CHANAKYA NATIONAL LAW UNIVERSITY

A project on

Termination of anency

SUBMITTED BY:- SUPERVISED BY:-

NEERAJ KUMAR Dr. s. c. Roy

ROLL NUMBER - 757

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CONTENTS

Page.no.
ACKNOWLEDGEMENT 03
INTRODUCTION 04 - 07
 REASERCH METHODOLOGY 06
 OBJECTIVE 07
 SOURCE OF DATA 07
CHAPTERS

1–FORMATION OF AGENCY 08 - 09

2–CONCEPT OF TERMINATION OF AGENCY 10 - 12

3-DURATION OF TERMINATION OF AGENCY 12 - 17

4-CASE STUDY 18 - 23

5-CONCLUSION 24 - 25

BIBLIOGRAPHY 25

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ACKNOWLEDGEMENT
It’s a fact that any research work prepared, compiled or formulated in

isolation is inexplicable to an extent. This research work, although

prepared by me, is a culmination of efforts of a lot of people.

Firstly, I would like to thank our Law of Contract teacher, Dr. S. C. Roy

for giving such a topic for the research which assisted me in acquiring

some knowledge related to TERMINATIO OF AGENCY. I would like to

thank her for her valuable suggestions towards the making of this

project.

Thereafter, I would also like to express my gratitude towards our seniors

who played a vital role in the compilation of this research work .

I cannot ignore the contributions made by my classmates and friends

towards the completion of this project work .And I would also like to

express my gratitude towards the library staff of my college which

assisted me in acquiring the sources necessary for the compilation of my

project.

Last, but not the least , I would like to thank the Almighty for obvious

reasons .

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 ---

NEERAJ KUMAR

Introduction:-
Agency is a special type of contract. The concept of agency was developed as one man cannot
possibly do every transaction himself. Hence, he should have opportunity or facility to transact
business through others like an agent. The principles of contract of agency are – (a) Excepting
matters of a personal nature, what a person can do himself, he can also do it through agent (e.g. a
person cannot marry through an agent, as it is a matter of personal nature) (b) A person acting
through an agent is acting himself, i.e. act of agent is act of Principal. - - Since agency is a
contract, all usual requirements of a valid contract are applicable to agency contract also, except
to the extent excluded in the Act. One important distinction is that as per section 185, no
consideration is necessary to create an agency. This branch of law separates and regulates the
relationships between:

Agents purport to deal on their behalf.

The common law principle in operation is usually represented in the Latin phrase, qui facit per
alium, facit per se, i.e. the one who acts through another, acts in his or her own interests and it is
a parallel concept to vicarious liability and strict liability in which one person is held liable in
Criminal law or Tort for the acts or omissions of another1.
―In the legal phraseology, every person who acts for another is not an agent. A domestic servant
renders to his master a personal service; a person may till another‘s field or tend his flocks in his
shop or factory or may performed upon his roads; one may act for another in aiding in the
performance of his legal or contractual obligations of third persons….In none of these capacities

1
Shivraj Reddy & Bros v S. Raghu Raj Reddy, AIR 2002 NOC 120 (AP).

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he is an agent and he is not acting for another in dealings with third persons. It is only when he
acts as a representative of the other in business negotiation, between that other and third persons,
that he is an agent2…

2
AIR 1955 SC Mad 648

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Hallmark of agency :- “Agent” is defined in section 182 of the Indian Contract Act in the
following ward: Section-182-“Agent and “principal” defined- An agent is a person
employed to do any act another, or to represent another in dealings with third person. The
person for whom such act is done, or who is so represented, is called the “principal”. “The
essence of the matter is that the principal authorized the agent to represent or act for him
in bringing the principal into contractual relation with a third person.”
CONSIDERATION NOT NECESSARY –:
No consideration is necessary to create an agency. [section 185 of the Indian Contract Act 1872
]. Thus, payment of agency commission is not essential to hold appointment of Agent as valid.

A PERSON CAN BECOME A PARTNER IN A FIRM, WHICH IS THE POSITION OF AN

AGENT, WITHOUT MAKING ANY CAPITAL CONTRIBUTION. 1

THE CONCEPT OF AGENCY-:

The concept of “agency” has been thus explained by RAMSWAMI J of the Madras High
Court in Krishna v Ganapathi;

