The relationship between an agent and principal is foundational to many commercial transactions. Under the Indian Contract Act, of 1872, this relationship is governed by specific rights and duties that ensure smooth operation and legal compliance. Understanding these rights and duties is crucial for both agents and principals to avoid disputes and foster effective collaboration.
Agents are empowered with several rights that enable them to perform their duties effectively. These rights also protect them from potential exploitation.
Agents are entitled to fair compensation for their services. However, if an agent is guilty of misconduct, they forfeit their right to remuneration for the part of the business they mismanaged (Section 220).
Agents have the right to retain goods, papers, and other property of the principal until they receive due payments for their services, commissions, and disbursements. This lien provides security for agents to ensure they are compensated for their work.
Principals must indemnify agents for all lawful acts done in the exercise of their authority. This indemnity covers losses incurred as a result of performing authorized duties.
Agents are entitled to compensation for any injuries or losses suffered due to the principal’s lack of skill or negligence. This ensures that principals maintain a duty of care towards their agents.
While agents enjoy significant rights, they also bear essential duties that ensure they act in the best interests of their principals.
Agents must conduct business according to the principal’s instructions or, in the absence of such instructions, follow the prevailing customs of the business. Deviating from these guidelines may render the agent liable for any resultant losses.
Agents are expected to execute their duties with the same level of skill and diligence as others in similar positions. Negligence or lack of skill can make agents liable for direct consequences.
Agents must provide accurate accounts of their dealings with the principal’s business whenever demanded. Transparency in transactions is crucial for maintaining trust.
In cases of difficulty or ambiguity, agents must diligently communicate with their principals to seek further instructions. This duty ensures that the principal is kept informed and can provide necessary guidance.
Agents must not engage in the business on their own account without the principal’s consent. Any undisclosed dealings can be repudiated by the principal if they are disadvantageous or if material facts were concealed.
Agents must not make secret profits from transactions conducted on behalf of their principals. Any profit made without the principal’s knowledge must be accounted for and surrendered.
Agents are required to pay all sums received on behalf of the principal promptly. This duty ensures that the principal’s financial interests are protected.
Agents must maintain the confidentiality of the principal’s business information. Disclosing sensitive information without authorization can lead to liability for any resultant damages.
Several landmark cases provide clarity on the practical application of these duties: Jayabharthi Corp v. Sv P.N. Rajasekhara Nadar: Emphasized the duty of agents to communicate difficulties to principals and seek instructions. Pannalal Jankidas v. Mohanlal: Highlighted the agent’s liability when failing to execute the principal’s instructions, such as procuring insurance. Yasuda Fire and Marine Insurance Co. v. Orion Marine Insurance Underwriting Agency Ltd.: Underlined the agent’s obligation to provide accurate accounts to the principal.
The Indian Contract Act, of 1872 meticulously outlines the rights and duties of agents to ensure that the agency relationship is fair and transparent. By adhering to these provisions, agents and principals can build strong, trust-based relationships that facilitate smooth and effective business operations.
What happens if an agent acts outside the authority given by the principal? If an agent acts outside their authority, the principal is not liable for those actions unless they ratify them. The agent may be personally liable. Can an agent make a profit from the principal’s business without disclosing it? No, agents must disclose any profits made from the principal’s business. Secret profits must be surrendered to the principal. Is an agent entitled to remuneration if they are found guilty of misconduct? No, agents are not entitled to remuneration for the part of the business where they were guilty of misconduct. Also Read: Agency in Contract Meaning and Nature Reference: topper