ABSTRACT

An agent's authority can be terminated at any time. If the trust

between the agent and principal has broken down, it is not
reasonable to allow the principal to remain at risk in any
transactions that the agent might conclude during a period of
notice.

As per Section 201 to 210 The Indian Contract Act, 1872, an agency
may come to an end in a variety of ways:

(i) By the principal revoking the agency – However, principal cannot

revoke an agency coupled with interest to the prejudice of such
interest. Such Agency is coupled with interest. An agency is coupled
with interest when the agent himself has an interest in the subject-
matter of the agency, e.g., where the goods are consigned by an
upcountry constituent to a commission agent for sale, with poor to
recoup himself from the sale proceeds, the advances made by him
to the principal against the security of the goods; in such a case, the
principal cannot revoke the agent’s authority till the goods are
actually sold, nor is the agency terminated by death or insanity.
(Illustrations to section 201) (ii) By the agent renouncing the
business of agency; (iii) By the business of agency being completed;
(iv) By the principal being adjudicated insolvent (Section 201 of The
Indian Contract Act. 1872)

The principal also cannot revoke the agent’s authority after it has
been partly exercised, so as to bind the principal (Section 204),
though he can always do so, before such authority has been so
exercised (Sec 203).

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Further, as per section 205, if the agency is for a fixed period, the
principal cannot terminate the agency before the time expired,
except for sufficient cause. If he does, he is liable to compensate the
agent for the loss caused to him thereby. The same rules apply
where the agent, renounces an agency for a fixed period. Notice in
this connection that want of skill continuous disobedience of lawful
orders, and rude or insulting behavior has been held to be sufficient
cause for dismissal of an agent. Further, reasonable notice has to be
given by one party to the other; otherwise, damage resulting from
want of such notice, will have to be paid (Section 206). As per
section 207, the revocation or renunciation of an agency may be
made expressly or impliedly by conduct. The termination does not
take effect as regards the agent, till it becomes known to him and as
regards third party, till the termination is known to them (Section
208).

When an agent’s authority is terminated, it operates as a

termination of subagent also. (Section 210).

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 ACKNOWELEDGMENT

Firstly I would thank the almighty GOD for giving me strength to

complete the task which I was assigned.

I would also like to thank Gujarat National Law University for

assigning me this project and giving me the opportunity to study
about this topic which is considered to be the most important in the
criminal law.

I would also extend my gratitude to Mr. R. K. Singh, Faculty of Law

for all the help and support in the completion of my project report.

Lastly I would thank my parents and friends for all their support and
help.

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 LIST OF ABBREVIATIONS

• AIR All India Reporter

• All ER All England Law Reports
• CA Chancery Appeal
• Cal Indian Law Reports, Calcutta Series, from 1876-
• CLR Commonwealth Law Reports
• HL House of Lords
• HP Indian Law Reports, Himachal Pradesh
• IA Law Reports Indian Appeals
• Ker Indian Law Reports, Kerela Series
• Mad Indian Law Reports, Madras Series
• MHC Madras High Court Reports
• MP Indian Law Reports, Madhya Pradesh Series
• Ori Indian Law Reports, Orissa Series
• PC Privy Council
• Pun Indian Law Reports, Punjab Series
• QB Law Reports, Queen’s Bench
• Sau Saurashtra Law Reports
• SC Supreme Court
• SCC Supreme Court Cases
• v Versus
• Ves Sen Vesey Senior’s Report

4
 LIST OF CASES

1. (Cf.) French & co. v. Leeston Shipping Co., (1992) 1 AC 451.

2. Agarwal Jorawarmal v. Kasam, AIR 1937 Nag 314;
3. Alliance Bank of Simla Ltd v. Amritsar Bank, AIR 1915 Lah 214.
4. Atul v. Laxman, (1909) 36 Cal. 609.
5. Badrinaraian Agrawall v.Brijnarayan Roy, AIR 1917 Cal 436
6. Banarshi Agarwall v. Sankarlal Agarwalla, AIR 1961 Assam 13.
7. Birat Chandra Dagara v. M/s. Taurian Exim Pvt. Ltd., AIR 2005
Ori 147
8. Blackburn v. Scholes (1810)2 Camp 343;
9. Boulton Bros. & Co. v. New Victoria Mills Co., (1929) 26 ALJ
1119
10. Bright Bros Pvt. Ltd. v. JK Sayani, AIR 1976 Mad 55.
11. Bristow v. Taylor, (1817) 171 ER 568;
12. Burn v. Carvalho, (1239) 41 ER 265
13. Carmicheal’s Case, (1896) 2 Ch 643;
14. Carnegie, [1969] 85 LQR 392.
15. Clerk v. Laurie, (1857) 157 ER 83;
16. Clouston v. Corry , (1906) AC 122; Pearce v. Foster, (1886) 17
QBD 536.
17. Cuckson v. Stones, (1858) 120 ER 902
18. Daily Telegraph v. M’Laughlin, (1904) AC 776
19.Dasarath v. Brojo Mohan, (1914) 18 CLJ 621.
20. Day v. Wells, (1861) 54 ER 872;
21. De Comas v. Prost, (1865)16 ER 59;
22. Development of Industries (India) P. Ltd v. Commissioner of
Income Tax, AIR 1968 Cal 492 : 72 Cal WN 416.

