Duties of Agent Under the Indian Contract Act, 1872

Duties of an agent under Indian law: understand Sections 211–218, including obedience, care, accounts, communication, good faith and the prohibition on secret profits.

Introduction

An agency relationship is based on trust and confidence. An agent is appointed to act on behalf of a principal and may be entrusted with business decisions, property, money and dealings with third parties. Because the agent acts in a representative capacity, the law imposes specific duties to protect the principal’s interests.

The duties of an agent under the Indian Contract Act, 1872, are primarily governed by Sections 211–218. These provisions address the conduct of the principal’s business, reasonable skill and diligence, maintenance of accounts, communication, conflicts of interest and the handling of money received on the principal’s behalf.

An agent must act within the authority granted, follow lawful instructions, exercise reasonable care, disclose relevant information and avoid unauthorised personal benefits from the agency. A breach may result in liability to compensate the principal, account for profits or face other remedies available under the Act.

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 called the principal.

For example, A appoints B to purchase raw materials for A’s business. B acts as A’s agent and must conduct the transaction in accordance with the authority granted and the applicable legal duties.

The relationship is fiduciary in character because the agent is expected to act in good faith and protect the principal’s interests within the scope of the agency.

Duties of an Agent

1. Duty to Follow Instructions — Section 211

Section 211 requires an agent to conduct the principal’s business according to the principal’s directions. If no directions have been given, the agent must follow the customary practice applicable to similar business at the place where the agency is conducted.

If the agent acts contrary to these requirements, the agent must make good any resulting loss and account for any profit arising from the improper conduct.

Example: A appoints B to sell goods for cash and expressly instructs B not to sell them on credit. If B sells the goods on credit contrary to the instructions and A suffers a loss, B may be liable to compensate A.

The agent must follow lawful instructions and cannot justify misconduct merely because the transaction initially appeared commercially reasonable.

2. Duty to Exercise Skill and Diligence — Section 212

Section 212 requires an agent to conduct the agency business with the level of skill generally possessed by persons engaged in similar business, unless the principal has notice of the agent’s lack of skill.

The agent must always act with reasonable diligence and use whatever skill the agent possesses. The agent is liable to compensate the principal for the direct consequences of neglect, lack of skill or misconduct, but not for loss or damage that is only indirectly or remotely caused by it.

Example: A appoints B as an agent to sell machinery on credit. B fails to make the proper and usual enquiries into the buyer’s financial position before extending credit. If the buyer defaults and the loss is a direct consequence of B’s negligence, B may be liable under Section 212.

The section does not make the agent an insurer against every commercial loss. Liability depends on the relevant duty, the agent’s conduct and the direct consequences of the breach.

3. Duty to Maintain Proper Accounts — Section 213

Section 213 requires an agent to render proper accounts to the principal on demand.

The agent must maintain accurate records of money received, payments made, expenses incurred and transactions conducted on the principal’s behalf. Proper accounting allows the principal to verify the agent’s conduct and determine the amounts payable or recoverable.

Example: A appoints B to collect rent from several tenants. B must maintain an accurate record of the rent collected, expenses properly incurred and the balance payable to A.

An agent cannot avoid the obligation to account merely because the principal has not demanded accounts immediately after each transaction.

4. Duty to Communicate with the Principal — Section 214

Section 214 requires an agent, in cases of difficulty, to use all reasonable diligence in communicating with the principal and seeking instructions.

This duty is particularly important when an unexpected situation arises and the existing instructions do not adequately address it.

Example: A authorises B to purchase a specified quantity of goods. Before completing the purchase, B learns that the goods have a serious defect or that the agreed terms have materially changed. If it is reasonably possible to contact A, B should seek further instructions before proceeding.

Also Read: Sub-Agent Under the Indian Contract Act, 1872

Where an emergency makes communication impracticable, Section 189 may permit the agent to take reasonable steps to protect the principal from loss.

5. Duty to Avoid Conflicts of Interest — Section 215

Section 215 deals with situations in which an agent deals on the agent’s own account in the business of the agency without first obtaining the principal’s consent and disclosing all material circumstances.

The principal may repudiate the transaction if the statutory conditions are satisfied, including dishonest concealment of a material fact or dealings that are disadvantageous to the principal.

