DAMODARAM SANJIVAYYA NATIONAL LAW UNIVERSITY

VISAKHAPATNAM, A.P., INDIA

TITLE: PRINCIPAL AND AGENT

SUBJECT: LAW OF TORTS

NAME OF THE FACULTY: Ms. SUNEETHA BVS

NAME: ARABINDA SAHOO

ROLL NO.: 2019LLB108
SEMESTER: I
SECTION: B

1|Page
GRAMMARLY REPORT:

2|Page
ACKNOWLEDGEMENT:
I would like to express my special thanks of gratitude to my respected teacher Ms. SUNEETHA
BVS, who gave me the golden opportunity to do this wonderful project on the topic of
“PRINCIPAL AND AGENT” which also helped me in doing a lot of research and I came to
know about so many new ideas and I am really thankful to them.
Secondly, I would like to thank my friends who helped me a lot in finalizing this project within
the limited time period.

3|Page
PROJECT SUMMARY:

Any person who has the legal capacity (meaning that they are not insane, or in certain
circumstances a minor) to perform an act may be a principal and empower an agent to carry
out that act. Persons, corporations, partnerships, not-for-profit organizations, and government
agencies may all be principals and appoint agents.

Any individual capable of comprehending the act to be undertaken is qualified to serve as an

agent. The term agent can best be used to denote a relationship that is very different from that
existing between a master and his servant, or an employer and his independent contractor.

A contract to be made by an agent on behalf of a principal is considered to be the contract of

the principal and not that of the agent. It allows the principal to authorize somebody to carry
out her duties, either for a specific purpose (i.e., purchasing a house) or generally (i.e., to
conduct many transactions). The agency relationship is usually entered into by informal
agreement, but also can occur by formal agreement (in certain cases, the agency relationship
must be specified in writing). The acts must be legal (i.e., principal cannot hire agent to kill the
professor).

Inherent in the Principal-Agent (P-A) relationship is the understanding that the agent will act
for and on behalf of the principal. The agent assumes an obligation of loyalty to the principal
that she will follow the principal’s instructions and will neither intentionally nor negligently
act improperly in the performance of the act. An agent cannot take personal advantage of the
business opportunities the agency position uncovers. A principal, in turn, reposes trust and
confidence in the agent. These obligations bring forth a fiduciary relationship of trust and
confidence between P and A.

An agent must obey reasonable instructions given by the P. The A must not do acts that have
not been expressly or impliedly authorized by the P. The A must use reasonable care and skill
in performing the duties. Most importantly, the A must be loyal to the P. The A must refrain
from putting herself in a position that would ordinarily encourage a conflict between the
agent’s own interests and those of the principal (note: one might reflect on the role of certain
Enron executives on ‘outside’ limited partnerships that did business with Enron in the early
2000s). The A must keep the P informed as to all facts that materially affect the agency
relationship.

4|Page
Contents

SYNOPSIS:............................................................................................................................................ 6
INTRODUCTION: ............................................................................................................................... 7
PRINCIPAL: ......................................................................................................................................... 8
AUTHORITY:................................................................................................................................... 9
AGENT: ............................................................................................................................................... 10
PRINCIPAL AGENT PROBLEM: ................................................................................................... 11
EMPLOYMENT CONTRACT: ........................................................................................................ 12
CONTRACTS ACT, 1872: ................................................................................................................. 14
ROLE OF THE AGENT: ............................................................................................................... 14
RIGHTS OF AN AGENT: ............................................................................................................. 15
CASE LAWS: ...................................................................................................................................... 16
CONCLUSION: .................................................................................................................................. 24
BIBLIOGRAPHY: .............................................................................................................................. 25

5|Page
SYNOPSIS:

OBJECTIVE OF THE STUDY:

Objective of the study is to research the relationship between the principal and the agent.

RESEARCH METHODOLOGY:

The methodology used in this project is doctrinal.

SCOPE OF STUDY:

The scope of the study is wide and it will cover the various aspects of the principal and agent
relationships.

6|Page
INTRODUCTION:

The principal-agent relationship is an arrangement in which one entity legally appoints another
to act on its behalf. In a principal-agent relationship, the agent acts on behalf of the principal
and should not have a conflict of interest in carrying out the act. The relationship between the
principal and the agent is called the "agency," and the law of agency establishes guidelines for
such a relationship.

The principal plays the upper hand and he controls the actions of the agents in many aspects
and various situations. In many instances the principal controls the mode of employment of the
agent. In many cases also the agent is an independent contractor who have dominance over the
mode of the work he does. This relationship between the principal and agent is vital in our
present society as most of our daily life acts are done through this mode of relation. As this
type of relationship is effective in small scale transactions of some small shopkeeper to
multimillionaire deals and even this relationship determines the fate of many people.