5
23. Dilchand v. Hazarimal, AIR 1932 Nag. 34;
24. Drew v. Nunn, (1879) 4 QBD 661;
25. Ebrahim v. Chunilal, (1911) 35 Bom 302
26. Edgar v. Fowler, (1803) 102 ER 582.
27. EP Nelson & Co. v. Rolfe, [1949]2 All ER 584 (CA)
28. Freeman v. Fairlie, (1838) 8 LJ Ch. 44.
29. Frith v. Frith, (1906) AC 254;
30. Godhandas v. Firm of Gokal Khataoo, AIR 1926 Sind 264;
31. Hamilton v. Spottiswoode, (1849) 154 ER 1182.
32. Harihar Prasad v. Kesho Prasad, (1925) Pat 68.
33. Hastelow v. Jackson, (1828) 108 ER 1026;
34. Hill v. Royds, (1869) 8 Eq 290;
35. Hingu Lal v. Sarju Prasad, AIR 1937 All 363;
36. Hudson v. Granger, (1821) 106 ER 1103
37. Inchbold v. Western Nilgherry Coffee Co., (1864) 144 ER 293
38. International Oil Co. v. Indian Oil Co. Ltd., AIR 1969 Mad 423;
Thathaiah M & S.M. Railway, ILR (1957) Mad 215
39. Ishwarappa v. Arunkumar, AIR 2004 Kant 417
40. Jafferbhoy v. Charlesworth,(1893) 17 Bom. 520

41. Janardhan Jaikrishna v. Gangaram Mangalchand, AIR 1951 Nag

313.
42.Kashi Ram & anr v.Raj Kumar & Ors., AIR 2000 Raj. 405,406
43. Kathoom Bivi v. Arulappa Nadar, AIR 1970 Mad.76;
44. Kinattikara Madhavan Nair v. MR Rly Manavikram Zamorin
Maharajah Avergal, AIR 1928 Mad 906
45. Kirtyanand v. Ramanand, (1936) Pat. 456.
46. Kishen Devi v. Banwar Lal, AIR 1928 Lah 688;
47. Kondayya v. Narasimhulu, (1896) 20 Mad 97

6
48. Kongatti Valia Nair v. Subramania, (1899)9 MLJ 290;
49. Kulsekarapatnam Hand Match Workers’ Co-operative Cottage
Industrial Society Ltd. v. Radhelal Lallolal, AIR 1971 MP 191
50. Lakshmandas Khandelwal v. Raghumull, AIR 1919 PC 49
51. Lakshmi Chand v. Firm of Chajju Mal Ratan Lal, AIR 1926 Lah
200.
52. Lakshmichand v. Chotaram, (1900) 24 Bom. 403.
53. Llanelly Rly and Dock Co v. London and North Western Rly Co,
(1875) LR 7 HL 550;
54. Ma Byaw v. Mg Tun Hlaing, (1934) Ran 341,
55. Mahendra Pratap Singh v. Padam Kumari Devi, AIR 1993 All
143.
56. Maung Lu Gale v. U. Po Hlaing,(1934) Ran. 104;
57. Mohendra v. Kail Prasad, (1903) 30 Cal.265
58. Moosajee Ahmad & Co v. Adm. General, Bengal, (1921) 3 LLJ
265.
59. MSA Pl Palaniappa Chetty v. T Mr Alagappa Chetty, AIR 1916
Mad 1104
60. Mujjid-un-Nissa v. Abdur Rahim, 28 IA 15.
61. Murtunjoy v. John Cockrane, (1865)10 MIA 229 (243).
62. Mutharasu Thevar v. Mayandi Thevar, AIR 1968 Mad 333.
63. N.S.Srinivas v. Madduri Mallareddy, AIR 2005 AP 177.
64. Narasinga v. Muthusami Naliker, (1897) 7 MLJ 218
65. Narayanan Chettiar v. Kaleswar Mills, AIR 1952 Mad 515.
66. Page v. Combined Shipping & Trading Co. Ltd., (1997) 3 All ER
656 (CA)
67. Parker v. Smith, (1812)104 ER 1133
68. Pearson v. Graham, ((1837) 112 ER 344

7
69. PMARm Muthiah Chettiar v. AVA Chidambaram Chetti, AIR 1918
Mad 1200.
70. Pool v. Pool, (1889) 58 LJP 67
71. Popular Shoe Mart v. K Srinivasa Rao, AIR 1990 NOC 87 (AP).
72. Prickett v. Badger, (1856) 1 CBNS 296
73. Raghumull v. Luchmondas, AIR 1917 Cal 52
74. Rajaram Nandlal v. Abdul Rahim, AIR 1915 Sind 30.
75. Read v. Anderson, [1881-85] All ER Rep 1104.
76. Rhodes v. Forwood, (1876) 1 AC 256.
77. Ruchiram-Sukha Nand v. Charan Das AIR 1928 Lah 833;
78. Sayam v. Bright Brothers, (1980) 1 MLJ 130.
79. Seton v. Slade (1802)7 Ves 265, p.276
80. Shankar Singh v. Toshan Pal Singh,AIR 1934 All 553.
81. Shaw Wallace & Co, AIR 1931 Cal 676
82. Smart v. Sandars, (1848) 136 ER 1152;
83. Sorabji Dhunjibhoy Medora v. Oriental Govt. Security Life
Assurance Co Ltd., AIR 1944 Bom 166 (two years was
reasonable).
84. Southern Railways Ltd v. S.M.Krishnan, AIR 1990 Sc 673.
85. SRMCTSSPA Chettyar Firm v. U on Maung, AIR 1940 PC 211;
86. State of Kerela v. G.L.Kihikara, 1966 Ker. Lj 487
87. Stevenson v. Actiengesellscaft & Co., (1918) AC 239.
88. Subhash v. Feroze Khan, AIR 1982 Del. 114
89. Sures Kanta Banerjee v. Nawab Ali Sikdar, AIR 1916 Cal 800
90. Taylor v. Browners, (1876) 1 QBD 291;
91. Venkanna v. Achutaramanna, (1938)1 MLJ 610

92. Venkatachalam Chetty v. ANRM Narayan Chetty, AIR 1916 Mad

281
93. Vishnucharya v. Ramachandra, (1881) 5 Bom 253.
8
94. Warlow v. Harrison, (1858) 120 ER 920; Day v. Welis, (1861)
54 ER 872.
95. Warwick v. Slade, (1811) 170 ER 1329.
96. Yonge v.Toynbee, [1908-10] All ER Rep 204 (CA)

9
 INTRODUCTION

An agency may be terminated by:

(i) Revocation of the agent’s authority by the principal (Sec.