The provision protects the principal from an agent using the agency position for undisclosed personal interests.

Example: A appoints B to sell A’s property. B secretly arranges for the property to be purchased for B’s own benefit without disclosing a material fact that affects the transaction. If the requirements of Section 215 are satisfied, A may repudiate the transaction.

An agent should disclose material personal interests and obtain the principal’s informed consent before entering into a transaction that creates a conflict between personal interest and duty.

6. Duty Not to Make Secret Profits — Section 216

Section 216 gives the principal the right to claim a benefit gained by an agent who, without the principal’s knowledge, deals on the agent’s own account in the business of the agency instead of acting on the principal’s account.

The duty is closely connected with the agent’s obligation to act loyally and avoid unauthorised personal gain from the agency.

Example: A directs B to purchase a particular house for A. B tells A that the house cannot be purchased but secretly purchases it for B’s own benefit. Under the statutory illustration to Section 216, A may, on discovering the transaction, compel B to sell the house to A at the price B paid, subject to the provision’s application.

The principle is that an agent cannot use the position entrusted by the principal to divert an opportunity or benefit that properly belongs to the principal.

7. Duty to Pay Money Received for the Principal — Section 218

Section 218 requires an agent, subject to lawful deductions under the Act, to pay the principal all sums received on the principal’s account.

An agent may retain amounts lawfully due for advances, expenses properly incurred and remuneration payable in accordance with Section 217. The remaining balance must be paid to the principal.

Example: A appoints B to collect ₹1 lakh from a customer. B collects the money and has properly incurred expenses of ₹5,000 that may lawfully be retained. Subject to the applicable agreement and law, B must account for the expenses and pay the remaining ₹95,000 to A.

An agent cannot use money collected on the principal’s behalf as personal funds or withhold it without a lawful basis.

8. Duty Not to Delegate Without Authority — Section 190

Section 190 establishes the general rule that an agent cannot lawfully employ another person to perform acts that the agent has expressly or impliedly undertaken to perform personally.

The rule is subject to recognised exceptions, including circumstances in which the ordinary custom of trade permits delegation or the nature of the agency requires it.

Sections 191–195 address sub-agents and substituted agents, including the legal consequences of their appointment.

Example: A appoints B because B possesses particular professional expertise to negotiate a transaction. B cannot ordinarily transfer that responsibility to C without authority or a legally recognised basis for delegation.

The rule helps ensure that the principal receives the service and responsibility contemplated by the agency arrangement.

9. Duty to Act Within the Scope of Authority

An agent must act within the authority conferred by the principal and the powers recognised by law.

Sections 186–189 address express and implied authority, the extent of an agent’s authority and emergency powers. Sections 227–228 deal with the consequences of exceeding authority.

Example: A authorises B to purchase office supplies for up to ₹50,000. B enters into an unrelated contract for ₹2 lakh without further authority. The consequences depend on the scope of B’s authority and the applicable rules governing unauthorised acts.

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

Where an agent exceeds authority, the agent may face liability depending on the circumstances, and the principal’s obligations towards a third party must be assessed under the relevant statutory provisions.

10. Duty to Protect the Principal’s Interests on Termination — Section 209

Section 209 provides that when an agency terminates because of the principal’s death or unsoundness of mind, the agent must take all reasonable steps to protect and preserve the interests entrusted to the agent on behalf of the principal’s legal representatives.

This duty prevents the agent from abandoning property or business matters in a manner that exposes the principal’s estate to avoidable loss.

Example: A manages goods belonging to B. B dies while the goods remain in A’s custody. A must take reasonable steps to preserve the goods and protect the interests entrusted to A for B’s legal representatives.

The section concerns termination arising from the principal’s death or unsoundness of mind; it should not be treated as a general rule governing every form of termination.

Important Case Law

Vishal Kedia v. Sureshkumar S. Bafna

Citation: Bombay High Court, decided on 26 February 2020.

The Bombay High Court discussed the fiduciary character of the principal-agent relationship and the statutory rules under Sections 215 and 216 of the Indian Contract Act, 1872.

The Court explained that an agent must not act in a manner that creates an undisclosed conflict between personal interest and duty to the principal. Section 215 addresses the principal’s right to repudiate certain transactions in which the agent deals on the agent’s own account without the required consent and disclosure. Section 216 permits the principal to claim benefits obtained by the agent in the circumstances covered by that provision.

