FINAL DRAFT

AGENT, SUB-AGENT AND SUBSTITUTED-AGENT:

JUDICIAL INTERPRETATION

PRAVIR MALHOTRA
20171436

Submitted to - Prof. Ruchika Rao

BA LLB (Hons.) 2017 SECTION D

 Malhotra 2

Table of Contents
INDEX OF AUTHORITIES ..........................................................................................................................3

CASES REFERRED .......................................................................................................................................... 3

TABLE OF ABBREVIATIONS-....................................................................................................................... 4

INTRODUCTION ..........................................................................................................................................5

RESEARCH METHODOLOGY ...................................................................................................................5

CH 1- AGENT ................................................................................................................................................6

1.1 DUTY TO NOT DELEGATE ...................................................................................................................... 7

CH 2- SUB – AGENT .....................................................................................................................................7

2.1 RELATIONSHIP BETWEEN AGENT AND SUB-AGENT ...................................................................... 8

CH 3- SUBSTITUTED-AGENT ....................................................................................................................8

3.1 DIFFERENCE BETWEEN SUB-AGENT AND SUBSTITUTED AGENT ............................................... 9

CONCLUSION...............................................................................................................................................9

BIBLIOGRAPHY ........................................................................................................................................10

BOOKS .............................................................................................................................................................. 10

WEB-SOURCES ................................................................................................................................................. 10
 Malhotra 3

INDEX OF AUTHORITIES

CASES REFERRED –

Foreman v Great Western Rly Co, [1878] 38 LT 851…………………………………………6

Kalyanji Kuwarji v. Tirkaram Sheolal, AIR [1938] Nag 254…………………………………6

Sukumari Gupta v. Dhirendra Nath Roy Chowdhury, AIR [1941] Cal 643…………………..6

Banaras Bank v. Ram Prasad, AIR [1930] All 573…………………………………………...6

Bonsor v Musicians’ Union, [1956] AC 104………………………………………………….7

New Zealand Farmers’ Cooperative Ltd v National Mortgage & Agency of NZ, [1961] NZLR

969……………………………………………………………………………………………..7

Chaudhry v Prabhakar, [1989] 1 WLR 29……………………………………………………7

De Busche v. Alt, [1878] 8 Ch 286, 310……………………………………………………….7

John McCain & Co. v. Pow, [1975] 1 All ER 129…………………………………………….7

Barnard v. Coffin, (1886) 141 Mass. 37, 6 N. E. 364…………………………………………7

Bank of Ky. V. Adams Express Co., [1876] 93 U. S. 174……………………………………...7

Whitlock v. Hichs, [1874] 75 Ill……………………………………………………………….7

Blackburn v. Mason, [1893] 68 L. T. R. (N. S.) 510…………………………………………..7

Union Casualty & Surety Co. v. Gray, [1902] 114 F. 422 3d Cir. Pa…………………………8

Purushotham Haridas v. Amruth Ghee Co Ltd, AIR [1961] AP 143…………………………8

Union of India v. Mohd Nazim, AIR [1980] SC 431………………………………………….8

Rughunath Prasad v. Seva Ram Tikam Das, AIR [1980] All 15……………………………...8

Mercantile Bank of India Ltd. v. Chetumal Bulchand, AIR [1930] Sind 247…………………9
 Malhotra 4

TABLE OF ABBREVIATIONS-

1. AIR

All India Reporter

2. Anr

Another

3. Ch

Chapter

4. Co. Company

5. Ltd. Limited

6. & And

7. SC Supreme Court

8. v. Versus

9. Ors. Others

10. UOI Union Of India

11. Art. Article

TABLE OF ABBREVIATIONS-
 Malhotra 5

INTRODUCTION
The law of agency is derived from the legal maxim ‘qui facit per alium, facit per se’
which mean “he who acts through another is deemed in law to do it himself.”1 The development
of the concept of agency is very closely related to the changing needs for division of labor. It
includes complicated legal relations since a stranger to a contract participates in its formation.
It is essential to note that although legal provisions for delegating the authority to perform exist
under the ambit of the Indian Contract Act, 1872, the judicial interpretation of the same has not
been consistent. In this paper, the researcher will begin by introducing the concepts of Agent,
Sub-agent and Substituted-agent. Subsequently the relationship between the three will be
explored. In the next segment of the paper the distinction between a sub-agent and a substituted
agent is also discussed.