203-207);
(ii) Agent renouncing the agency ( Sec. 205);
(iii) Completion of the business of agency;
(iv) Death of the principal or agent (Sec. 209);
(v) The principal or agent becoming of unsound mind (Sec.
209);
(vi) The principal being adjudicated an insolvent.

An agency is deemed to continue in the absence of anything that

would prove termination of the agency1 on one or the other grounds
mentioned in the sections or below2. Termination of agency is a
question of fact and not of law, and turns upon the circumstances of
each case.3

This section is not exhaustive.4 An agency may be terminated by

other modes, viz:

(i) By mutual agreement;

1 Kishen Devi v. Banwar Lal, AIR 1928 Lah 688; Banarshi Agarwall v. Sankarlal Agarwalla,
AIR 1961 Assam 13.

2 Llanelly Rly and Dock Co v. London and North Western Rly Co, (1875) LR 7 HL 550;
Carnegie, [1969] 85 LQR 392.

3 Kinattinkara Madhavan Nair v. MR Rly Manavikram Zamorin Maharaja Avergal of

Calicut, AIR 1928 Mad 906.

4 Janardhan Jaikrishna v. Gangaram Mangalchand, AIR 1951 Nag 313.

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 (ii) Completion of the term of agency by expiry of time agreed
upon;
(iii) Destruction of the subject matter of the agency;
(iv) The agency becoming subsequently unlawful;
(v) Dissolution of the principal firm.

An agency is terminated by an event which terminates a contract,

viz performance, recission, etc. the Law Commission of India
recommended that in these circumstances determining an agency
must be specifically included in this section, as also that insolvency
of agent.5

AIMS AND OBJECTIVES OF STUDY:

The aim and object of the study is to elucidate and enumerate with
illustrations, cases, judgements and opinions of well known jurists,
authors and analysts, the clauses relating to ‘termination of an
agency’. The project also intends to discuss important and landmark
cases and judgements and lay down the history and growth of the
law under the relevant sections.

HYPOTHESIS

From this project, the terms, situations and circumstances under

which an agency can be terminated become comprehensible. The

5 Thirteenth Report of the Law Commission of India 1958, para 158 recommended that
the first four grounds of termination if agency be numbered (a)-(d) and the following be
added (proposed amendments in italics):
…(e) by either the principal or agent being adjudicated an insolvent under the provisions
of any Act for the time being in force for the relief of insolvent debtors;
(f) by the expiry of the period of agency if any;
(g) by the destruction of a material part of the subject matter of the agency;
(h) by the happening of any event which render the agency unlawful or upon happening
of which it is agreed between the principal and the agent that the authority shall
determine;
(i) by dissolution of the principal, where the principal is a firm or a company or other
corporation.

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conditions and circumstances under which an agency can be
terminated have also been elucidated.

METHODOLOGY

The doctrinal method of research has been implemented in

preparing this study, by referring to various secondary sources for
conforming to the requisites of the Indian Contract Act, 1872.

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 SECTION 201 OF THE INDIAN CONTRACT ACT

Sec. 201 of the Indian Contract Act reads as follows:

An agency is terminated by the principal revoking his

authority; or by the agent renouncing the business of the agency; or
by the business of the agency being completed; or by either the
principal or agent dying or becoming of unsound mind; or by the
principal being adjudicated an insolvent under the provisions of any
Act for the time being in force for the relief of insolvent debtors.

This section deals with the several ways in which the relationship of
principal and agent comes to an end. They are:

(1)Revocation by principal
(2)Renunciation by agent
(3)Completion of the business of the agency
(4)Death of principal or agent
(5)Insanity of principal or agent
(6)Insolvency of the principal

The enumeration is not exhaustive. For instance, there can be no

doubt that the expiry of the time fixed for the agency or the
destruction of the subject matter of the agency puts an end to the
agency6, likewise by breach of contract, by destruction o the subject
matter of the agreement and so-on.7 If the freight to cancel an
agency is reserved in case the agent fails to do a specific amount of

6 (Cf.) French & co. v. Leeston Shipping Co., (1992) 1 AC 451.

7 Development of Industries (India) P. Ltd v. Commissioner of Income Tax, AIR 1968 Cal
492 : 72 Cal WN 416.

13
business within a certain period of agency may be cancelled if the
condition is violated.8 Again the agency may subsequently become
unlawful, in which case also the agency necessarily ceases.9

REVOCATION

The principal has the right subject to certain limitations to revoke

the agency and even so the agent in his turn has also the right to
renounce the agency subject equally to certain terms and
conditions. It is in this context that the terms ‘revocation’ and
“renunciation” which primarily appear and are projected in the
forefront in the sub-head or revocation of authority in Sec. 207-210
have to be read together instead of being treated in a truncated way
for the purpose of interpretation.10 It is provided by Sec. 207 infra,
that revocation may be express or implied from conduct. It is open
to the principal to revoke the authority at any time before it is
exercised so as to bind him.11 Where the revocation is wrongful or
premature the principal is liable to make compensation, vide Secs.
205 and 206 infra12. In case of authority given by two or more
principals jointly, it is enough if one gives notice or revocation.13 On
revocation the agent has no right to possession of principal’s
property. He has no right to interfere with the principal’s business.14

8 State of Kerela v. G.L.Kihikara, 1966 Ker. Lj 487

9 Stevenson v. Actiengesellscaft & Co., (1918) AC 239.

10 Sayam v. Bright Brothers, (1980) 1 MLJ 130.

11 Lakxhmichand v. Chotaram, (1900) 24 Bom. 403. Freeman v. Fairlie, (1838) 8 LJ Ch.

44.