In the legal phraseology, every person who acts for another is not an agent. A domestic servant
renders to his master a personal service; a person may till another‘s field or tend his flocks or
work in his shop or mine; one may for another in aiding in the performance of his legal or
contractual obligations of third persons…. In none of these capacities he is an agent and he is not
acting for another in dealings with third persons.
The reciprocal rights and liabilities between a principal and an agent reflect commercial and
legal realities. A business owner often relies on an employee or another person to conduct a
business. In the case of a corporation, since a corporation is a fictitious legal person, it can only
act through human agents. The principal is bound by the contract entered into by the agent, so
long as the agent performs within the scope of the agency. A third party may rely in good faith
on the representation by a person who identifies himself as an agent for another. It is not always
cost effective to check whether someone who is represented as having the authority to act for
another actually has such authority. If it is subsequently found that the alleged agent was acting
without necessary authority, the agent will generally be held liable3

3
r.k. bangia, law of contracts, allahabad law agency : faridabad, 2010,289

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Given the sudden and severe contraction in the Irish economy and in particular in the disposable
budgets of both the business and private community, it is no wonder that sales/commercial
agents are being informed with increasing regularity by the companies who have engaged them
that the relationship is being terminated or somehow indefinitely suspended. Whilst, from an
economic point of view (i.e cost cutting measures by the company in light of the obvious
downturn in orders etc) the proposed termination may be based on a very genuine need to stem
losses, it can have unforeseen financial implications for the company. Also, if you are the agent
in question the termination may not be as financially disastrous in the short term as you might
think and you may be entitled to significant compensation when the commercial agency is
terminated. In this regard the agent should understand that ―termination‖ is not just limited to
the normal understanding of termination. For the purposes of the relevant legislation ―terminate‖
also includes the non-renewal of an existing agency at the end of its stated term and also where
the agent (being a person acting as a sole trader) actually dies (this is explained in section 4
below)4.

Research methodology:-
For the purpose of research the researcher has relied on primary sources to look for information
relating to the laws and statutes relating to TERMINATION OF AGENCY and secondary
sources for the position and advancement of it‘s in India. The researcher has done this keeping
in mind the frequently asked questions rising out of this topic. The researcher has aimed at
doctrinal method of research and will try to critically analyze and provide an un-biased account
of the role of termination of agency in India.

4
ibid

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Objective:-
The researcher prime objective is to validate the significance of the ‗TERMINATION OF
AGENCY‘. It aims to critically provide a vivid account of the case law, statutes and legislations
which provide a platform in Termination of agency. The researcher is going to limit its scope to
termination of agency its background and present advancement and scenario in India. It will also
aim to critically analyze the trend advancement and position of the Termination of agency.

SOURCE OF DATA:-
BOOK

MAGAZINES

WEBSITES

NEWSPAPER

ARTICLES

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Chapter-1: formation of agency
Section 2: Formation of the Agency Relationship: Agency relationships normally are
consensual; in other words, they come about by contrary consent and agreement. A principle
must have contractual capacity. A person who cannot legally enter into contracts directly should
not be allowed to do so indirectly through an agent. Any person can be an agent, however,
regardless of whether he or she has the capacity to contract. Because an agent derives the
authority to enter into contracts from the principal and because a contract made by an agent is
legally viewed as a contract of the principal, it is immaterial whether the agent personally has the
legal capacity to make that contract. An agency relationship can be created for any legal purpose.
An agency relationship created for a purpose that is illegal or contrary to public policy is
unenforceable.
Agency by Agreement: Most agency relationships are based on an express or implied
agreement that the agent will act for the principal and that the principal agrees to have the agent
so act. An agency agreement can take the form or an express written contract. Many express
agency relationships are created by oral agreement and are not based on a written contract. An
agency agreement can also be implied by conduct5.
Agency by Ratification: On occasion, a person who is in fact not an agent may make a contract
on behalf or another (a principal). If the principal approves or affirms that contract by word or by
action, an agency relationship is created by ratification. Ratification involves a question of intent,
and intent can be expressed by either words or conduct.
Agency by Estoppel: When a principal causes a third person to believe that another person is the
principals agent, and the third person acts to his or her detriment in a reasonable reliance on that
belief, the principal is estopped to deny the agency relationship. In such a situation, the principals
actions have created the appearance of an agency that does not in fact exist. The third person
must prove that he or she reasonably believed that an agency relationship existed, however.
Agency by Operation of Law: The courts may find an agency relationship in the absence of a
formal agreement in other situations as well. This may occur in family relationships. Agency by
operation of law may also occur in emergency situations, when the agents failure to act outside