The Court’s discussion illustrates why the existence of an agency relationship matters when assessing whether a person has improperly used an entrusted position for personal advantage.

Legal principle: An agent’s fiduciary obligations include avoiding undisclosed conflicts of interest and accounting for benefits covered by Sections 215 and 216.

Consequences of Breach of Duty

An agent who breaches statutory or contractual duties may face several consequences, depending on the nature of the breach.

• Compensation: Under Sections 211 and 212, the agent may be required to compensate the principal for qualifying losses caused by acting contrary to instructions, neglect, lack of skill or misconduct.
• Accounting for profits: Under Sections 211 and 216, the agent may be required to account for profits or benefits covered by those provisions.
• Repudiation of transaction: Section 215 may permit the principal to repudiate a transaction where its statutory conditions are satisfied.
• Recovery of money: Section 218 requires the agent to pay sums received on the principal’s account, subject to lawful deductions.
• Other remedies: Depending on the facts, the principal may have additional contractual or legal remedies.

The appropriate remedy depends on the statutory provision, the agreement and the loss or benefit established.

Key Points for Law Students

• Section 211: Duty to follow the principal’s instructions or applicable business customs.
• Section 212: Duty to exercise appropriate skill and reasonable diligence.
• Section 213: Duty to render proper accounts.
• Section 214: Duty to communicate and seek instructions in cases of difficulty.
• Section 215: Principal’s right concerning certain transactions in which the agent deals on the agent’s own account without consent.
• Section 216: Principal’s right to claim qualifying benefits obtained by the agent.
• Section 217: Agent’s right to retain qualifying advances, expenses and remuneration from sums received.
• Section 218: Duty to pay the principal sums received on the principal’s account, subject to lawful deductions.
• Section 190: General rule against unauthorised delegation.
• Section 209: Duty to protect the principal’s interests when agency terminates due to death or unsoundness of mind.

Conclusion

The duties of an agent under the Indian Contract Act, 1872, are designed to ensure that agency relationships operate on the basis of trust, reasonable care, accountability and loyalty. Sections 211–218 establish the principal duties concerning instructions, diligence, accounts, communication, conflicts of interest and the handling of money.

An agent must act within the authority granted, disclose relevant personal interests, avoid unauthorised benefits and protect the principal’s interests. Where these duties are breached, the principal may seek compensation, an account of profits, repayment or other appropriate relief under the Act.

For examinations, Sections 211–218 are central to the topic. Students should also understand Section 190 on delegation and Section 209 on protecting the principal’s interests following death or unsoundness of mind.

Frequently Asked Questions (FAQs)

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

Sections 211–218 of the Indian Contract Act, 1872, primarily deal with the duties of an agent towards the principal.

2. What is the duty of an agent under Section 211?

Section 211 requires the agent to follow the principal’s directions or, in their absence, the applicable customary practice. An agent who acts otherwise must make good qualifying losses and account for resulting profits.

3. What does Section 212 provide?

Section 212 requires an agent to use the skill generally possessed by persons engaged in similar business and to act with reasonable diligence. The agent is liable for the direct consequences of neglect, lack of skill or misconduct.

4. Can an agent make a secret profit?

An agent cannot improperly obtain benefits covered by Section 216 through dealing on the agent’s own account without the principal’s knowledge. The principal may claim the benefit in accordance with the provision.

5. What happens if an agent acts against the principal’s instructions?

Under Section 211, the agent must make good any resulting loss and account for any profit arising from the improper conduct. Other remedies may also be available depending on the circumstances.

6. Must an agent maintain accounts?

Yes. Section 213 requires an agent to render proper accounts to the principal on demand.

7. Can an agent delegate their duties?

Section 190 establishes the general rule against unauthorised delegation, subject to recognised exceptions. Sections 191–195 govern sub-agents and related arrangements.

8. Which case is relevant to the duties of an agent?

Vishal Kedia v. Sureshkumar S. Bafna (Bombay High Court, 26 February 2020) discusses the fiduciary character of agency and the rules concerning conflicts of interest and benefits obtained by an agent under Sections 215 and 216.