12 Venkatachalam v. Narayana, (1916) 39 Mad 376.

13 Bristow v. Taylor, (1817) 171 ER 568; Kirtyanand v. Ramanand, (1936) Pat. 456.

14 Southern Railways Ltd v. S.M.Krishnan, AIR 1990 Sc 673.

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RENUNCIATION OF AGENCY

An agent may renounce his authority at any time before completion

of the agency by giving a notice, but he may become liable to the
principal for damages for breach of contract of agency arising out of
earlier renunciation15. It has been held that abandonment of the
services by setting up a title adverse to the principal will be
evidence of renunciation.16

COMPLETION OF BUSINESS OF AGENCY

An agency may be terminated after the agent has completed the

business of the agency, or also where the business has been
completed in any other manner, viz by the principal himself, or
through another agent.

Where an agent for the sale of goods receives the price, the agency
does not terminate on the sale of goods, but continues until
payment of the price to the principal; the agent being ‘bound to pay
to his principal all sums received on his account’ under Sec. 218.
‘Clearly then, the business does not terminate on receipts of the
money by the agent, in as much as there is subsequent obligation to
account for the sums and to pay them.’17 The other view is that the
business of agency of sale of goods is completed on completion of
the sale and receipt of price by the agent.18 The agent, then, has no

15 Rajaram Nandlal v. Abdul Rahim, AIR 1915 Sind 30.

16 Atul v. Laxman, (1909) 36 Cal. 609.

17 Hingu Prasad v. Sarju Prasad, AIR 1937 All 363.

18 Venkatachalam Chetty v. ANRM Narayan Chetty, AIR 1916 Mad 281 (agency
terminates on sale and does not continue until payment of price); Godhandas v. Firm of
Gokal Khataoo, AIR 1926 Sind 264; Ruchiram-Sukha Nand v. Charan Das AIR 1928 Lah
833; Hingu Lal v. Sarju Prasad, AIR 1937 All 363; Lakshmi Chand v. Firm of Chajju Mal
Ratan Lal, AIR 1926 Lah 200 (date fixed for settlements).

15
power to alter the terms of the contract without fresh authority from
the principal.19

The Law Commission of India agreed with the latter view that an
agency is determined when the agent ceases to represent the
principal, though his liability in respect of his acts done by him or by
his agent continues; but did not consider it necessary to propose
any change in the language of the Sec.20

The authority of an agent to collect bills and to remit the amount

when realized, by drafts, terminates as soon as the drafts are
dispatched.21

DEATH OF PRINCIPAL OR AGENT

Death of the principal or agent terminates the agency at once,

irrespective of whether the other has notice to that effect;22 though
the authority to bind third parties continue until the third party has
notice of death. A power of attorney to an agent to present a
document for registration is revoked by the death of the principal;
and where the principal died before, the presentation, and the
registrar, knowing of the principal’s death, accepted and registered
the document, the registration was invalid.23 Where a power of
attorney is given by the members of a joint Hindu family to one of
them in connection with the family business, it is a question of
construction in each case whether the power comes to an end on

19 Blackburn v. Scholes (1810)2 Camp 343; Seton v. Slade (1802)7 Ves 265, p.276

20 Thirteenth Report of the Law Commission of India 158, para 157

21 Alliance Bank of Simla Ltd v. Amritsar Bank, AIR 1915 Lah 214.

22 Pool v. Pool, (1889) 58 LJP 67

23 Mujjid-un-Nissa v. Abdur Rahim, 28 IA 15.

16
the death of any of them, or whether it is to continue even after
then.24 Thus, where a karta of such a family appoints an agent to
manage family property, and he dies, the agency continues,
because it relates to the joint family, and not the karta personally25.
Where there are two agents, death of one of them would terminate
the agency only in respect of the deceased and not of the surviving
agent26, unless a contrary intention appears from the terms of the
agency.

INSANITY OF PARTIES

The authority of an agent is terminated if the principal becomes of

incapable by reason of mental illness of managing his affairs.27 The
principal’s insanity infact, is sufficient to annul the agent’s
authority28, it is not necessary that he be declared so. The principal’s
insanity terminates the agency even though the agent has no notice
of it.

The section seems to be in consonance with the rule of modern

English Law.29 The earlier English view was that the insane person
must be certified to be so in a proper inquiry conducted for that
purpose.

24 Badrinaraian Agrawall v.Brijnarayan Roy, AIR 1917 Cal 436 (death of one principal
does not terminate his authority as regards surviving principal).

25 Shankar Singh v. Toshan Pal Singh,AIR 1934 All 553.

26 Agarwal Jorawarmal v. Kasam, AIR 1937 Nag 314; Raghumull v. Luchmondas, AIR
1917 Cal 52 (death of one agent does not terminate agency of co-agent).

27 SRMCTSSPA Chettyar Firm v. U on Maung, AIR 1940 PC 211; Mahendra Pratap Singh
v. Padam Kumari Devi, AIR 1993 All 143.

28 Yonge v.Toynbee, [1908-10] All ER Rep 204 (CA).

29 Drew v. Nunn, (1879) 4 QBD 661; Daily Telegraph v. M’Laughlin, (1904) AC 776

17
INSOLVENCY OF PARTIES

Agency is also terminated by the insolvency of the principal 30. But,

where the principal is a firm and one of the partners becomes
insolvent, the agency does not ipso facto terminate31. The section is
silent as to the effect of the agent’s insolvency. Considering that the
agent is onle a connecting link between the principal and the third
parties, there may be ground for saying that the insolvency puts an
end to the agency, except in cases where the act to be done by the
agent is merely formal.32 In any event authority to receive payment
on behalf of the principal is determined by the agent’s insolvency.33

It should however be remembered that in cases of death, lunacy or

bankruptcy of the principal, the fact of the death or insanity must be
known to the other party.