5
avtar singh, law of contracts, eastern law house : lucknow, 2010,409

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the scope of her or his authority would cause the principal substantial loss. If the agent is unable
to contract the principal, the courts will often grant this emergency power.
Section 3: Duties of Agents and Principals: Once the principal-agent relationship has been
created, both parties have duties that govern their conduct. The principal-agent relationship is
fiduciary one of trust.
Agents Duties to the Principal: Generally, the agent owes the principal five duties
performance, notification, loyalty, obedience, and accounting.
Performance. An implied condition in every contract is the agents agreement to use reasonable
diligence and skill in performing the work. When the agent fails to perform his or her duties,
liability for breach of contract may result. The degree of skill or care required of an agent is
usually that expected of a reasonable person under similar circumstances. Not all agency
relationships are based on contract. In some situations, an agent acts gratuitously that is, without
payment. A gratuitous agent cannot be liable for breach of contract, as there is not contract; he or
she is subject only to tort liability. Once a gratuitous agent has begun duty as an agent, he is then
responsible to perform the duty as a regular agent would have performed.
Notification. An agent is required to notify the principal of all matters that come to her or his
attention concerning the subject matter of the agency. This is the duty of notification, or the duty
to inform. Generally, the law assumes that the principal is aware of any information acquired by
the agent that is relevant to the agency regardless of whether the agent actually passes on this
information to the principal6.
Loyalty. Is one of the most fundamental duties in a fiduciary relationship. Basically stated, the
agent has the duty to act solely for the benefit of his or her principal and not in the interest of the
agent or a third party. The duty of loyalty also means that any information or knowledge
acquired through the agency relationships is confidential. In short, the agents loyalty must be
undivided. The agents actions must be strictly for the benefit of the principal and must not result
in any secret profit for the agent.

6
Ibid

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Chapter-2: concept of termination of agency
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 sections 201 to 210 of the Indian Contract Act 1872, an agency may come to an end in a
variety of ways:

1.Withdrawal by the agent – however, the principal cannot revoke an agency coupled with
interest to the prejudice of such 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)7;

1. By the agent renouncing the business of agency;

2. By the business of agency being completed;
3. By the principal being adjudicated insolvent (section 201).

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 (section 203).

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

7
http://profj.us/26w/law1/chp31notes.htm

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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).

This has become a more difficult area as states are not consistent on the nature of a partnership.
Some states opt for the partnership as no more than an aggregate of the natural persons who have
joined the firm. Others treat the partnership as a business entity and, like a corporation, vest the
partnership with a separate legal personality. Hence, for example, in English law, a partner is the
agent of the other partners whereas, in Scots law where there is a separate personality, a partner
is the agent of the partnership. This form of agency is inherent in the status of a partner and does
not arise out of a contract of agency with a principal. The English Partnership Act 18908 provides
that a partner who acts within the scope of his actual authority (express or implied) will bind the
partnership when he does anything in the ordinary course of carrying on partnership business.
Even if that implied authority has been revoked or limited, the partner will have apparent
authority unless the third party knows that the authority has been compromised. Hence, if the
partnership wishes to limit any partner's authority, it must give express notice of the limitation to
the world. However, there would be little substantive difference if English law was
amended. partners will bind the partnership rather than their fellow partners individually. For
these purposes, the knowledge of the partner acting will be imputed to the other partners or the
firm if a separate personality9. The other partners or the firm are the principal and third parties
are entitled to assume that the principal has been informed of all relevant information. This
causes problems when one partner acts fraudulently or negligently and causes loss to clients of
the firm. In most states, a distinction is drawn between knowledge of the firm's general business
activities and the confidential affairs as they affect one client. Thus, there is no imputation if the
partner is acting against the interests of the firm as a fraud. There is more likely to be liability
in tort if the partnership benefited by receiving fee income for the work negligently performed,
even if only as an aspect of the standard provisions of vicarious liability. Whether the injured

8
http://www.legalmatch.com/law-library/article/agency-formation.html
9
sir frederick pollock & sir dinshaw fardunji mulla, pollock and mulla the indian contract and specific relief

acts, lexis nexis butterworths : nagpur, 2010,523.

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party wishes to sue the partnership or the individual partners is usually a matter for the plaintiff
since, in most jurisdictions, their liability is joint and several.

Chapter-3: duration and termination of agency

The relation of principal and agent can only be terminated by the act or agreement of the parties
to the agency or by operation of law. ―An agency, when shown to have existed, will be
presumed to have continued, in the absence of anything to show its termination, unless such a
length of time has elapsed as destroys the presumption10‖.

The agent‘s duty to act on behalf of the principal comes to an end on the termination of agency.
The timeframe for termination of an agency can be stipulated by a particular statute or
instrument. In such a case, if the instrument specifies in plain and unambiguous terms that an
agency will terminate without action on the part of the principal or agent upon the expiration of
the time specified in the instrument, the agency will in fact, terminate. If, after the expiration of
the time so stipulated in the contract, the parties continue their relationship as principal and
agent, a rebuttable presumption is raised that their relations are governed by the original contract
and that the contract is renewed for a similar period. For instance, if the parties entered into a
contract for one year and continued to act under the contractual terms after one year, the court
will presume that the parties in fact intended to keep the contract alive for another year11.

