How to Review an Agency Agreement in India

An agency agreement appoints someone to act on your behalf and, within the authority you give them, to bind you to what they do. That is the one fact that makes this contract different from most other commercial agreements, and the one most people signing one in India do not fully absorb until an agent has already committed the principal to something nobody approved. Adira, which publishes this guide, sells contract review and CLM software, so it has a commercial interest in you signing more of these through a system rather than a spreadsheet. Everything below still holds if you never touch our product; you can mark up an agency agreement clause by clause, free, in Weave, our browser tool, without creating an account.

Get the basic distinction wrong and the rest of the review is wasted effort. A distributor buys goods and resells them in its own name, at its own risk. An agent does not buy anything: it negotiates or contracts on behalf of the principal, in the principal's name, and the principal carries the result, the payment obligation, the delivery obligation, sometimes the liability to an angry customer. Section 182 of the Indian Contract Act, 1872 puts it in one sentence: "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 such act is done, or who is so represented, is called the 'principal'." Source: Section 182, Indian Contract Act, 1872 (Indian Kanoon). Chapter X of the Act, Sections 182 to 238, is the entire statutory framework for agency in India, and short enough that reading the sections cited here will take you further than most commentary.

Plain meaning: what an agency agreement actually does

An agency agreement authorises one party, the agent, to act for another, the principal, within a defined scope. Inside that scope, the agent's acts are treated as if the principal did them personally. Section 226 says this directly: "Contracts entered into through an agent, and obligations arising from acts done by an agent, may be enforced in the same manner, and will have the same legal consequences, as if the contracts had been entered into and the acts done by the principal in person." Source: Section 226, Indian Contract Act, 1872 (Indian Kanoon). That single sentence is why the scope-of-authority clause carries more weight here than in almost any other contract type: too narrow and the agent cannot do the job, too wide or vague and the agent can bind you to deals you never approved. The relationship starts the moment the agent begins acting for the principal, not when the contract is signed, since India recognises agency created by conduct as readily as agency created by a document, which is why the written agreement should state the scope with unusual precision.

What to look for: the words and mechanics that change the risk

Scope of authority. A list of specific acts ("solicit orders for Product X in Territory Y, subject to written acceptance by the Principal") or an open grant ("act on behalf of the Principal in all matters")? The open grant invites a dispute the moment the agent does something the principal never expected but a third party reasonably believed was authorised.

Commission. A rate alone is not a clause; it needs a trigger event (order placed, invoice raised, or payment received are three different cash flows), a calculation base (gross value or net of returns), and a payment timeline. "Commission as agreed" is a placeholder for a future argument.

Exclusivity. Is the agent the only one appointed for the territory or product line, or one of several, with a carve-out for existing accounts? Exclusivity with no defined territory and product scope is close to unenforceable for vagueness.

Del credere status. Most agents do not guarantee the buyer's payment. A del credere agent is a named exception, recognised in Indian and English mercantile practice though not itself a numbered Contract Act section, who for an extra commission guarantees the third party will pay or perform. That extra obligation should be priced separately.

The Indian position: authority, ratification, and liability to third parties

Start with actual authority. Section 226, quoted above, binds the principal to what the agent does within authority. Sections 227 and 228 handle an agent who does more: where the authorised and unauthorised parts can be separated, Section 227 binds the principal only for the authorised part; where they cannot, Section 228 lets the principal repudiate the whole transaction (its own illustration: an agent told to buy 500 sheep who instead buys 500 sheep and 200 lambs for one price, letting the principal reject the entire purchase). Sources: Section 227 and Section 228, Indian Contract Act, 1872 (Indian Kanoon).

Then the harder case: apparent, or ostensible, authority. Section 237 governs it: "When an agent has, without authority, done acts or incurred obligations to third persons on behalf of his principal, the principal is bound by such acts or obligations, if he has by his words or conduct induced such third persons to believe that such acts and obligations were within the scope of the agent's authority." Source: Section 237, Indian Contract Act, 1872 (Indian Kanoon). Even an act your agent had no real right to do can still bind you, if your own conduct, a job title, a letterhead, a past pattern of honouring similar promises, led the third party to reasonably believe the agent was authorised. This is an estoppel rule protecting the third party who dealt in good faith, not the principal or the agent.