30 Pearson v. Graham, ((1837) 112 ER 344

31 Agarwal Jowarmal v. Kasam, ILR (1937) Nag 28

32 Parker v. Smith, (1812)104 ER 1133

33 Hudson v. Granger, (1821) 106 ER 1103

18
 SECTION 202- TERMINATION OF AGENCY WHERE
AGENT HAS AN INTEREST IN SUBJECT MATTER

Section 202 of the Indian Contract Act reads as following:

Where the agent has himself an interest in the property which

forms the subject-matter of the agency, the agency cannot, in the
absence of an express contract, be terminated to the prejudice of
such interest.

This section forms one of the limitations to the general rules as to

revocation of agency. Decided cases with reference to the section
chiefly center round the question of what constitutes an “interest in
the subject-matter of the agency”. The corresponding English rule is
that, if the agency has been created for effectuating any security or
protecting any interest of the agent, it is irrevocable during the
existence of such interest. Where an agreement is entered into on a
sufficient consideration whereby an authority, such authority is
irrevocable.34it will be observed that the language of the section
wider than that to the English rule. But the English rulings have
however been applied.

Where it is clear that from the power of attorney executed by the

appellant in respect of s mine that right of lease has been
transferred by the appellant creating an interest in favour of the

34 Frith v. Frith, (1906) AC 254; Smart v. Sandars, (1848) 136 ER 1152; Clerk v. Laurie,
(1857) 157 ER 83; In re, Carmicheal’s Case, (1896) 2 Ch 643; Kongatti Valia Nair v.
Subramania, (1899)9 MLJ 290; Mutharasu v. Mayandi, (1968) 2 MLJ 74.

19
respondent by receiving consideration, the agency can be said to be
coupled with interest and as such cannot be revoked.35

An agency to be irrevocable should create an interest in the subject

matter contemporaneously with the documents wherein such
agency is created and it cannot be left to guess chance of inference
unless such a thing is available in the document itself, all such other
power given, to the agent mainly for the purpose of reimbursement
of money spent by him for and on behalf of the principal, even in
such reimbursement should be by way of mortgage or sale of
properties, would create only a right incidental to such agency and
would amount to the creation of any interest in the agent over the
subject concerned.36

Where an agent who has not been specifically authorized in the

power of attorney to incur loan liability in his personal capacity, the
plea of the agent that the principal cannot revoke the power of
attorney until the liabilities incurred by him are settled is not
acceptable as the agency is not one coupled with interest.37

FACTORS:

The question of authority coupled with interest assumes great

practical importance in the case of factors who have advanced
moneys against goods entrusted to them for sale. The general rule
is that if from the language of the document creating the agency or
the dealings between the principal and agent, it is possible it infer

35 Birat Chandra Dagara v. M/s. Taurian Exim Pvt. Ltd., AIR 2005 Ori 147

36 Muthurasu Thevar v. Mayandi Thevar, AIR 1968 Mad 333

37 Ishwarappa v. Arunkumar, AIR 2004 Kant 417

20
an interest, the authority is not revocable. In Smart v. Sanders38, the
court observed:

“The doctrine… applies only to cases where the authority is

given for the purpose of being a security as a part of the security,
not to cases where the authority is given independently and the
interest of the donee arises only incidentally….. The making of an
advance may be a good consideration for an agreement that the
authority to sell shall be no longer revocable, but such an effect will
not arise independently of agreement.”

It is certainly true as was remarked in Jafferbhoy v. Charlesworth,39

that mere advances by a factor whether at time of his employment
as such or subsequently cannot have the effect of altering the
revocable nature of authorities to sell, unless there be an
agreement, express or implied. But in Kondayya v. Narasimhulu40
where the factor was authorized to sell at the best available price
and in case of deficit, draw on the consignor, the court took into
consideration the course of dealings between the parties and held
that an interest in the subject-matter of the agency had been
created and so held the authority irrevocable. Conversely, in
Venkanna v. Achutaramanna,41 where a power of attorney
authorized the agent to conduct a suit on behalf of the principals
and provided that when the subject-matter of the suit was

38 (1848) 136 ER 152 : 75 RR 849

39 (1893) 17 Bom. 520; De Comas v. Prost, (1865)16 ER 59; Frith v. Frith, (1906) AC 254;
Murtunjoy v. John Cockrane, (1865)10 MIA 229 (243).

40 (1896) 20 Mad 97.

41 (1938)1 MLJ 610; Dilchand v. Hazarimal, AIR 1932 Nag. 34; Subhash v. Feroze Khan,
AIR 1982 Del. 114 (an agent appointed on commission

21
recovered, the agent would be entitled to a share, it was held that it
was not a case of authority coupled with an interest.

22
 SECTION 203- WHEN PRINCIPAL MAY REVOKE
AGENT’S AUTHORITY

Section 203 of the Indian Contract Act reads as follows:

The principal may, save as is otherwise provided by the last

preceding section, revoke the authority given to his agent at any
time before the authority has been exercised so as to bind the
principal.

Revocation before authority exercised- It is open to the principal to

revoke the authority so long as no act has been done by the agent
which will bind the principal and no rights of third parties have come
into existence. For instance the authority given to an auctioneer
may be recalled at any time before the goods are knocked down.42
Similarly, the authority of a policy broker may be revoked before the
execution of the policy.43 Even in respect of unlawful transactions,
(e.g.,) betting transactions, authority to pay money may be revoked
at any time before actual payment.44 But if the agent has made a
contract with third parties so as to bind the principal, the authority
cannot be revoked.45 However, if the agent simply appropriates a
contract previously made by him with third parties, it cannot be said

42 Warlow v. Harrison, (1858) 120 ER 920; Day v. Welis, (1861) 54 ER 872.

43 Warwick v. Slade, (1811) 170 ER 1329.

44 Taylor v. Browners, (1876) 1 QBD 291; Hastelow v. Jackson, (1828) 108 ER 1026;
Edgar v. Fowler, (1803) 102 ER 582.

45 Hill v. Royds, (1869) 8 Eq 290; Hamilton v. Spottiswoode, (1849) 154 ER 1182.

23
that the agent has acted so as to bind the principal in such cases,
revocation is possible.46

Unless the right of revocation of proxies is expressly excluded by

the Articles of Association of a company the right would be governed
by the general law of agency.47

The principal has the right to revoke a vakalat given by his agent
whether the agency was irrevocable or not.48

46 Lakshmichand v. Chotaram, (1900) 24 Bom. 403.

47 Narayanan Chettiar v. Kaleswar Mills, AIR 1952 Mad 515.

48 Mutharasu Thevar v. Mayandi Thevar, AIR 1968 Mad 333.

24
 SECTION 204- REVOCATION WHERE AUTHORITY
HAS BEEN PARTLY EXERCISED

Section 204 of the Indian Contract Act reads as following:

The principal cannot revoke the authority, given to his agent

after the authority has been partly exercised so far as regards such
acts and obligations as arise from acts already done in the agency.