On the other hand, if the parties did not fix any appropriate time for the termination of contract,
the contract is deemed to be terminated after a reasonable time. ―What constitutes a reasonable
time during which the authority continues is determined by the nature of the act specifically
authorized, the formality of the authorization, the likelihood of changes in the purposes of the
principal, and other factors‖. Moreover, the burden of proving the termination or revocation of
an agency rests on the party asserting it.

―Parol evidence cannot be admitted to add another term to an agreement even if the writing
contains nothing relating to the particular provision to which the parol evidence is directed‖[v].

10
ibid
11
http://www.docstoc.com/docs/69123345/Contract-Law-Remedies-Essay

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Thus, courts will not admit parol evidence while determining the duration of an agency contract
where the written contract is viewed as integrated, or unambiguous, or both. An agency
continuing for a reasonable time can be terminated by one party only after giving sufficient
notice to the other party.

An agency created for a specific purpose as well as an agency created by a power of attorney is
terminated once the particular purpose for which it was created was accomplished[vi]. After the
termination of the agency, the agent is free of any fiduciary duty to the principal arising from the
agency relationship. According to the Uniform Durable Power of Attorney Act § 5, an affidavit
executed by the attorney in fact under a power of attorney, stating that he/ she did not have at the
time of exercise of the power actual knowledge of the termination of the power by revocation or
of the principal‘s death, disability, or incapacity is conclusive proof of the non revocation of the
power at that time12.

The parties can terminate the agency by mutual agreement. An agency relationship requires the
mutual assent of the parties and both the parties have power to withdraw their assent. An agency
may not be terminated by the act of one of the parties and should be done mutually. The mutual
abandonment of an agency is a question of fact, since it is a matter of intention of both the
parties. The court will ascertain such intent from the surrounding facts and circumstances of the
transaction as well as implied from the conduct of the parties.

An agency contract may be cancelled on the basis of an express stipulation in the contract. In
such a case, the parties will have a right of cancellation at the will of either party or upon the
happening of a contingency or the nonperformance of some expressed condition. The principal
cannot cancel such an agreement at will so long as the agent fulfills his/her part of the
agreement. However, the principal can cancel the agency contract for any justifiable cause13.

An agency may be revoked at the will of the principal when an agency is not coupled with an
interest, and no third party‘s rights are involved. The party terminating the agency must show
good cause. Thus, when A enters into a contract whereby B is to provide A for a stated period of
time with goods or services, which both parties realize are for use in a particular enterprise

12
j.beatson,ansonon,contracts,oxford :london, ed. 2010,789

13
http://www.studymode.com/subjects/termination-of-agency-page1.html

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owned by A, in the absence of a specific clause so providing, A cannot escape his obligations
under that contract by voluntarily selling his interest in the enterprise before the expiration of the
expressed contract term. Therefore, if the right to cancel an agency contract is dependent upon
some contingency, the cancellation must be justified by establishing the happening of such
contingency.

An agency cannot be terminated at will during certain specific instances. For example, in the
matter of distributorship or sales agency contracts of indefinite duration, an at-will termination is
not feasible. In such a case, the distributor might have made substantial investment in
establishing or furthering the distributorship. Hence, the agreement may be terminated only after
a reasonable time has lapsed and reasonable notice of termination is given.

An agency contract to be performed to the principal‘s satisfaction can generally be canceled at

will by the principal. Similarly, a power of attorney constituting a mere agency may be revoked
at any time, with or without cause.

A principal may unilaterally cancel an agency without incurring liability for breach of contract
under the following instances: misconduct or habitual intoxication of the agent which interferes
with his/her employment, the refusal of the agent to obey reasonable instructions or to permit the
principal to make a proper audit of his/her accounts, serious neglect or breach of duty by the
agent, dishonesty or untrustworthiness of the agent, the agent‘s failure to pay an indebtedness
owing to the principal, disloyalty of the agent like using the agency to make secret profits.

Ordinarily, an agent may renounce the agency relationship by expressly notifying the principal,
either orally or in writing. An agent‘s cessation of all relations with the principal, and
abandonment by the agent may be treated as a renunciation. However, mere violation of
instructions by the agent will not amount to renunciation14.

