Understanding the Concept of Agency
The relationship between a principal and an agent forms the backbone of commercial and business transactions. In modern business, it is practically impossible for one person to manage all operations single-handedly. Therefore, individuals appoint agents to act and make decisions on their behalf. This legal relationship, known as agency, is governed by the Indian Contract Act, 1872 under Sections 182 to 238.
According to Section 182, an agent is a person employed to do any act for another or to represent another in dealings with third persons. The person for whom the act is done is called the principal. Thus, the law of agency is based on the principle of “Qui facit per alium facit per se” — meaning “he who acts through another, acts himself.”
While the agent acts on behalf of the principal, he is also entitled to certain rights that safeguard his interests. These rights ensure fairness, accountability, and mutual trust in the contractual relationship between the two.
Statutory Basis for Agent’s Rights
The rights of an agent are primarily derived from Sections 217 to 225 of the Indian Contract Act, 1872. These sections outline the legal entitlements that an agent can claim from his principal for services rendered, expenses incurred, and protection against personal liability.
These rights are essential to maintain balance and confidence between both parties. If an agent were deprived of such rights, the principal could misuse authority, leaving the agent exposed to loss and unfair treatment.
Let’s examine these rights in detail.
1. Right to Remuneration (Section 219)
Every agent is entitled to remuneration or commission for the work done on behalf of the principal. Section 219 provides that, in the absence of any specific contract, an agent’s remuneration becomes due when the act is completed.
However, if the agent acts dishonestly or commits fraud in the course of the agency, he forfeits his right to remuneration (Section 220). This ensures honesty and accountability in representation.
Example:
If a real estate agent successfully sells a property on behalf of a principal, he becomes entitled to commission after the sale. However, if he misrepresents facts to the buyer or hides critical information, he loses his right to remuneration.
2. Right to Retain Money and Goods (Section 217 & 218)
Under Section 217, an agent has the right to retain, out of any sums received on behalf of the principal, all amounts due to him for advances, expenses, and remuneration.
This right of retention acts as a security measure for the agent. It prevents financial loss when the principal delays or refuses payment. The agent can hold the principal’s goods or funds until dues are cleared.
Similarly, Section 218 provides that the agent must render proper accounts and pay any balance remaining after deducting his legitimate claims. This ensures transparency and fairness.
Example:
A shipping agent who pays customs duties on behalf of the principal can retain goods until reimbursement is made.
3. Right of Lien on Principal’s Property (Section 221)
Section 221 grants the agent a lien on all goods, papers, and other property of the principal in the agent’s possession until the principal pays the due commission or advances. This is called a particular lien.
It allows the agent to hold, but not sell, the goods as security for payment. However, this lien exists only for lawful advances and services related to those goods.
Example:
A commission agent who has transported goods for a principal may retain those goods until the commission and transportation charges are paid.
4. Right to be Indemnified (Sections 222–224)
The right to indemnity is one of the most significant rights of an agent.
According to Section 222, the principal is bound to indemnify the agent against the consequences of all lawful acts done by him in exercise of his authority.
If the agent acts in good faith for the principal but suffers loss, the principal must reimburse him for those losses. Even when the act turns out to be injurious, if it was done in good faith and within authority, the principal remains liable.
However, under Section 224, the principal is not bound to indemnify the agent for acts that are criminal or illegal, even if done at the principal’s direction.
Example:
If an agent, on the principal’s instructions, purchases goods from a third party and later faces a lawsuit for payment, the principal must indemnify the agent for the liability incurred.
5. Right to Compensation for Injury (Section 225)
Under Section 225, an agent is entitled to compensation if he suffers any injury due to the principal’s negligence or lack of proper care. This right ensures that the agent’s personal safety and property are protected while performing his duties.
Example:
If an agent is injured while inspecting a property on behalf of the principal due to unsafe conditions created by the principal, the agent can claim compensation for the injury.
6. Right to Stop Work in Case of Principal’s Misconduct
Although not explicitly mentioned in the Act, courts have recognized the agent’s right to terminate the contract or suspend work if the principal acts dishonestly, fails to pay agreed remuneration, or causes financial or reputational damage to the agent.
This implied right ensures fairness and prevents exploitation in the agency relationship.
Example:
If a travel agent finds that the principal company is issuing fraudulent tickets, he can stop operations and withdraw from the agency to avoid personal liability.
Real-Life Example: Application of Agent’s Rights
Consider the case of Great Northern Railway Co. v. Swaffield (1874), where a railway company received a horse on behalf of its owner (principal). Since no one came to collect it, the company took care of the horse and incurred expenses. The court held that the railway company was entitled to recover those expenses from the owner, recognizing the agent’s right to indemnity for actions taken in good faith.
Similarly, in India, if a marketing agent spends money advertising a product on behalf of the principal, he can claim reimbursement under Section 222 even if the campaign does not yield expected results, provided it was done honestly and within authority.
Difference Between Right of Retainer, Lien, and Indemnity
| Right | Meaning | Section | Nature |
|---|---|---|---|
| Right of Retainer | Agent can retain sums or goods received for his dues | Sec. 217 | Financial claim right |
| Right of Lien | Agent can hold goods until dues are paid | Sec. 221 | Possessory right |
| Right of Indemnity | Agent can recover losses from the principal | Secs. 222–224 | Protective right |
These rights together form the protective framework for agents, ensuring they are not financially burdened while performing duties for the principal.
Mnemonic to Remember the Rights of an Agent — “R.R.L.I.C.S.”
Use the mnemonic “R.R.L.I.C.S.” to quickly recall the six key rights of an agent against the principal:
- R – Right to Remuneration (Sec. 219)
- R – Right to Retain Money and Goods (Sec. 217–218)
- L – Right of Lien (Sec. 221)
- I – Right to be Indemnified (Secs. 222–224)
- C – Right to Compensation (Sec. 225)
- S – Right to Stop Work / Withdraw for Misconduct of Principal
Mnemonic Sentence:
“Real Responsible Lawyers Inspire Client Security.”
This phrase helps remember that an agent (like a responsible lawyer) always deserves remuneration, retention, lien, indemnity, compensation, and safety — the six pillars of agency rights.
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