The rule in this section is connected with the principal’s duty to

indemnify the agent under Sec 222 below. ‘If a principal employs an
agent to do something which, by law, involves the agent in a legal
liability’- or even in a customary liability by reason of usage in that
class of transactions known to both agent and principal- the
principal cannot draw back and leave the agent to bear the liability
at his own expense.’49 To the extent the authority has been partly
exercised, the agent is entitled to his remuneration and to
indemnity. Thus, in Prickett v. Badger50 where an agent was
employed to sell land at a certain price, and he found a purchaser,
and the owner reused to sell and revoked the agent’s authority, the
agent was entitled for reasonable remuneration for his work and
labour upto that date.

Although the section seeks to protest ‘such acts and obligation as

arise from acts already done in an agency, the illustration indicates

49 Read v. Anderson, [1881-85] All ER Rep 1104.

50 (1856) 1 CBNS 296

25
that the section seeks to protect the acts done, and obligations
arising from such acts. The Law Commission recommended
amending the act to that effect.51

No revocation where authority partly exercised52- A revocation of

authority is in operative with regard to obligations already incurred.
But, where the agent continues for forbidden transactions in spite of
the revocation of his authority, the principal cannot turn round and
claim the benefit of it.53

51 Thirteenth Report of the Law Commission of India 1958, para 160.

52 Day v. Wells, (1861) 54 ER 872; Burn v. Carvalho, (1239) 41 ER 265

53 Harihar Prasad v. Kesho Prasad, (1925) Pat 68.

26
 SECTION 205- COMPENSATION FOR REVOCATION
BY PRINCIPAL OR RENUNCIATION BY AGENT

Sec. 205 of the Indian Contract Act reads

Where there is an express or implied contract that the agency

should be continued for any period of time, the principal must make
compensation to the agent, or the agent to the principal, as the
case may be, for any previous revocation or renunciation of the
agency without sufficient cause.

Premature revocation or renunciation- This section provides for

payment of compensation by principal to agent of vice versa in
cases where the agency is terminated or renounced contrary to an
express or implied contract that it should be continued for a fixed
period.54 Though the employment is for a fixed term and no right to
terminate it exists, such employment may be terminated before the
expiry of the term subject to liability to pay compensation if the
discharge was without sufficient cause.55 Where a principal without
reasonable cause terminates the agency prematurely, he refuses to
perform his part of the contract and prevents performance by the
agent. So, he will be liable in damages to the agent. Thus where the
plaintiff undertook to dispose of the shares of a company on certain
terms as to remuneration, and before he could do it, proceedings
were started for winding up, it was held that the plaintiff was

54 State of Kerela v. G.L.KIlkara, 1966 Ker Lj 487

55 Vishnucharya v. Ramachandra, (1881) 5 Bom 253.

27
prevented from performance of his part of the contract and was
therefore entitled to compensation.56 But in the case of an agency
for of coal for a certain period, where the principal sold away his
business before the term, the court held that there was no implied
term that the principal must carry on the business for a certain
period.57 The interest of a Commercial Agent in England is improved
and protected by virtue of Commercial Agent (Council Directive)
Regulation, 1993. Regulation 17 entitles a Commercial Agent for
compensation in the event of his agreement being terminated
prematurely by the principal. In Page v. Combined Shipping &
Trading Co. Ltd.,58 the plaintiff whose agency agreement was
terminated by the defendant company before the stipulated period
of four years was held to be entitled to compensation for the loss of
commission with proper performance of agency contract would have
earned to him.

“Sufficient Cause”- An absolute power of revocation of contract

cannot be validity reserved in favour of one of the parties. 59 It is only
where the agency is terminated without sufficient cause that the
liability t opay compensation arises. In Boulton Bros. & Co. v. New
Victoria Mills Co.,60 one company as principal, appointed another
company as agent under a mistaken impression as to the latter’s
influence in commercial circles, and on discovering the mistake,
revoked the agency. It was held that there was sufficient cause for

56 Inchbold v. Western Nilgherry Coffee Co., (1864) 144 ER 293

57 Rhodes v. Forwood, (1876) 1 AC 256.

58 (1997) 3 All ER 656 (CA)

59 International Oil Co. v. Indian Oil Co. Ltd., AIR 1969 Mad 423; Thathaiah M & S.M.
Railway, ILR (1957) Mad 215

60 (1929) 26 ALJ 1119

28
revoking the agency. Similarly, where the agent suffers incapacity,
physical or mental,61 or where he lacks reasonable diligence or skill
or is guilty of misconduct, there will be sufficient cause for
revocation. In cases of misconduct, it is a question of fact whether it
is so inconsistent with the fulfillment of the conditions of service as
to justify dismissal.62

61 Cuckson v. Stones, (1858) 120 ER 902

62 Clouston v. Corry , (1906) AC 122; Pearce v. Foster, (1886) 17 QBD 536.

29
 SECTION 206- NOTICE OF REVOCATION OR
RENUNCIATION

Sec 206 of the Indian Contract Act reads as following

Reasonable notice must be given of such revocation or

renunciation; otherwise the damage thereby resulting to the
principal or the agent, as the case may be, must be made good to
the one by the other.