Although agency can be terminated at will, law stipulates that notice must be given to the party
affected by termination. However, express notice to the agent that the agency has been revoked,
or to the principal that the agency is renounced, is not always necessary if the affected party
actually knows, or has reason to know the facts resulting in such revocation or renunciation. The

14
avtar singh, law of contracts, eastern law house : lucknow, 2010,421

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principal shall provide sufficient notice to third parties as to the revocation of agent‘s authority.
Otherwise, the acts of an agent after his/ her authority has been revoked may bind a principal as
against third persons who rely upon the agency‘s continued existence. This may often happen to
transactions initiated by the agent before the revocation of authority, and the rule is applied in
favor of persons who have continued to deal with insurance agents, purchasing agents, and the
like.

There is no need to provide any formal written notice to third persons of the ending of an agency
relationship. Actual notice of termination is sufficient in the case of third parties and such notice
may be shown by a written or oral communication from the principal or the agent, or it may be
inferred from the circumstances. For instance, a third party is deemed to have actual notice if
he/she has knowledge of the fact that the principal has appointed another agent for the same
purpose15.

The character of the notice also differs with respect to third parties. Thus, actual notice must be
brought home to former customers who have dealt with the agency more directly, while notice
by publication will be sufficient as to other persons.

In addition, an agency may be terminated by operation of law. The death of the principal
operates as an immediate and absolute revocation of the agent‘s authority, unless the agency is
one coupled with an interest. The rule is the same even if the agency is created with more than
one principal. Where the power or authority is created by two or more principals jointly and one
of them dies, the agency will be terminated unless it is coupled with an interest. However, an
agency may be made irrevocable by statute, notwithstanding the death of the principal.

Regarding the termination of agency upon the death of the principal, two views are prevailing.
According to one view, unless the agency is one coupled with an interest, it will terminate on the
death of the principal, notwithstanding the fact that the agent and third person are ignorant of the
fact. Another view is that if the third person dealing with the agent acts in good faith and in
ignorance of the principal‘s death, the revocation of the agency on the death of the principal
takes effect only from the time that the agent receives notice of such death. In such a case, ―the
principal‘s estate may be bound where the act to be done is not required to be done in the name
of the principal.‖

15
ibid

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Similarly, death of the agent will revoke an agency not coupled with an interest and this is the
rule when there are two or more agents. However, in the case where a sub agent is appointed by
the agent, the authority of a subagent is terminated by the death of the agent, unless the agent
appointed the subagent at the principal‘s request. In that event, the subagent derives his/her
authority form the principal and not from the agent.

The loss of capacity of a party resulting from temporary or permanent mental incompetency may
result in the termination or suspension of the agency relationship.

Thus, the termination of the agent‘s authority due to the loss of capacity of the principal may not
affect the rights of third persons if such third persons do not have notice of such fact. Also, if the
agent‘s authority is coupled with an interest, it is not suspended by the principal‘s insanity16.

Similarly, bankruptcy of the principal is a valid reason for the termination of agency and the
agent is divested of any authority to deal with any assets or rights of property of which the
principal was divested by reason of the bankruptcy, irrespective of whether the agent receives
notice of the bankruptcy. A power of attorney may be terminated by the bankruptcy of the
principal. The mere insolvency of the principal will not automatically terminate agent‘s
authority. The determinant fact is whether the law has assumed control over the principal‘s
property. Likewise, the bankruptcy or insolvency of an agent terminates his or her authority to
conduct transactions on behalf of the principal.

A change in value of the subject matter or a change in business conditions may terminate or
suspend the agent‘s authority if the agent should reasonably infer that the principal would not
consent if aware of such facts. Similarly, a change in legal identity of, or merger by, the
principal is a valid ground for termination of an agency contract.

The loss or destruction of the subject matter of the agency or the termination of the principal‘s
interest is yet another ground for terminating the agent‘s authority. The agent‘s authority ceases
when the agent has notice of the fact. However, destruction of subject matter will not always
result in termination of agency, especially when the subject matter can be replaced without
substantial detriment to either party17.

16
http://www.studymode.com/essays/Termination-Of-Agency-934427.html
17
http://www.buzzle.com/articles/termination-letter-sample.html

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In addition, a change of law making the required act illegal may terminate an agency contract. If
the authority or power of an agent is coupled with an interest, it is not revocable by the act,
condition, death, or mental incapacity of the principal before the expiration of the interest, unless
there is some agreement to the contrary. A power is coupled with an interest where the agent
receives title to all or a part of the subject matter of the agency. In order to support a claim of
power coupled with an interest, either legal title or equitable title is sufficient. A power coupled
with an interest will survive to the personal representative of the agent upon the agent‘s death.