On the other hand, the agent is the person at the receiving end who receives certain orders and
follows them. In most of the cases the agent is a person who represents the principal. Thus, his
actions in the course of employment is treated as the action of the principal. So, the agent plays
a more vulnerable role and the principal plays a more responsible role. On certain cases this
relationship is based on trust and compatibility between both principal and the agent. In lacking
of understanding and co-ordination between both could lead to some serious damage.

The agent is responsible for completing tasks given by the principal so long as the principal
provides reasonable instruction. Additionally, the agent has an obligation to perform tasks that
will not intentionally harm the principal. A duty of loyalty is also implied within the principal-
agent relationship, which requires the agent to refrain from putting himself in a position that
creates or encourages conflict between his interest and the interest of the principal, also known
as the principal-agent problem.

The agent is most often an individual capable of understanding and ultimately carrying out the
task assigned by the principal. Common examples of the principal-agent relationship include
hiring a contractor to complete a repair on a home, retaining an attorney to perform legal work,
or asking an investment advisor to diversify a portfolio of stocks. In each scenario, the principal
is the individual seeking out the service or advice of a professional, while the agent is the
professional performing the work.

7|Page
In a principal/agent relationship, the two roles are defined in relationship to each other. The
principal is someone an individual, a corporation, a partnership with the legal authority to make
certain decisions or actions. If the principal empowers someone else to make the decisions, that
person becomes the principal's agent. Agents are useful, but some agents act in their own
interest rather than the principal's.

PRINCIPAL:

Anyone who has the legal capacity to carry out an action can appoint an agent to do it on their
behalf. Common types of principal/agent relationships include employer/employee,
corporation/officer, client/attorney. It's also possible to create an agent by drawing up a power
of attorney to authorize someone to act as your representative. As long as you have legal
capacity to make decisions – you're not in a coma, insane or 3 years old, for instance – you can
appoint an agent to act for you.

In most of cases, it is unthinkable for operators to look for explicit expert for each arrangement
or detail inside an arrangement. Operators must, of need, be permitted some level of
attentiveness in the direct of routine exchanges. In any case, for the reasons for crediting
legitimate duty to the Principal, when the Agent demonstrations with real or clear position, all
the Agent's learning will be ascribed to the Principal. In the event that Principals were permitted
to take cover behind their specialists' very own numbness, mix-ups or disappointments to
convey, a Principal could, by utilizing an Agent, accomplish a superior outcome than if they
acted by and by. For instance, if the specific arrangement ended up well, the Principal could
embrace the exchange. Be that as it may, on the off chance that it turned out seriously, the
Principal could repudiate it. In reality, notwithstanding ascription, there would be an
unreasonable impetus to direct business through Agents instead of actually. Thusly, the
Principal can't misuse numbness to further their potential benefit by teaching the Agent to retain
key data or by naming an Agent known to be shrouded.

This standard for ascription identifies with the obligations an Agent owes a Principal,
specifically the Agent's obligation to convey material realities to the Principal. Since the
motivation behind the law is to offer security to Third Parties who have acted in accordance
with some basic honesty, it is sensible to enable them to accept that, much of the time, the
Agents have satisfied this obligation. All things considered, the Principal chooses the Agents
and has the ability to control their activities both through express guidelines and motivating

8|Page
forces planned to impact their conduct which will incorporate setting down schedules for how
Agents should deal with data, and the degree to which Agents will be compensated for
transmitting data of business esteem. The outcome is a type of severe risk wherein the
legitimate results of an Agent's demonstrations or oversights are credited to a Principal in any
event, when the Principal was without shortcoming in naming or overseeing the Agent. Getting
parallel ideas from Tort and Equity, this implies the Principal owes the Third Party an
obligation of care to guarantee that the Agent is straightforward and productive, and that a
Principal is estopped from denying that an Agent was approved to go about as they did.

AUTHORITY:

1. ACTUAL AUTHIRITY- This emerges where the Principal's words or lead sensibly
cause the Agent to accept they have been approved to act. This might be communicated
as an agreement or suggested on the grounds that what is said or done make it sensibly
vital for the individual to accept the forces of an Agent. On the off chance that
unmistakably the Principal gave real power to Agent, all the Agent's activities falling
inside the extent of the position given tie the Principal. This outcome regardless of
whether, having real power, the Agent in certainty acts deceitfully for his own
advantage, except if the Third Party knew about the Agent's own plan. On the off chance
that there is no agreement however the Principal's words or lead sensibly drove the
Third Party to accept that the Agent was approved to act, or if what the Agent proposes
to do is coincidental and sensibly important to achieve a really approved exchange or
an exchange that generally goes with it, at that point the Principal is bound.