The section provides that if the notice of revocation or renunciation

is not reasonable, the party receiving it will be entitled to claim
compensation for the damage resulting by such notice.

The opinion of the high courts are divided as to whether the words
‘such revocation or renunciation’ occurring in this section apply only
to Sec. 205 or does it apply to every renunciation or revocation.

One view is that the words refer to the contract mentioned in Sec.
203 and is not restricted to agencies for specified period only. In
Shaw Wallace & Co.63 it was stated:

If the phrase ‘such revocation or renunciation is to be taken as

referring back to Sec. 205, I confess that I find no meaning in the
section and it is at least arguable that what the draftsmen meant to
say is that when there is no express or implied contract that the
agency should continue for any fixed period reasonable notice must
be given of the revocation or renunciation of the agency.
63 AIR 1931 Cal 676

30
The other view is that those words refer only to the types of
contracts referred in Sec. 205;64 and that reasonable notice is
necessary where an agency is not for a fixed period.65 The Law
Commission of India recommended that this section should apply
only when there is no period of agency expressly or impliedly fixed
by the contract.66

Reasonable notice is a mandatory requirement under Sec. 206 for

termination of tenancy. When reasonable notice is a necessary sine
qua non for snapping the jural relationship of principal and agent, it
necessarily follows that renunciation of the agency without notice
would be clearly illegal.67

64 Bright Bros Pvt. Ltd. v. JK Sayani, AIR 1976 Mad 55.

65 Sorabji Dhunjibhoy Medora v. Oriental Govt. Security Life Assurance Co Ltd., AIR 1944
Bom 166 (two years was reasonable).

66 Thirteenth Report of the Law Commission of India 1958, para 162 recommended
substituting the existing section as follows:
206. Notice or revocation or renunciation where there is no fixed period or
agency-
Where there is no express or implied contract that the agency should be continued for
any period of time, reasonable notice must be given of any revocation or renunciation of
the agency by the principal or the agent, as the case may be; otherwise the damage
thereby resulting to the agent or the principal, as the case may be, must be good to the
one by the other.

67 Popular Shoe Mart v. K Srinivasa Rao, AIR 1990 NOC 87 (AP).

31
 SECTION 207- REVOCATION AND RENUNCIATION
MAY BE EXPRESSED OR IMPLIED

Sec. 207 of the Indian Contract Act reads as following

Revocation and renunciation may be expressed or may be

implied in the conduct of the principal or agent respectively.

The revocation may be made expressly, or may be implied from the

conduct of the parties. It is a question of fact in each case whether
an agency has, infact, been revoked or terminated.68

Conduct of the principal inconsistent with the continuance of the

agency will determinate the agency, viz where the principal sells off
the subject matter of agency.69 Thus, an agency for the
management of immovable property would stand terminated when
the property is transferred.70

Renunciation by an agent may be express, viz by tendering

resignation of agency;71 or may be implied, viz from ceasing to
discharge his duties, and departing from the principal’s service.72

68 PMARm Muthiah Chettiar v. AVA Chidambaram Chetti, AIR 1918 Mad 1200.

69 EP Nelson & Co. v. Rolfe, [1949]2 All ER 584 (CA)

70 Sures Kanta Banerjee v. Nawab Ali Sikdar, AIR 1916 Cal 800

71 Kinattikara Madhavan Nair v. MR Rly Manavikram Zamorin Maharajah Avergal, AIR

1928 Mad 906

72 MSA Pl Palaniappa Chetty v. T Mr Alagappa Chetty, AIR 1916 Mad 1104

32
In Re E, X v. Y73 a donor of a power of attorney gave powers to two
of his three daughters, but denying them to sell, charge or lease any
land. Later he executed a new power of attorney making all three as
attorneys, providing that any two could sign, but with no restrictions
on authority. It was held that the later document did not revoke the
earlier one, as it attempted only to add the third daughter. Conduct
would amount to revocation only if it was inconsistent with the
continuation of the agency; and it could only be inconsistent if it was
unambiguous in its effect.

73 [2000] 3 All ER 1004

33
 SECTION 208-WHEN TERMINATION OF AGENT’S
AUTHORITY TAKES EFFECT AS TO AGENT, AND AS
TO THIRD PERSON

Sec. 208 of the Indian Contract Act reads as following:

The termination of the authority of an agent does not, so far as

regards the agent, take effect before it becomes known to him, or,
so far as regards third person, before it becomes known to them.

Revocation when takes effect- The policy of law, apparently in

the interests of trade and commerce, is that the agent’s action
should bind the principal even though the principal might have
cancelled the agent’s authority unless the third person with whom
the agent enters into contracts knew of the termination of the
agency.74 This section merely enunciates the rule of commonsense
that revocation or termination of an agent’s authority must be
communicated to the parties concerned before it can have legal
validity. When the principal revokes the authority by giving a notice
to the agent, such agent has no right to remain in possession of the
premises of the principal after the termination of agency.75 In this
connection, reference may usually be made to Sec. 3 of the Power of
Attorney Act, which provides:

“Any person making or doing any payment or act in good faith

in pursuance of power of attorney shall not be liable in respect

74 Kathoom Bivi v. Arulappa Nadar, AIR 1970 Mad.76; Kulsekarapatnam Hand Match
Workers’ Co-operative Cottage Industrial Society Ltd. v. Radhelal Lallolal, AIR 1971 MP
191

75 Southern Roadways Ltd., Madurai v. S.M.Krishnan, AIR 1990 SC 673

34
 of the payment or act by reason that, before the payment or
act, the donor of the power had died or become lunatic, or of
unsound mind, or bankruptcy or insolvent, or had revoked the
power, if the fact of death, lunacy, unsoundness of mind,
bankruptcy, insolvency or revocation was not at the time of the
payment or act known to the person making or doing the
same.”

