Termination of agency


In an agency contract, a person appoints another representative with a third party called an ‘Agent’. In terms of section 183 of the said Act, the Principal must be able to enter into an agreement. Any person may be an agent (Section 184). In terms of section 185, in an agency contract, processing is not required. Termination of agency means terminating the legal relationship between the principal and the agent. Sections 201 to 210 of the Indian Contract Act 1872 prescribe the provision relating to the termination of an agency.

Meaning and Definition of the Agency –

The agency is a formal relationship between the agent and the principal to bring the principal into a legal relationship with a third party.

Section 182 of the Contract Act of India 1872 defines an agent and a principal –

Section 182 of the Indian Contract Act 1872 defines agent and principal – ” An agent is a person employed to do any act for another or to represent another in dealing with third persons.  The person for whom such act is done or who is so represented is called the principal”

Agency Termination –

As mentioned above the termination of the agency means the termination of the legal relationship between the principal and the agent. Sections 201 to 210 of the Indian Contract Act 1872 prescribe the provision relating to the termination of an agency.

Section 201, Indian Contract Act 1872 provides for the termination of an agency –

An agency is terminated by a principal who loses his or her authority, or an agent who dumps the agency’s business; or through a completed agency business; or that the principal or agent dies or is insane; or by having the principal prosecute a person who fails to pay his or her debts under the provisions of any Act at the time applicable to debt relief.

The agency can be terminated in two ways –

1) By the Act of the Parties –

2) By Operation of Law –

1) By the Act of the Parties

i) By agreement – The Company agreement may be terminated at any time by agreement between the principal and the agent

ii) Withdrawal of principal – Head reverts agency at any time by giving notice to agent

iii) By Rejecting an Agent – Re-dumping means retiring from management as an Agent. Like the Principal, the Agent may also dismiss the agency. In terms of section 206 of the Indian Contract Act 1872, the agent must give his Head the appropriate notice of dismissal. Otherwise, you will be liable for damages caused to the principal by seeking such notice.

2) By Operation of Law –

The agency may be terminated by law enforcement

i) Agency completion – The agency may terminate after the completion of the agency’s work.

ii) Expiration – Agency may also be terminated by expiration. if the agency is built for a certain period of time, it is terminated after the expiration date.

iii) Death or madness of principal or agent – Section 209 of the Contract Act of India 1872 prescribes the agent, the duty to terminate the agency contract on the death of the principal. In other words, the Agency comes to the conclusion of the death or insanity of the principal or agent.

iv) Loss of principal – In terms of section 201 of the Contract Act of India 1872, a person who is in debt or insolvent is a person who is unable to conduct business due to excess credit. In this way, if the principal becomes a company that fails to pay the bills he can be fired.

v) Corruption of the matter – When this agency matter is destroyed the agency ends.

Example – Any agency is created for the sale of an Aircraft if the Aircraft is on fire before the sale of the agency expires. In this contract Ndiza is the talk of the town.

vi) Principal becomes an enemy of the alien – If the principal becomes the enemy of the alien, the agency agreement expires.

vii) Dissolution of Company or Firm – A company or company may be regarded as the General Manager of the Agency agreement. If a company or firm collapses the agency ends

When the agency cannot be changed

When an agency cannot be terminated, it is known as a permanent agency. There are some cases where dismissal of an agency by a principal does not happen, as follows: –

When an agency is associated with interest then this is a case where the agent is interested in the affairs of that agency. When an agency is associated with interest, it does not come to a conclusion whether it is the death or madness or dismissal of the principal.

When the agent is faced with a personal debt, then the principal cannot withdraw the agency, the agency becomes inflexible. Example – P appoints Q as his agent. UQ buys wheat according to P orders on his behalf. Now, in such a case P cannot dismiss the agency.

Where the agent has exercised less authority, and there is no change in respect of liabilities arising out of actions performed. (section 204) Example – Mr X appoints Mr Y as his agent. At the behest of Mr X, Mr Y buys 100kg of grain on behalf of his principal ‘Mr. X ’. Now, in such a case Mr. X cannot withdraw the agency.

Case laws

R. Sayani v. Bright Bros (P) Ltd, AIR 1980 Mad 162

Where an organisation has been formed for a defined amount of time, liability for its premature termination will have to be compensated if the termination did not have appropriate justification. There was no fair warning given for the premature decision of the department. The agent received Rs. 4000 a month. The court was of the opinion that there should have been at least three months’ warning. Correspondingly, a reward of Rs. 12,000 was allowed

Amity University Madhya Pradesh

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