Rights of Agent Under the Indian Contract Act, 1872

Rights of an agent under Indian law: understand remuneration, retainer, lien, indemnity and compensation under Sections 217–225 of the Indian Contract Act, 1872.

Introduction

An agent is appointed to act on behalf of a principal and may incur expenses, advance money, perform services and enter into contracts with third parties while carrying out the agency. To protect the agent from unfair financial consequences, the Indian Contract Act, 1872, recognises several rights against the principal.

The principal rights of an agent are governed by Sections 217–225 of the Act. These include the right to retain money received on the principal’s behalf, receive remuneration, exercise a lien over the principal’s property, obtain indemnity for lawful acts and certain acts performed in good faith, and claim compensation for injury caused by the principal’s neglect or lack of skill.

These rights are subject to the agency agreement, the statutory conditions and the agent’s own compliance with legal duties. An agent who commits misconduct or acts unlawfully cannot automatically claim every benefit available under the law.

Meaning of an Agent

Section 182 of the Indian Contract Act, 1872, defines an agent as a person employed to do an act for another or to represent another in dealings with third persons. The person represented is known as the principal.

For example, A appoints B to purchase goods for A’s business. If B properly incurs transport expenses and is entitled to a commission under their agreement, B may claim the amounts legally due from A.

The rights of an agent help maintain fairness in the agency relationship by ensuring that the agent is not required to bear expenses or losses that the law places upon the principal.

Rights of an Agent

1. Right of Retainer — Section 217

Section 217 gives an agent the right to retain, out of sums received on the principal’s account in the business of the agency, money due for:

• Advances made by the agent.
• Expenses properly incurred in conducting the agency business.
• Remuneration payable to the agent.

This right allows the agent to deduct lawful dues before paying the remaining balance to the principal. It is not an unrestricted right to use or withhold the principal’s money.

Example: A appoints B to sell goods and collect ₹1,00,000 from customers. B has properly incurred ₹5,000 in authorised expenses and is entitled to ₹10,000 in commission. Subject to the agreement and the applicable law, B may retain ₹15,000 and must account for and pay the remaining ₹85,000 to A.

Section 218 complements this right by requiring the agent to pay the principal the sums received on the principal’s account, subject to lawful deductions.

2. Right to Remuneration — Sections 219 and 220

An agent is generally entitled to remuneration for performing the work for which the agent was appointed. The amount and timing of payment may be determined by the agency agreement.

Section 219 provides that, in the absence of a special contract, remuneration for performing an act ordinarily becomes due upon completion of that act. It also contains a specific rule allowing an agent selling goods to retain money received on account of goods sold even where the entire consignment has not been sold or the sale is not actually complete.

Section 220 limits this right where the agent has committed misconduct. An agent guilty of misconduct in the agency business is not entitled to remuneration for the part of the business that was misconducted.

Example: A appoints B to recover a debt and invest the recovered amount in suitable securities. B properly recovers the debt and invests most of it in appropriate securities but negligently invests a portion in an unsuitable security, causing a loss. Under the illustration to Section 220, B may lose the remuneration relating to the misconducted part and may also have to compensate A for the loss.

Thus, the right to remuneration is subject to the agreed terms and the agent’s proper performance of the relevant work.

Also Read: Rights of Indemnity-Holder under Section 125 of the Indian Contract Act, 1872

3. Right of Lien — Section 221

Section 221 provides that, in the absence of a contract to the contrary, an agent may retain the principal’s goods, papers and other property received by the agent until the amount due for commission, disbursements and services in respect of that property has been paid or accounted for.

This is commonly described as an agent’s lien. It protects the agent against being required to surrender relevant property while qualifying dues remain unpaid.

Example: A appoints B to arrange the sale of certain goods. B incurs authorised expenses and earns commission for services connected with those goods. If A fails to pay the amounts due, B may be entitled to retain the goods under Section 221, subject to the agreement and statutory requirements.