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Chapter-4: case study
Loon Karan Sethia Etc vs Ivan E. John & Ors. Etc on 20 October,
1976

Messrs.John & Co. were in financial difficulties and, therefore, entered into a financial
agreement with Sethia & Co. a partnership firm of the plaintiff and Seth Sugan Chand. On 6th
July, 1948 Messrs. John & Co. obtained another financial accommodation from Sethia & Co.
Messrs. Tejkaran Sidhkaran had also given some advances to Messrs. John & Co. The liability to
the firm of Messrs. Tejkaran Sidhkaran was transferred to Sethia & Co.

Seth Loonkaran Serbia filed a suit against John & Co. and his partners (defendants first set) as
well as Messrs. John, Jain, Mehra & Co. and its partners. (defendants second set) for recovery of
Rs. 21,11,500/- with costs and future interest and for a declaration that the plaintiff had a prior
and floating charge on all the business assets of Messrs. John & Co. It was alleged by the
plaintiff that the defendants (second set) entered into partnership with the defendants (first set )
under the name and style of Messrs. John Jain, Mehra & Co and maliciously induced them to
commit breach of the agreement dated 6-7-1948 by forcibly turning out his representatives who
used to remain in charge of the stocks, stores. coal, waste, etc., of the mills and making them
enter into a financial agreement contrary to the terms of the agreement with his firm. The
plaintiff also alleged that accounts were again settled on 4-4-1949 and a sum of Rs. 47,23,738/-
was found due to him from the defend- ants18.

The defendants (first set) contended that there was no settlement of accounts; that the accounts
were tainted with fraud and obvious mistakes and that on a true and correct accounting a large
sum of money would be found due to them; that the plaintiff and said Sugan Chand obtained
various documents, agreements, vouchers, receipts etc., and that the same were of no legal value
as they were secured by the former by practising undue influence, fraud, coercion and
misrepresentation; that the plaintiff had illegally and contrary to the agreement dated 6-7-1948
debited them with huge amounts which were not really due to them; that the cotton supplied by
the plaintiff was of inferior quality and that the rates charged were exorbitant. It was also denied

18
1977 SCR (1) 853

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that the plaintiff had floating or prior charge on any of their stocks, stores, etc; that the suit was
barred by the provisions Of section 69 of the Partnership Act and that the agreement dated 6-
71948 which was insufficiently stamped could not form the basis of the suit. The defendants.
(second set) also denied the claim of the plaintiff. The Trial Court held that the suit was
maintainable; that the firm of Messrs. Sethia & Co. was dissolved before the institution of the
suit; that the suit being one for the recovery of the assets due to a. dissolved partnership firm
from a third party, was not barred by section 69 of the Partnership Act: that Seth Sugan Chand
was not a necessary party to the suit; that the agreement dated 6-7-1948 was duly stamped and
that no undue influence etc., was exercised by the plaintiff on the defendants; that there was no
ac- counting on 4-4-1949 as alleged by the plaintiff and that both the plaintiff and the defendants
(first set) committed a breach of the agreement dated 6-7-1948. The Trial Court also held that a
charge was created in favour of the plain- tiff in respect of the entire business assets and that the
defendants (second set) were liable to satisfy the plain- tiff's claim. The Trial Court decreed the
plaintiff's suit to the extent of Rs. 18,00,152 but rejected his claim for specific performance and
injunction. The Trial Court accord- ingly passed a preliminary decree against both the sets of
defendants directing them to deposit19.

the said amount in the court within the prescribed time and in default gave the plaintiff a right to
apply for a final decree for the sale of all the business assets, goods, stocks, stores, etc. The
decree also gave a right to the plaintiff to apply for a personal decree against the defend- ants for
the balance of his claim in case the net sale proceeds of the property of the firm were found
insufficient to discharge his claim.

The plaintiff filed an appeal in the High Court of Allahabad and the defendants also filed an
appeal against the judgment of the Trial Court. The High Court allowed both the appeals
partially holding that no fraud, undue influence, coercion or misrepresentation was practised by
the plaintiff; that the agreement dated 6-7-1948 was neither insufficiently stamped nor did it
require registration; that the deed of dissolution dated 22-7-1948 was prepared for the purpose of
the case but there was sufficient evidence on the record to indicate that said Sugan Chand had
withdrawn from the partnership carried on in the name of Serbia & Co. with effect from 30-6-
1948; that Seth Sugan Chand was not a necessary party to the suit; that the suit was not barred.
19
1977 SCR (1) 853

20 | P a g e
by section 69 of the Partnership Act; that the alterations in the deed dated 6-7-1948 were not
material alterations and did not render the agreement void; that the plaintiff had a floating charge
over the business assets of John & Co.; that it was defendants (first set) and not the plaintiff who
committed breach of the' agreement. The High Court, there- fore, passed a preliminary decree for
Rs. 11,33,668/- in favour of the plaintiff and against the defendants (first set) but dismissed the
suit with costs as against the de- fendants (second set). The High Court granted certificate under
Article 133 in both the appeals.