The Supreme Court applied that distinction in New India Assurance Co. Ltd. & Ors. v M/s Louis Dreyfus Commodities India Pvt. Ltd., decided 18 August 2026 (2026 INSC 876). An insurer's Divisional Manager had emailed the insured's broker assuring transit coverage would continue once the second premium instalment was paid. The Court held that a manager's designation and email do not, by themselves, stretch authority far enough to override a statutory precondition (Section 64VB of the Insurance Act) the principal itself had no power to waive. Lesson beyond insurance: apparent authority binds a principal to what its own conduct reasonably induced a third party to believe, but cannot let an agent's assurance override a legal requirement the principal could never have agreed to. Source: 2026 LiveLaw (SC) 821, New India Assurance v Louis Dreyfus (LiveLaw).

Ratification closes the loop. Section 196 lets a principal adopt an unauthorised act: "he may elect to ratify or to disown such acts. If he ratify them, the same effects will follow as if they had been performed by his authority." Source: Section 196, Indian Contract Act, 1872 (Indian Kanoon). Require the agent to report every act and deal promptly, since silence past a reasonable point can itself look like ratification by conduct.

Revocation limits: agency coupled with interest

A principal can normally end an agency at will, subject to notice and compensation, covered below. Section 202 is the one hard exception: "Where the agent has himself 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." Source: Section 202, Indian Contract Act, 1872 (Indian Kanoon). This "agency coupled with interest" comes up more than principals expect, for example where an agent has advanced funds against goods it is authorised to sell.

The Supreme Court explained the doctrine in Seth Loon Karan Sethiya v Ivan E. John and Others, decided 25 April 1968. Sethiya, indebted to a bank, had given it a power of attorney to execute a decree in his favour and credit the proceeds to his loan account. The Court held that where an agency is created for valuable consideration and the authority secures the agent's own interest, it cannot be revoked to the agent's prejudice, since it is a power coupled with interest, not an ordinary revocable mandate. Source: Seth Loon Karan Sethiya v Ivan E. John & Ors, Supreme Court of India, 25 April 1968 (Indian Kanoon). Drafting test: if the agent has advanced money or taken a lien tied to specific property, a "terminate on 30 days' notice" clause may not actually end that part of the arrangement.

Termination, compensation, and sub-agents

Sections 201 to 210 govern how an agency ends: revocation, renunciation, completion of the business, or death or unsoundness of mind of either party. Where the term is not fixed, Section 205 requires compensation for an early exit without sufficient cause, and Section 206 requires "reasonable notice," failing which the resulting damage "must be made good to the one by the other." Sources: Section 205 and Section 206, Indian Contract Act, 1872 (Indian Kanoon). "Reasonable" is undefined, so a clause stating a specific notice period, and what happens to commission on pipeline deals, removes an argument neither side wants once the relationship has soured.

On sub-agents, Section 190 sets the default: an agent "cannot lawfully employ another to perform acts which he has expressly or impliedly undertaken to perform personally," unless trade custom or the agency's nature requires a sub-agent. Source: Section 190, Indian Contract Act, 1872 (Indian Kanoon). Where a sub-agent is properly appointed, Section 192 binds the principal to its acts, with the agent answerable to the principal for the sub-agent's conduct, while the sub-agent itself answers to the principal only for fraud or wilful wrong. Source: Section 192, Indian Contract Act, 1872 (Indian Kanoon). State expressly whether sub-agency is permitted, rather than leaving Section 190's default to be worked out later.

Red flags

Normal	Red flag	Why it matters
Scope of authority is a specific list of acts and a defined territory	"Act on behalf of the Principal in all matters"	Wide scope raises both actual and apparent authority under Sections 226 and 237
Commission states a trigger, a calculation base, and a payment timeline	"Commission as mutually agreed," no formula	Unenforceable placeholder; Section 29 voids terms too vague to be made certain
Exclusivity names the territory, product line, and any direct-sales carve-out	"Exclusive" with no defined scope	Vague exclusivity invites a dispute over what counts as breach
Del credere status, if any, is named with its own separate commission	Agent guarantees buyer payment, no separate fee or label	Unpriced guarantee obligation the agent may not have knowingly accepted
Termination states notice and what happens to commission on pipeline deals	Silent on notice or pipeline deals	Section 206 default "reasonable notice" is an argument neither side wants later
Any agent financial interest in agency property is disclosed	Agent holds a lien or has advanced funds, agreement silent	Section 202 may make that part of the agency irrevocable to the agent's prejudice
Sub-agency is expressly permitted or expressly prohibited	Silent on sub-agency	Section 190 defaults to no delegation without consent
Reporting duty requires prompt disclosure of every act and deal	No reporting obligation, only periodic summaries	Delay can look like ratification by conduct under Section 196
Agent must disclose authority limits to third parties in writing	Silent on what the agent may represent	Raises Section 237 apparent-authority exposure with no paper trail to rebut it

Bad clause versus better clause: scope of authority

Bad: "The Agent is appointed to act on behalf of the Principal in connection with the Principal's business in the Territory, and may take such steps as the Agent considers necessary to promote and develop that business."