The lien is not unlimited. It may be excluded by contract, and it generally relates to dues for commission, disbursements and services in respect of the property retained. Section 221 should not be confused with the broader general lien available to specified categories of persons under Section 171.

4. Right to Indemnity for Lawful Acts — Section 222

Section 222 requires the principal to indemnify the agent against the consequences of lawful acts performed within the authority conferred by the principal.

Indemnity means protection against specified losses, liabilities or expenses. Where the agent properly performs an authorised and lawful act but suffers a liability as a consequence, the principal must indemnify the agent in accordance with the provision.

Example: A instructs B to purchase goods from C on A’s behalf. B enters into the authorised contract, but A subsequently refuses to accept the goods. C sues B, who incurs qualifying damages and expenses. If the statutory conditions are met, A must indemnify B against the consequences covered by Section 222.

The provision prevents an agent from having to bear the financial consequences of properly carrying out the principal’s lawful instructions merely because the principal later refuses to fulfil the resulting obligations.

5. Right to Indemnity for Acts Done in Good Faith — Section 223

Section 223 provides that where a person employs another to perform an act and the agent performs it in good faith, the principal may be required to indemnify the agent even where the act causes injury to the rights of a third person.

The provision applies subject to its statutory requirements. It does not give an agent a general right to indemnity for every wrongful act or remove the agent’s responsibility in circumstances where the law does not permit indemnification.

Example: A asks B to sell goods in A’s possession. B acts in good faith and does not know that A has no right to dispose of those goods. The true owner later sues B and recovers the value of the goods and costs. Under the illustration to Section 223, A is liable to indemnify B for the amounts B is compelled to pay and the qualifying expenses incurred.

The provision recognises that an agent acting honestly on the principal’s instructions may face liability arising from circumstances unknown to the agent.

6. No Right to Indemnity for Criminal Acts — Section 224

Section 224 places an important limitation on the right to indemnity. Where a person employs an agent to perform a criminal act, the principal is not liable to indemnify the agent against the consequences of that act, whether the promise of indemnity is express or implied.

An agreement to reimburse the agent for the consequences of committing a crime cannot create an enforceable right to indemnity under this provision.

Example: A hires B to assault C and promises to pay any damages B may be ordered to pay. If B commits the assault and becomes liable to C, A cannot be required to indemnify B for those consequences under Section 224.

This provision prevents an agency arrangement from being used to shift the financial consequences of criminal conduct to the person who ordered it.

7. Right to Compensation for Injury Caused by the Principal’s Neglect — Section 225

Section 225 requires the principal to compensate the agent for injury caused by the principal’s neglect or want of skill.

Also Read: Rights of Bailee Under the Indian Contract Act, 1872

This right is distinct from indemnity under Sections 222 and 223. Section 225 specifically concerns injury suffered by the agent because of the principal’s own neglect or lack of skill.

Example: A employs B as a bricklayer to construct a house. A constructs the scaffolding but does so negligently. B is injured because the scaffolding collapses. Under the statutory illustration to Section 225, A must compensate B for the injury caused by A’s neglect.

The provision requires the principal to take reasonable care in circumstances where the principal’s conduct may affect the agent’s safety.

Summary of the Rights of an Agent

Right	Section	Main principle
Right of retainer	Section 217	Retain qualifying advances, expenses and remuneration from sums received for the principal.
Right to remuneration	Sections 219–220	Receive agreed or legally due remuneration, subject to the rules on completion and misconduct.
Right of lien	Section 221	Retain relevant principal property until qualifying dues are paid or accounted for.
Indemnity for lawful acts	Section 222	Obtain indemnity for consequences of lawful acts performed within authority.
Indemnity for acts done in good faith	Section 223	Obtain indemnity in qualifying good-faith situations, even where third-party rights are affected.
Limitation on indemnity	Section 224	No indemnity for consequences of a criminal act the agent was employed to perform.
Compensation for injury	Section 225	Claim compensation for injury caused by the principal’s neglect or lack of skill.

