Law of Agency Under Indian Contract Act, 1872 (2026): Agents, Rights, Duties & Examples

Reviewed by Lawsection.in Editorial Team | June 02, 2026

Law of Agency is an important concept under the Indian Contract Act, 1872 that governs the relationship between a principal and an agent. The Law of Agency allows an agent to legally act on behalf of the principal and create contractual relationships with third parties. Understanding the Law of Agency is essential for law students, judiciary aspirants, AIBE candidates, UGC NET Law scholars, and legal professionals because it plays a crucial role in modern commercial and business transactions.

What is Law of Agency?

Agency is a legal relationship in which one person (agent) is authorized to act on behalf of another person (principal) so as to create legal relations with third parties.

The law relating to agency is contained in Sections 182 to 238 of the Indian Contract Act, 1872.

Definition of Agent and Principal (Section 182)

According to Section 182:

• 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 represented is called the Principal.

Simple Example

A appoints B to purchase land on his behalf.

1. A = Principal
2. B = Agent
3. Seller = Third Party

Any valid contract entered into by B within his authority binds A.

Essentials of Agency

For a valid agency relationship, the following essentials must exist:

1. Principal
2. Agent
3. Authority delegated to agent
4. Agent acts on behalf of principal
5. Intention to create legal relations with third parties
6. Competent principal
7. Consideration is not necessary

Why Law of Agency is Important?

Agency facilitates commercial transactions by allowing business activities to be conducted through representatives.

Practical Importance

1. Business operations
2. Corporate management
3. Real estate transactions
4. Banking transactions
5. Insurance business
6. E-commerce operations
7. International trade
8. Government administration

Without agency, every principal would have to personally perform all legal acts.

Who Can Employ an Agent? (Section 183)

According to Section 183:

Any person who:

1. Is of the age of majority; and
2. Is of sound mind

may employ an agent.

Example

A 25-year-old businessman appoints a broker to sell property.

The appointment is valid because the principal is competent to contract.

Who May Become an Agent? (Section 184)

Section 184 provides that:

Any person may become an agent.

Important Examination Point

A person who is not competent to contract may still act as an agent.

However:

1. Such person may act for the principal.
2. But he cannot be held responsible to the principal under contractual liability in the same manner as a competent person.

Judiciary Exam Tip

Competency is mandatory for the principal but not necessarily for the agent.

Is Consideration Necessary to Create Agency? (Section 185)

Rule

No consideration is necessary to create an agency.

This is a unique exception to the general principle that agreements require consideration.

Example

A requests his friend B to negotiate the sale of his car.

Even without payment or consideration, a valid agency relationship may arise.

Kinds of Agents Under Indian Contract Act

General Agent

Authorized to conduct all transactions relating to a particular business.

Example

Factory manager.

Special Agent

Authorized for a specific act or transaction.

Example

Agent appointed to sell one particular property.

Universal Agent

Authorized to act in all matters that can lawfully be delegated.

Mercantile Agent

Common in commercial transactions.

Examples include:

1. Brokers
2. Factors
3. Auctioneers
4. Commission agents

Authority of an Agent

Authority refers to legal power granted to an agent.

Express Authority (Section 186)

Authority expressly granted through:

1. Spoken words
2. Written document

Implied Authority (Section 187)

Authority inferred from:

1. Conduct
2. Circumstances
3. Business customs

Rights of an Agent

The Indian Contract Act grants several rights to agents.

1. Right to Remuneration (Section 219)

An agent is entitled to agreed remuneration after completing assigned work.

2. Right of Retainer (Section 217)

Agent may retain amounts due from sums received on behalf of principal.

3. Right of Lien (Section 221)

Agent may retain principal’s goods until lawful dues are paid.

4. Right to Indemnity (Sections 222–224)

Principal must indemnify agent against lawful consequences arising from authorized acts.

5. Right to Compensation (Section 225)

Agent is entitled to compensation for injury caused by principal’s neglect or lack of skill.

Duties of an Agent

Duty to Follow Principal’s Directions (Section 211)

Agent must act according to:

1. Principal’s instructions
2. Trade customs

Duty of Skill and Care (Section 212)

Agent must exercise reasonable skill and diligence.

Duty to Render Accounts (Section 213)

Agent must provide accurate accounts when demanded.

Duty to Communicate (Section 214)

Agent should communicate with principal in cases of difficulty.

Duty Not to Make Secret Profit

An agent occupies a fiduciary position and must not make undisclosed profits.

Duty to Act in Good Faith

Agent must protect principal’s interests honestly and loyally.

Duties of Principal Toward Agent

Principal must:

1. Pay remuneration
2. Indemnify agent
3. Reimburse expenses
4. Compensate for injuries caused by neglect
5. Act fairly and honestly

Termination of Agency

Agency may terminate by:

Act of Parties

1. Revocation by principal
2. Renunciation by agent
3. Mutual agreement

Operation of Law

1. Death
2. Insanity
3. Insolvency
4. Completion of business
5. Destruction of subject matter
6. Expiry of time

Agency Coupled With Interest

An agency coupled with interest cannot ordinarily be revoked to the prejudice of the agent’s interest.

Example

A authorizes B to sell property and recover his loan from sale proceeds.

Such agency generally becomes irrevocable.

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