Dismissing the plaintiff's appeal and allowing the appeal of the defendants (first set) held: (1)
Section 69 of the Partnership Act is mandatory in character and its effect is to render a suit by a
plaintiff in respect of a right vested in him or acquired by him under a contract which he entered
into as a partner of an unregistered firm, whether existing or dissolved, void. [869 A]

(2) A partner of an erstwhile unregistered partnership firm cannot bring a suit to enforce a right
arising out of a contract failing within the ambit of section 69 of the Partnership Act. The suit out
of which the appeals arise was for enforcement of the agreement entered into by the plaintiff as
partner of Serbia & Co. It was never pleaded by the plaintiff not even in his replication that he
was suing to recover the outstanding of a dissolved firm. Thus the suit was clearly hit by section
69' and was not main- tainable. [869 B-C]

(3) A close scrutiny of the document and other evidence clearly negatives the plaintiff's claim
that the firm was dissolved with effect from 30th June 194820. [865 C]

(a) The agreement dated 6th July 1948 itself is signed by the plaintiff as a partner and the,
expression partner also appears in the body of the agreement. [865 D]

(b) The alleged deed of dissolution dated 22nd July 1948 between the plaintiff and Seth Sugan
Chand was prepared on a stamp paper printed in the Government Press in November, 1948. The
said Dissolution Deed was, therefore, clearly fabricated by the plaintiff. The plaintiff signed
various cheques in July, 1948 as the partner of Sethia & Co. [865 F-H; 866 A-C; 867 F]

20
1977 SCR (1) 853

21 | P a g e
(c) No service by post or advertisement in the newspaper about the dissolution was given either
by the plaintiff or by Seth Sugan Chand. [867 F]

(4) Seth Sugan Chand was a necessary party to the suit and in spite of the objections raised on
behalf of the defendants the plaintiff did not care to implead' Seth Sugan Chand. The suit was
bound to fail on that ground also. [869 D-E]

(5) A material alteration in a document without the consent of a party to, it has the effect of
cancelling the deed. [870 A]

Volume 12 of Halsburys Laws of England (Fourth Edition) referred to.

Nathu Lal & Ors. v. Musammat Gomti & Ors. (A.I.R. 1940 P.C. 160) relied on.

In the present case there were many material alterations of the document. The material
alterations, therefore have the effect of cancelling the deed in question. [870 B-D] (6) The
plaintiff's suit was for a specific and ascer- tained sum of money on the basis of settled account.
The Courts below found concurrently that there was no settlement of account as alleged by the
plaintiff on 4th April 1949. After that it was not open to the courts below to make out a new case
for the plaintiff which he never pleaded21. The courts be.low could have either dismissed the suit
or passed a preliminary decree for accounts directing that the books of account be examined item
by item and an opportunity allowed to defendants to impeach and falsify the accounts. [871 A-
C].

Chathu kutti Nair Vs Kundan Appa and ors.

1. The petitioner brought a suit to recover rents from defendants Nos. 1 to 3 who had attorned
to him under a marupat. The plaintiff is the karnavan of the tarwad. The 6th defendant is a
junior member to whom the plaintiff had given a power-of-attorney to collect the rents22. The
plaintiff says that he had revoked this power-of-attorney on 22nd September 1927 and that the
payment of rent made by the defendants in December 1927 to 5th fefendant was consequently

21
1977 SCR (1) 853
22
136 Ind Cas 776

22 | P a g e
invalid. Two pleas were raised in defence that the defendant had mortgaged the property to
D23. W. No. 1 with instructions to pay the rent to the 5th defendant and that D. W. No. 1 was
not aware of the cancellation. The second is that the cancellation itself was illegal. I have not
considered it necessary to call on the respondents to answer the first point because on the
second I think the decision is correct.

2. The petitioner contends that the cancellation is valid, that if it was made before the time
fixed in the power-of attorney for its termination the only remedy is one by way of damages
under Section 205 of the Indian Contract Act and that the 5th defendant had no interest in the
property as described in Section 202. The question therefore is whether the 5th defendant had
any such interest in the property as is contemplated under Section 202. The 5th defendant is a
member of the tarwad and entitled to be maintained out of the tarwad property. The rents are
part of the tarwad property and he in my opinion has a clear interest in the rents before and
after the grant to him of the power-of attorney. Under Section 202, Pollock and Mulla state
with regard to 'authority coupled with interest' that in England the word 'coupled' implies
beyond the mere fact of the agent having an interest in the subject-matter, some specific
connection between the authority and the interest. They quote from Smart v. Sandars (1848) 5
C.B.895 at p. 917 : 17 L.J.C.P.258 12 Jur. 751 : 75 R. R., 849 : 136 E. R. 1132, as follows.