RESEARCH METHODOLOGY

Aims and Objectives

It seeks to understand the responsibilities and liabilities of an agent, sub-agent and substituted
agent, their inter-liabilities, statutory provisions with respect to the law of agency and
identifying a clear distinction between sub-agents and substituted agents under the ambit of
the Indian Contract Act, 1872.

Scope and Limitations:

The paper is based on descriptive forms of research and includes and is limited to the study of
the statutory provisions in place in pertinence to the law of agency and the liabilities of an
agent, sub-agent and substituted agent as well as it’s judicial interpretation.

Research Pattern:
In this project research based on secondary sources has been performed which includes but is
not limited to data collected from libraries, archives, books, journals, academic articles, etc.
No case studies or surveys were conducted.

1
Agency. (n.d.). Legal Information Institute. Retrieved from https://www.law.cornell.edu/wex/agency.
 Malhotra 6

Ch 1- AGENT

The association between a Principal and an Agent in India is fundamentally controlled

by the terms of a contract entered into by both the parties and hence is contractual in nature.
Chapter X of the Indian Contract Act, 1872 (hereinafter referred to as ‘Act’) lays down the
statutory provisions for the law of agency which regulates the formation and performance of
any contract. The term ‘Agent’ in the legal sense is defined by Section 182 of the Act as ‘person
employed to do any act for another or to represent another in dealings with third person.’2
According to the law, any person who is of sound mind and is of the age of majority has the
capacity to employ an Agent.3 According to the statutory provisions defined by the Act, a
person may become an agent, between a Principal and a third party, in order to be responsible
to his Principal.4 It is fundamental to consider that contractual capacity is not essential in order
to become an agent.5 This means that a minor can be employed as an agent however, the minor
will not be responsible to the principal.6 Consideration as defined by Section 2(d) of the Act is
required to create an agency7 and the authority of the agent maybe expressed or implied8. An
Agent who is authorised to do any act is also authorised to take every legal action in order to
do that act.9 It is important to understand however that it is imperative that the course of action
opted is not illegal whatsoever and is not beyond the powers of the Agent or his Principal. It is
essential to note however that the Act does not differentiate between various classes of agents.10
An agent may be appointed either by the principal or by any authority authorized by law to
make the employment.11

The existence of agency is determined understanding the true nature of the

relationship.12 In the matters of Banaras Bank v. Ram Prasad13, it was held that as per the
obtained evidence, if the nature of the contractual relationship does not justify the finding of
an agency, then it is the responsibility of the court to examine the functions and responsibilities

2
The Indian Contract Act 1872 s182
3
The Indian Contract Act 1872 s183
4
The Indian Contract Act 1872 s184
5
Ibid.
6
Foreman v Great Western Rly Co, (1878) 38 LT 851.
7
The Indian Contract Act 1872 s185
8
The Indian Contract Act 1872 s186
9
The Indian Contract Act 1872 s188
10
Kalyanji Kuwarji v. Tirkaram Sheolal, AIR [1938] Nag 254.
11
Sukumari Gupta v. Dhirendra Nath Roy Chowdhury, AIR [1941] Cal 643.
12 rd
Halsbury’s Law of England, 3 edn, Vol I, p 146
13
AIR [1930] All 573.
 Malhotra 7

of the alleged agent. As far as the scope of an agent’s authority is concerned, it is determined
by the agreement made between the principal and the agent and can be either expressed or
implied as mentioned before. Since the agent is contractually bound, he is primarily liable to
execute the instructions of the principal14 and exercise a reasonable degree of skill and care15.
Apart from this, the agent is obligated to function in good faith and avoid conflict of interests
for personal gains.16

