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Termination of Agency on Death of Principal? Supreme Court of India [May 2024]



AGENT INTEREST IN AGENCY LIVES EVEN WHEN PRINCIPAL IS DEAD: The Supreme Court of India observed that the death of the original contractor would not preclude the agent (power of attorney) from initiating the proceedings arising out of the contract if the agent holds an interest in the contract being expressly mentioned in the contract.


Justices BR Gavai and BV Nagarathna stated that where the agent has himself an interest in the property, expressly mentioned in the contract, which forms the subject matter of the agency then the contract of agency would not be terminated under Section 201 of Indian Contract Act, 1872 (“1872 Act”) upon the death of the principal.


  • Section 201 of the Indian Contract Act 1872, prescribes conditions where the contract of agency would get stand terminated, where one of the conditions is the death of the principal contractor.

  • Section 202 of the Indian Contract Act 1872, deals with situations where an agent has an interest in subject matter. It states that where the agent has an interest in the property that 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.


READING SECTION 201 AND SECTION 202 TOGETHER :


The Supreme court opined that when the power of attorney, being an agent, holds an interest in the contract then there would NOT be an automatic termination of the agency upon the death of the principal contractor under Section 201 of the Act as Section 201 of the Indian Contract Act couldn't be read in isolation by ignoring Section 202 of the Act when the agent holds an interest in the contract.

FACTS OF THE CASE : P. SESHAREDDY (D) REP. BY HIS LR. CUM IRREVOCABLE GPA HOLDER AND ASSIGNEE KOTAMREDDY KODANDARAMI Vs. STATE OF KARNATAKA & ORS


In the present case, the principal contractor executed a power of attorney in favor of the appellant. After the death of the principal contractor, the respondent sought for termination of the agency i.e., power of attorney.


  • However, it was contended by the appellant that since he holds an interest in the contract therefore the termination of the agency upon the death of the original contractor wouldn't be done based on Section 201 of the Act.

  • The appellant by placing reliance on Section 202 of the Act contended that since he holds 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.


“However, learned Single Judge could not have read Section 201 of the Indian Contract Act in isolation by ignoring Section 202 of the Indian Contract Act. The learned Single Judge failed to take into consideration that on account of the assignment deed, an interest accrued in the said contract in favour of the appellant. Indisputably, the said contract was the subject matter of the agency and as such in the absence of an express provision to the contrary, the appellant was entitled to continue with the said agency.”, the court observed.


Based on the aforesaid observation, the appeal was allowed and the appellant was allowed to continue the agency i.e., power of attorney.



DIFFERENT MODES OF TERMINATION OF AGENCY UNDER INDIAN CONTRACT ACT 1872


Section 201 provide for termination of agency. Under following circumstances an agency is terminated..

  1. When principal revokes agent’s authority;

  2. When agent renounces the business of the agency;

  3. When business of agency has completed;

  4. When either the principal or agent died or become unsound-mind; _

  5. When principal is adjudicated as an insolvent.


Section 202 provides that where agent has an interest in the subject matter of agency, the agency, in the absence of an express contract, cannot be terminated to the prejudice of such interest.


Section 203 provides that the principal may revoke the authority given to his agent at any time before the authority has been exercised as to bind the principal.


Section 205 provides that where an agency is created for a definite 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 agency without sufficient cause.


Section 210 provides that the termination of the authority of an agent causes termination of the authority of all sub-agents appointed by him.


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