We think this doctrine---i. e., the rule of the present section---applies only to cases where the
authority is given for the purpose of being : a security, or as part of the security, not to cases
where the authority is given independently, and the interest of the donee of the authority arises
afterwards, and incidentally only, as, for instance, in the present case goods are consigned to a
factor for sale. This confers an implied authority to sell. Afterwards the factor makes advances.
This is not an authority coupled with an interest but an independent authority, and an interest
subsequently arising.

3. It appears to me from this that in English Law if the interest was previous to the authority, it
would be such an interest as is contemplated in a. 202. Under the heading 'Indian authorities' at
page 675 the cases quoted are ones where the agent had no interest antecedent to the authority.

23
136 Ind Cas 776

23 | P a g e
4. I must hold in the present case that the 5th defendant (agent) had an interest in the property
namely the rents due to the tarwad and that the cancellation of his authority was illegal, the
conditions of such cancellation not having been complied with as pointed out by the lower
Court.

24 | P a g e
5-conclusion

Technology is an indispensable instrument of globalization. Its globalizing potential , however

its influenced shaped by laws and regulations. Globalization as we understand it today is a
conscious process. People perceive the world as a single or compressed space. Laws and
regulations enables the technology to achieve its globalizing potential and allow human activity
to stretch across borders. Laws and regulations also help to create powerful non-state actors such
as international organizations and corporations by permitting such actors to come into being and
to acquire sources of power.

The law of agency is an area of commercial law dealing with a Contractual or Quasi-Contractual,
or non-contractual set of relationships

when an agent is authorized to act on behalf of another (called the Principal) to create a legal
relationship with a Third Party. Succinctly, it may be referred to as the relationship between a
principal and an agent whereby the principal, expressly or impliedly, authorizes the agent to
work under his control and on his behalf. The agent is, thus, required to negotiate on behalf of
the principal or bring him and third parties into contractual relationship.

In political science and economics, the principal–agent problem or agency dilemma treats the
difficulties that arise under conditions of incomplete and asymmetric information when a
principal hires an agent, such as the problem of potential moral hazard and conflict of interest,
inasmuch as the principal is—presumably—hiring the agent to pursue its, the principal's,
interests.

Various mechanisms may be used to try to align the interests of the agent in solidarity with those
of the principal, such as piece rates/commissions, profit sharing, efficiency wages, performance
measurement (including financial statements), the agent posting a bond, or fear of firing.

The principal–agent problem is found in most employer/ employee relationships, for example,
when stakeholders hire top executives of corporations. Numerous studies in political science
have noted the problems inherent in the delegation of legislative authority to bureaucratic
agencies. As another example, the implementation of legislation (such as laws and executive

25 | P a g e
directives) is open to bureaucratic interpretation, which creates opportunities and incentives for
the bureaucrat-as-agent to deviate from the intentions or preferences of the legislators. Variance
in the intensity of legislative oversight also serves to increase principal–agent problems in
implementing legislative preferences.

Bibliography
BOOKS-
1. J.BEATSON, ANSON ON CONTRACTS,OXFORD :LONDON, ED. 2010, 2010
2. Sir Frederick Pollock & Sir Dinshaw Fardunji Mulla, Pollock and Mulla The Indian
Contract and Specific Relief Acts, LEXIS NEXIS BUTTERWORTHS : NAGPUR, 2010
3. R.K. BANGIA, LAW OF CONTRACTS, ALLAHABAD LAW AGENCY : FARIDABAD, 2010
4. AVTAR SINGH, LAW OF CONTRACTS, EASTERN LAW HOUSE : LUCKNOW, 2010

WEBSITES:-

1. http://agency.uslegal.com/duration-and-termination-of-agency/
2. http://i2biz.blogspot.com/2009/11/termination-of-agency.html
3. http://www.vanuatu.usp.ac.fj/courses/LA313_Commercial_Law/LA313_Topic%2010.html
4. http://en.wikipedia.org/wiki/Law_of_agency
5. http://www.eaa.org.hk/eaa/Home/Publications/AgencyLaw/3Formationofagency/tabid/403/lang
uage/en-US/Default.aspx
6. http://profj.us/26w/law1/chp31notes.htm
7.

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