1.1 DUTY TO NOT DELEGATE

Delegatus non potest delegare is a well-known legal maxim used in pertinence with the
law of agency. The contractual agreement between the principal and the agent exists on the
assumption that the principal trusts the competency and integrity of the agent. Hence, in
ordinary circumstances, the agent is not in a legal capacity to further delegate the performance
of the work which he is bound to do.17 In John McCain & Co. v. Pow18, it was held that without
express or implied authorisation by the principal, the agent cannot further delegate his powers.
In case of consent and express and implied authorisation from the principal to hire another
agent to perform acts which he was liable to, the original agent will still be liable to the principal
in case of any defaults caused due to the actions of his own agent.19 This arrangement although
might result in an undisclosed principal to the additional agent since the additional agent was
contracted to by the original agent.20

Ch 2- SUB – AGENT

Theoretically speaking, a sub-agent is a person appointed by an agent to perform an act

that he is himself liable to do, partially or wholly in pertinence with his agency.21 It is essential
to note that as previously mentioned, sub-agent cannot be contracted without the consent and
express or implied authorization from the principal.22 It is also imperative to understand that
the agent hence contracted is also invested with the same rights and has the same liabilities

14
Bonsor v Musicians’ Union, [1956] AC 104
15
New Zealand Farmers Cooperative Ltd v National Mortgage & Agency of NZ, [1961] NZLR 969
16
Chaudhry v Prabhakar, [1989] 1 WLR 29
17
De Busche v. Alt, [1878] 8 Ch 286, 310
18
[1975] 1 All ER 129
19
Barnard v. Coffin ,[1886] 141 Mass. 37, 6 N. E. 364; Bank of Ky. V. Adams Express Co., [1876] 93 U. S.
174
20
Whitlock v. Hichs, [1874] 75 Ill. 460; see Blackburn v. Mason, [1893] 68 L. T. R. (N. S.) 510
21
The Indian Contract Act 1872 s191
22
The Indian Contract Act 1872 s190
 Malhotra 8

towards the original agent as if he were the sole and real principal. 23 If however, the agent
employs a sub-agent without authorisation from the principal, to partially or wholly to perform
the act, the sub-agent is only sanctioned to recover from his immediate employer, that is the
original agent and not the original principal because there does not exist any privity between
them which ordinarily exists if there is authorisation obtained from the principal wherein, the
additional agent has the capacity to claim for compensation from both the principal and the
original agent. It is fundamental to note however, that in case the original contract of agency
ceases to exist, the contract of sub-agency will be dissolved by default.24

2.1 RELATIONSHIP BETWEEN AGENT AND SUB-AGENT

The agent through a sub-agent, can perform the task given to him by the principal. It is
necessary to appreciate the fact however that the sub-agent is under direct control of the agent
and not the principal because there doesn’t exist any contract of employment between them.25
The case of Union of India v. Mohd Nazim26 answers some very relevant issues on the matter,
that is, if a postal service acts as an agent of the sender of the object and if the object is sent to
a foreign country, does the government act as a sub-agent or not. It was held that since the
government was neither employed nor under direct control of the primary agent, the
relationship of sub-agency was not established. In the matters of Rughunath Prasad v. Seva
Ram Tikam Das27, one party authorised the other party to conduct business on his behalf. The
second party on the other hand employed a third party to function on specific terms. It is
essential to note that in this scenario, the third party will act as the sub-agent and in case it
defaults, a suit by the first party again the third party would not be sustained.