What is wrong: "such steps as the Agent considers necessary" is an open, self-defined mandate. It maximises both actual authority under Section 226 and apparent authority under Section 237, since a third party has almost nothing in the contract to point to as a limit. It says nothing about whether the Agent can conclude contracts or only solicit orders.

Better: "The Agent is appointed solely to solicit and negotiate orders for the Products in the Territory on the Principal's behalf. The Agent has no authority to conclude, accept, vary, or terminate any contract, to accept payment, or to make any representation as to price, delivery, or warranty beyond the Principal's then-current published terms, without the Principal's prior written approval in each case. Every order the Agent transmits becomes binding on the Principal only upon the Principal's written acceptance."

What changed: authority is now a closed list, solicitation not conclusion, sharply narrowing what a third party could reasonably believe the Agent could do, reducing Section 237 exposure. The written-acceptance requirement gives the Principal the final say, and something concrete to show a third party who claims apparent authority extended further.

How it interacts with related clauses, and with a distribution agreement

Exclusivity decides whether the principal can appoint a competing agent or sell directly in the same territory; our exclusivity clause guide covers how the Competition Act tests an exclusive arrangement for market foreclosure. Indemnity usually runs both ways: the principal indemnifies the agent for acts within actual authority, the agent indemnifies the principal for acts outside it. Governing law and jurisdiction matter more here, since an agent across states or borders can create authority questions in a forum neither party chose.

The test that separates an agency from a distribution agreement: does the counterparty take title to goods, at its own risk, for resale in its own name, or does it contract in the principal's name and account? A distributor buys and resells; an agent represents. Get this wrong at drafting and a contract labelled "agent" functions as a distributorship, with real consequences for who bears a customer's default risk. Our guide to reviewing a distribution agreement covers the buy-resell structure from the distributor's side.

US and global contrast

US agency law runs mainly on the Restatement (Third) of Agency, common law developed case by case, and actual and apparent authority track closely with India's Sections 226 and 237, tracing to the same English roots. Termination diverges sharply: many US states let a principal end a commercial agency at will, subject only to the contract's own terms, while several EU jurisdictions, under the Commercial Agents Directive, give a terminated agent a statutory right to compensation tied to past commission regardless of contract wording. India sits closer to the contractual end, with no EU-style mandatory indemnity floor, so an Indian termination clause under Sections 205 and 206 is doing real, binding work rather than restating a default the law would give anyway.

FAQ

Can a principal be liable for an agent's fraud? Yes, if committed within the course of the agency and the third party had no reason to know, though the principal keeps a separate claim against the agent. This is fact-specific, a clear case for a lawyer, not a checklist.

What happens to commission on a deal that closes after the agency ends? It depends on the stated trigger. Commission earned on order placement usually survives a later termination; commission earned only on payment received may not. Name the trigger precisely and state what happens to pipeline deals on exit.

Can an agent be personally sued by a third party it contracted with? Ordinarily no. Section 230 presumes an agent is "neither personally entitled to enforce contracts... nor personally bound by them." Source: Section 230, Indian Contract Act, 1872 (Indian Kanoon). This reverses where the agent contracts for a principal resident abroad, does not disclose the principal's name, or the principal cannot be sued.

Is a del credere agent the same as a guarantor under the Contract Act? Functionally close, not formally identical. A del credere arrangement is agency with an added guarantee obligation, priced as extra commission; a guarantee under Section 126 is usually a separate, standalone contract. Document the scope and cap clearly either way.

Does an agency agreement need to be registered or stamped? It needs stamping, like most commercial contracts, under the applicable state Stamp Act or the Indian Stamp Act, 1899. It generally does not need registration unless it also creates or transfers an interest in immovable property.

This guide covers how an agency agreement should be structured under Indian law: scope and apparent authority, the Section 202 revocation limit, and termination and compensation under Sections 205 and 206. It is not legal advice, and does not tell you whether your specific agent's authority or termination clause will hold up on your facts. For that, especially before appointing an agent with financial exposure, sub-agency, or cross-border reach, have a lawyer review the actual document.