Important Case Law

The statutory illustrations to Sections 222–225 are particularly useful for understanding the rights of an agent. They provide examples involving contractual liability, good-faith dealings with property, criminal acts and physical injury caused by the principal’s negligence.

For this topic, the provisions themselves provide a clear starting point. Any case cited for a particular right should be examined for its precise facts and legal holding rather than treated as establishing a broader rule than the judgment supports.

Difference Between Right of Retainer and Right of Lien

Although both rights protect the agent’s financial interests, they operate differently.

Basis	Right of retainer	Right of lien
Provision	Section 217	Section 221
Subject	Money received on the principal’s account	Goods, papers and other property of the principal received by the agent
Purpose	Deduct qualifying dues from money collected	Retain qualifying property until relevant dues are paid or accounted for
Nature	Right to make lawful deductions	Right to retain property as security for qualifying dues
Limitation	Only amounts legally due may be retained	Subject to the contract and the statutory scope of the lien

For example, an agent who collects money for the principal may exercise the right of retainer over that money for qualifying dues. An agent holding goods belonging to the principal may, where Section 221 applies, exercise a lien over those goods for qualifying commission, disbursements or services.

Key Points for Law Students

• Section 217 deals with the agent’s right of retainer.
• Sections 219 and 220 govern remuneration and the effect of misconduct on remuneration.
• Section 221 provides for an agent’s lien over relevant property of the principal.
• Section 222 concerns indemnity for lawful acts performed within the authority granted.
• Section 223 concerns indemnity for qualifying acts done in good faith.
• Section 224 excludes indemnity for consequences of criminal acts the agent was employed to perform.
• Section 225 provides compensation for injury caused by the principal’s neglect or want of skill.
• The rights of an agent must be considered alongside the agent’s duties and the terms of the agency agreement.

Conclusion

The Indian Contract Act, 1872, recognises several rights to ensure fairness between the principal and the agent. These rights protect the agent’s entitlement to remuneration, recovery of proper expenses, retention of qualifying money or property, indemnity for certain acts and compensation for injuries caused by the principal’s neglect.

Sections 217–225 form the central statutory framework for these rights. However, they are not unconditional: remuneration may be denied for misconduct, indemnity is unavailable for the criminal acts covered by Section 224, and the rights of retainer and lien operate only within their legal limits.

For examinations, students should understand the distinction between Sections 217 and 221, the different functions of Sections 222 and 223, and the specific limitation imposed by Section 224.

Frequently Asked Questions (FAQs)

1. Which sections deal with the rights of an agent?

Sections 217–225 of the Indian Contract Act, 1872, primarily deal with the agent’s rights concerning retainer, remuneration, lien, indemnity and compensation.

2. What is the right of retainer under Section 217?

It allows an agent to retain qualifying advances, properly incurred expenses and remuneration from sums received on the principal’s account in the agency business.

3. What is an agent’s lien under Section 221?

It allows an agent, in the absence of a contract to the contrary, to retain relevant goods, papers and other property of the principal until qualifying dues for commission, disbursements and services in respect of that property have been paid or accounted for.

4. Can an agent claim remuneration after committing misconduct?

Under Section 220, an agent guilty of misconduct is not entitled to remuneration for the part of the agency business that was misconducted. The agent may also be liable for resulting loss where the law so provides.

5. When is a principal required to indemnify an agent?

Under Section 222, the principal must indemnify the agent against the consequences of lawful acts performed within the authority conferred. Section 223 provides indemnity for qualifying acts performed in good faith, subject to its requirements.

6. Can an agent claim indemnity for a criminal act?

No. Section 224 excludes indemnity for the consequences of a criminal act that the agent was employed to perform.

7. When can an agent claim compensation under Section 225?

An agent may claim compensation for injury caused by the principal’s neglect or want of skill, subject to the facts and the statutory provision.