the Court upheld the inviolability
of agency coupled with interest under Section 202. Here, the agent had a personal interest in

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the continuation of the agency agreement which was secured by a power of attorney. The Court
ruled that the principal could not unilaterally revoke such an agency as it would defeat the
agent’s interest, affirming that such agencies are irrevocable to the extent of the interest
involved.

5. SCOPE OF IMPLIED AUTHORITY AND TRADE CUSTOM

In Bharat Nidhi Ltd. v. Takhatmal, AIR 1969 SC 313, the Supreme Court recognized trade
customs as a source of implied authority. It was held that in commercial transactions, agents
may derive authority not just from express instructions, but from long-standing trade
practices that are commonly understood in a given sector or market.

6. AGENT’S DUTY OF LOYALTY AND DISCLOSURE

The Delhi High Court in Raj Kumar v. M/S Kesar Dass Rajinder Kumar, AIR 1985 Del 122,
underscored that the agent’s obligation to act honestly and in the best interest of the principal
is paramount. Failure to disclose material facts or engaging in secret dealings renders the agent
liable for breach of fiduciary duty.

7. AUTHORITY IN GOVERNMENT AND PUBLIC SECTOR AGENCY

In State of Nagaland v. Lipok Ao, (2005) 3 SCC 752, the Supreme Court observed that the
principles of agency also apply when public servants act on behalf of the state.
However, ratification or delegation in such contexts must conform to statutory limits. The
case reflects the interplay between administrative law and contract law, showing how public
accountability intersects with agency doctrines.

8. DISTINCTION BETWEEN AGENT AND CONTRACTOR

In Lakshminarayan Ram Gopal & Son Ltd. v. Government of Hyderabad, AIR 1954 SC 364,
the Court drew a fine distinction between an agent and an independent contractor. The former
acts under the control and authority of the principal and can bind him to third parties, whereas
a contractor acts on his own account. This doctrinal distinction has practical relevance in
determining vicarious liability.

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 V. CONCLUSION
The concept of agency under Indian contract law is a cornerstone of commercial and legal
transactions, enabling principals to act through agents and expand their operational capacity.
Codified under Sections 182–238 of the Indian Contract Act, 1872, the law of agency is not
only functionally significant but also conceptually rich—founded upon trust, representation,
fiduciary responsibility, and the delegation of authority.

Through this study, it becomes evident that the agency relationship operates within a finely
balanced legal structure that seeks to protect the interests of the principal, the agent, and third
parties. The doctrinal foundations—such as actual and apparent authority, estoppel,
ratification, and agency coupled with interest—demonstrate the law’s attempt to ensure both
flexibility and accountability in representation.

Judicial interpretations have played a decisive role in refining these principles, resolving
ambiguities, and adapting the law to evolving commercial realities. From Pannalal
Jankidas to Kailash Nath, the courts have reinforced the fiduciary and equitable essence of
agency while also preserving the reliability of third-party dealings.

In today’s world—marked by digital transactions, global outsourcing, and virtual

representation—the relevance of agency law has only grown. Modern developments such as e-
agency, online contracting, and cross-border mandates demand a more expansive and
technologically sensitive interpretation of traditional doctrines. Indian law, while grounded in
strong common law roots, must now evolve to meet these challenges through legislative clarity,
judicial innovation, and regulatory support.

In conclusion, agency remains a dynamic and indispensable instrument of commercial life. A

deeper understanding of its principles is not only essential for legal practitioners and scholars
but also for business leaders and policy-makers seeking to navigate an increasingly
interconnected legal environment. The law of agency, when properly applied,
fosters efficiency, accountability, and trust—values that lie at the very heart of a robust
contractual framework.

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