AS AGAINST THIRD PARTIES

The fact that the agent is aware of the revocation of his authority
will not affect third parties who deal with him in ignorance of such
revocation. Thus payment of a debt to agent whose authority is
subsequently discovered to have been revoked is good payment so
as to support a plea of discharge as against the creditor.76 So too,
where a creditor takes acknowledgement of a debt from an agent in
ignorance of the termination of the agent’s authority, by the death
of the principal such acknowledgement will be valid as against the
debtor.77 Similarly, the registration of deed, in ignorance of the fact
of revocation of authority to register it, has been held to be valid.78

Where the defendant land owner executed GPA in respect of his

land property and subsequently revoked it, sale deed executed by
GPA holder by production certified copies of latest power of attorney
without bearing an endorsement of revocation in favour of the
plaintiff who purchased the property in bona fide belief without the

76 Narasinga v. Muthusami Naliker, (1897) 7 MLJ 218

77 Ebrahim v. Chunilal, (1911) 35 Bom 302

78 Maung Lu Gale v. U. Po Hlaing,(1934) Ran. 104; Ma Byaw v. Mg Tun Hlaing, (1934)

Ran 341, Mohendra v. Kail Prasad, (1903) 30 Cal.265

35
knowledge of revocation of power of attorney shall be binding on the
principal (defendant owner).79

Where after revocation of authority by the principal (land owners)

the third party was put in possession of disputed land for the money
received from him and later the principal endorsed the execution of
document by the agent in favour of the third party, the delegation of
the authority of the agent cannot be questioned in the absence of
any document on record or any other means to show that the
respondent third party can be aware of the factum of revocation of
agency.80

The knowledge of the agent about the cancellation of the agency is

not binding on the third parties and the transactions entered into by
the third parties with the agent shall be binding on the principal until
it has been established that the third parties had knowledge about
the termination of agency.

But, express or actual notice of revocation is not necessary; it will be

sufficient if they somehow get knowledge of the revocation.81

79 N.S.Srinivas v. Madduri Mallareddy, AIR 2005 AP 177.

80 Kashi Ram & anr v.Raj Kumar & Ors., AIR 2000 Raj. 405,406

81 Dasarath v. Brojo Mohan, (1914) 18 CLJ 621.

36
 SECTION 209- AGENT’S DUTY ON TERMINATION
OF AGENCY BY PRINCIPAL’S DEATH OR INSANITY

Sec. 209 of the Indian Contract Act reads

When an agency is terminated by the principal dying or

becoming of unsound mind, the agent is bound to take, on behalf of
the representatives of his late principal, all reasonable steps for the
protection and reservation of the interest entrusted to him.

Duty to protect principal’s interest.- In case of the death or

insanity of the principal, the law casts a duty on the agent, though
the may be aware of the death or insanity, to conserve and protect
the interest entrusted to him, for and on behalf of the
representatives of the deceased principal.82 To this limited extent
the rule enunciated in the section is an exception to the general rule
that agency terminates with the death or insanity of the principal.
An illustration is afforded by a Lahore case where a contract by an
agent for the supply of molasses for the purpose of keeping a
distillery going was held, a reasonable step taken for the
preservation of the deceased, ’principal’s estate.83

82 Venkateshwar Iyer’s, The Law of Contracts-2, 10th ed., P. 655.

83 Moosajee Ahmad & Co v. Adm. General, Bengal, (1921) 3 LLJ 265.

37
 SECTION 210- TERMINATION OF SUB-AGENT’S
AUTHORITY

Sec. 210 of the Indian Contract Act reads

The termination of the authority of an agent causes the

termination (subject to the rules herein contained regarding the
termination of agent’s authority) of the authority of all sub-agents
appointed by him.

Where the agency terminated, the authority of all sub-agents

appointed by such agent also terminates.

The authority of the sub-agent depends only on that of the main

agency;84 and hence, if the agency is terminated, the sub-agency
also stands terminated. This does not apply to a substituted agent.
There may be cases where a substitute rather than a sub-agent has
been appointed, and there appears, by express agreement or by the
nature of the case an intention that his authority shall not be
determined when that of the original agent is revoked.85

84 Lakshmandas Khandelwal v. Raghumull, AIR 1919 PC 49

85 Pollock &Mulla, MULLA Indian Contract and Specific Relief Acts- II, 13th ed., P. 211.

38
 CONCLUSION

Sec. 201-210 deals with the termination of agency. The principal

may revoke the real authority of his agent or

the agent may terminate his authority by renunciation or

revocation at any time. If the revoking party has previously agreed
not to do so, the revocation remains valid, but the other party may
maintain a breach of contract action against him. An agency is
terminated by the Principal revoking his authority; or by the Agent
renouncing the business of the agency; or by the business of the
agency being completed; or by either the Principal or Agent dying or
becoming of unsound mind; or by the Principal being adjudicated an
insolvent under the provisions of any act for the time being in force
for the relief of insolvent debtors.

A major exception to the principal’s power of revocation occurs

when the agent possesses “authority coupled with an

interest.” Here the agent who has part ownership in

something that is to be disposed of also has power to dispose of his
principal’s remaining interest in this thing. Such a power for the
purpose of effectuating any security or of protecting or securing any

39
interest of the agent cannot be revoked without the
agent’s consent.

40
 BIBLIOGRAPHY

1. Avtar Singh, “Law of Contract and Specific Relief”, 9th edition,

Eastern Book Company, Lucknow, 2006

2. J. Beatson, Anson’s Law Of Contract, 28th (edn)., Oxford

University Press, New Delhi, 2002
3. M.K.Nair, The Law Of Contracts, Eastern Book Company,
Lucknow, 1997

4. Pollock and Mulla, Indian Contract and Specific Relief Acts,

Vol.2, R.G.Kapadia(Ed.), 13(edn.), Lexis Nexis, New Delhi, 2006

5. T.S. Venkatesa Iyer’s, The Law of Contracts & Tenders-2, 9th

ed., S.Gogia & Company, Hyderabad.

41