Ch 3- SUBSTITUTED-AGENT

Section 194 of the Act28 defines the legal entity termed as a ‘substituted-agent’ in the
scenario wherein the primary agent, in the existence of consent and expressed or implied
authorisation of the principal, names another person, that person would be an agent of the
principal itself as a privity of contract is established between both the parties rendering the

23
The Indian Contract Act 1872 s192
24
The Indian Contract Act 1872 s210; Union Casualty & Surety Co. v. Gray, [1902] 114 F. 422 3d Cir. Pa.
25
Purushotham Haridas v. Amruth Ghee Co Ltd,AIR [1961] AP 143; relying on Hugh Francis Hoole v. Royal
Trust
26
AIR [1980] SC 431
27
AIR [1980] All 15
28
The Indian Contract Act 1872 s194
 Malhotra 9

substituted agent directly responsible to the principal for his acts. The primary agent however
might be responsible for the actions of the substituted agent under circumstances wherein it is
proven that the agent didn’t exercise due care while employing the additional agent. 29

As per Halsbury's Laws of England,30 there may be three categories of sub-agents: (1)
those employed by the primary agent in the scenario wherein express or implied authorisation
of the principal is absent, and wherein the principal is not bound; (2) those employed with the
express or implied authorisation of the principal but the existence of a privity of contract
between the principal and the additional agent is absent; (3) those employed with the principal's
implied or expressed authorisation, there is existence of privity of contract between the
aforementioned parties, and a direct relationship of principal and agent is established. It is clear
from the given information that in the first two categories, the agent is responsible to the
principal whereas in case of the third category, the substituted agent has the rights and liabilities
of an agent vis-a-vis the principal.31

3.1 DIFFERENCE BETWEEN SUB-AGENT AND SUBSTITUTED AGENT

The legal distinction while identifying the difference between the existence of a sub-
agent or a substituted agent can be difficult at times but is extremely fundamental since both
of them function under the ambit of different liabilities. As far as employment is concerned,
the sub-agent is employed by the agent and is under his control whereas a substituted agent is
only named by the agent and function directly under the control of the principal. The sub-agent
is not contractually bound by the principal whereas there exists a privity of contract between
the substituted agent and the principal and hence the principal is directly liable for the
remuneration of the substituted agent which is not the case with the sub-agent. Since there is
no privity of contract between principal and sub-agent, the former cannot hold the latter liable
unless in case of fraud whereas since the substituted agent is under direct control of the
principal, he can be held liable.

CONCLUSION

It can be claimed without doubt that the maxim 'delegatus non potest delegare' applies
in order to keep an agent from setting up the relationship of principal and agent between his

29
The Indian Contract Act 1872 s195
30
(Volume I) Simonds edition para- 405
31
Mercantile Bank of India Ltd. v. Chetumal Bulchand, AIR [1930] Sind 247
 Malhotra 10

very own principal and a third individual; yet this maxim when broken down only imports that
an agent can't, without power from his principal, decline upon other commitments to the
principal which he has himself attempted to actually satisfy; and that, because of the fact, that
trust in the specific individual utilized is at the basis of the contract of agency, such authority
can't be inferred as an ordinary incident in the contract.
The 13th Law Commission Report also suggested some reforms that should be
integrated into the Indian Contract Act, 1872. It suggests that appointment of a sub-agent
should be reasonably justified unless it violates the express terms of the agent’s authority and
wherein the employment of a sub-agent is necessary for the partial or complete completion of
the task and wherein the task is completely ministerial.
It is essential to note that the only true test to differentiate and understand if the person
employed by the primary agent is a sub-agent or a substituted-agent is determining the
existence of privity between the principal and the additional agent.

BIBLIOGRAPHY

Books

 The Indian Contract Act, 1872

 13th Law Commission Report (Universal publishing and Co.)

 Pollock & Mulla, Indian Contract Act& Specific Relief Acts, vol 2 (13th edn, Lexis

Nexis Butterworths Wadhwa 2009)

 Avtar Singh, Contract & Specific Relief Act (10th edn, EBC)

Web-Sources

 https://www.law.cornell.edu/wex/agency.

 https://www.scribd.com/document/356473096/AGENT-Sub-Agnet-and-Sustituted