Revocation of Authority under Indian Contract Act, 1872

This article includes the explanation of Sections 201 to 210 under Chapter X (AGENCY) of the Indian Contract Act, 1872. Sections 201 to 210 talk about the revocation of the agency.

Source: Author

Revocation of authority comes under the termination of the contract of the agency which refers to ending the legal relationship between the principal and the agent. The principal and agent are the parties in a contract of agency, such a contract also has the involvement of a third party. The agent acts on behalf of the principal and is authorized to do so for entering into a contract with the third party. What happens when such a contract of agency is terminated? Let us see the relevant provisions for the same:

Section 201: This section tells us what termination of agency actually is. A contract of agency can be terminated, i.e., put to an end —

1. If the principal cancels the authority that he/she has so given to the agent, or
2. If the agent refuses to further proceed with the job assigned, or
3. If the agent has successfully completed the job/transaction assigned to him, or
4. If either the principal, or the agent becomes of unsound mind, i.e., mentally unable to comprehend the happenings around him/her, or
5. If the principal has been declared to be insolvent, i.e., a state where it is no longer possible for the principal to pay monetary obligations.

Section 202: This section explains the agent being a part of the subject-matter of the contract of the agency. When the agent himself has an interest in such a matter concerning the contract, then in that case the agency will not be terminated. For example, P owes A Rs. 500. P asks A to sell P’s laptop to T. P asks A to take the amount of debt from the sale proceeds. In such a case P cannot cancel this authority given to A.

Section 203: This section tells us that under what circumstances the principal can revoke the authority granted to the agent. With reference to Section 202, the principal can cancel the authority given to the agent before the agent performs the transaction. If we take the same example as given above, P can revoke A’s authority before A sells the laptop to T.

Section 204: This section tells us that what can be done if the authority has been implemented to some degree or partly. If the agent has exercised the authority in part and if the act performed is irreversible in regard to the liabilities that might arise out of such transactions, then the principal cannot cancel the authority given to the agent. For example, P appoints A as his agent and directs him to buy 40 MSI laptops in P’s name and deliver the same to P. Here, P cannot revoke the authority after A has purchased the laptops as per the directions provided to him, even though the delivery to P has not been made yet.

Section 205: This section states the compensation to be provided when revocation of the contract of agency is done either by the principal or renunciation by the agent. In a contract of agency, if by any means the principal revokes the contract or the agent abdicates from the contract, and such revocation or renunciation causes loss to either of them, then in such a case compensation must be provided. In the case of R. Sayani v. Bright Bros (P) Ltd., reasonable prior notice was not provided for premature termination of agency and the court directed a compensation of Rs. 12,000 to be given.

Section 206: In continuation to the previous section, this section demands a prior notice to be given before any such revocation by the principal or renunciation by that agent. If either of them fails to provide such prior notice and damages thereby occur, then proper compensation must be made to the one suffering the loss. Refer to the same case as for section 205.

Section 207: When revocation or renunciation is made by either the principal or the agent respectively, it may be expressed or implied. Revocation/renunciation can be done either in written form, by word of mouth, or by conduct. For example, A is P’s agent and P has revoked the contract of the agency. A gets the information of revocation by an email through P, here the revocation is expressed.

Section 208: This section talks about the knowledge of revocation to the third party. In the case of termination of authority by the principal, if the same is not in the knowledge of the third party, then the termination is not valid and the transaction takes place. For example, P directs his agent A to sell his land for Rs. 20 Lakh to T and A will be provided a commission of 15% for the sale. Such information is communicated to A through a letter by P. A proceeds and completes the transaction with T. But, A receives another letter which states that P revokes A’s authority to sell the land. Here T has no knowledge about such termination of the contract of agency. Thus, the termination of the contract is not possible and P is also liable to provide the said commission to A.

Section 209: This section explains what must be done by the agent when a contract of agency is terminated due to the death or insanity of the principal. If the principal dies or where he is no longer in a position to mentally understand the terms of the contract of agency, then it becomes the duty of the agent to fulfill such obligation entrusted to him by the principal on behalf of the principal’s representatives. For example, A is P’s agent who has been granted authority to take care of the renovation of P’s house in Pune. Now due to cardiac arrest, P dies, unfortunately. Here, in such a case A has to complete such obligation of renovation of P’s house on behalf of P’s representatives.

Section 210: This section states that once the authority of an agent is completed then automatically the authority of any sub-agent also comes to an end. Section 191 defines a sub-agent as a person who is employed by and acts under the control of the original agent in a contract of agency. This section explains that the termination of the authority given to the agent causes the termination of the sub-agents (if any) appointed by the original agent. For example, A is P’s agent who is authorized to buy 500 kgs of sugar and deliver the lot to P. A appoints B as his sub-agent for taking care of the payment procedure with T (the third party from whom A buys sugar). Once the transaction is complete (i.e., payment done to T and sugar delivered to P), the contract of agency comes to an end and the authorities of A and B also comes to an end.