2. APPARENT AUTHORITY- On the off chance that the Principal's words or direct
would lead a sensible individual in the Third Party's situation to accept that the Agent
was approved to act, say by delegating the Agent to a position which conveys with it
organization like powers, the individuals who know about the arrangement are qualified
for expect that there is evident power to accomplish the things conventionally depended
to one involving such a position. In the event that a Principal makes the feeling that an
Agent is approved yet there is no genuine position, Third Parties are ensured insofar as
they have acted sensibly. This is here and there named "Organization by Estoppel" or
the "Principle of Holding Out", where the Principal is halted from precluding the award

9|Page
 from claiming authority if Third Parties have changed their situations to their burden in
dependence on the portrayals made.

3. AUTHORITY BY VIRTUE OF POSITION- For example, partners have apparent

authority to bind the other partners in the firm, their liability being joint and several,
and in a corporation, all executives and senior employees with decision-making
authority by virtue of their declared position have apparent authority to bind the
corporation.

AGENT:

The term specialist is gotten from the Latin word "agens," which means to do or to act. The
implications of the expression "specialist" fluctuate. A delegate or authority of a managerial
office or government is known as an operator: a FBI specialist. A specialist can be a thing or a
substance that produces change: a synthetic operator, an electronic operator.

In the legitimate setting, a specialist is somebody who is approved to follow up for another
(normally the head). Any individual equipped for playing out the particular capacities and
making legitimate relations between an individual (head) and outsiders can turn into an
operator. It isn't basically necessitated that an operator be legitimately equipped for going into
an agreement. Along these lines, any individual can be a specialist, for example a minor or a
maniac can be a specialist. In any case, the court would overlook either's endeavor to go about
as s/he was so youthful or totally unequipped for understanding the capacity they were
endeavoring to perform.

There are various types of operator, for example, corporate specialist, double operator, outside
operator and free specialist. For instance, a free specialist is one who makes an individual
judgment and is responsible to the main just for work performed by him.

Anybody can fill in as an operator, insofar as they're rationally fit for understanding the
obligations the chief doles out them. A specialist can serve for nothing – the primary's grown-
up youngster, acting under an intensity of lawyer, for instance – yet much of the time, the chief
pays the operator for her administration.

10 | P a g e
The specialist's obligations can be as explicit or as general as the main needs. An intensity of
lawyer, for instance, can approve a specialist to accomplish a certain something –, for example,
sell a house on the opposite side of the nation – or give them cover capacity to deal with the
chief's issues. This can be important if, state, the chief turns out to be too debilitated to even
think about running his business.

An operator's position to act comes in three different ways:

1. Express position. The chief says what they need the operator to do.
2. Suggested authority. These are activities important to do the chief's express requests.
3. Clear position. This is the point at which the operator manages an outsider and has all
the earmarks of being representing the head. Regardless of whether the specialist
surpasses his position, the outsider might have the option to hold the head to the
arrangement.

The chief has the position to deny the operator's capacity, subject to any agreement between
them.

PRINCIPAL AGENT PROBLEM:

The head specialist issue, in political theory and financial aspects (otherwise called office issue
or the organization issue) happens when one individual or element (the "operator"), can settle
on choices and additionally take activities for the benefit of, or that effect, someone else or
element: the "principal". This situation exists in conditions where operators are propelled to act
in their own eventual benefits, which are in opposition to those of their principals, and is a case
of good risk.

Regular instances of this relationship incorporate corporate administration (operator) and

investors (head), chose authorities (specialist) and natives (head), or dealers (operator) and
markets (purchasers and merchants, principals). Consider a legitimate customer (the head)
pondering whether their legal counsellor (the specialist) is prescribing extended lawful
procedures since it is genuinely vital for the customer's prosperity, or on the grounds that it will
produce pay for the legal advisor. Actually, the issue can emerge in practically any setting
where one gathering is being paid by another to accomplish something where the operator has
a little or non-existent offer in the result, regardless of whether in formal work or an arranged
arrangement, for example, paying for family occupations or vehicle fixes.

11 | P a g e
The issue emerges where the two gatherings have various interests and hilter kilter data (the
operator having more data), to such an extent that the chief can't straightforwardly guarantee
that the specialist is continually acting in their (the principal's) best interest, especially when
exercises that are helpful to the chief are expensive to the specialist, and where components of
what the specialist does are exorbitant for the chief to watch (see good peril and irreconcilable
circumstance). Frequently, the chief might be adequately worried at the plausibility of being
misused by the operator that they decide not to go into the exchange by any stretch of the
imagination, when it would have been commonly gainful: an imperfect result that can bring
down welfare generally speaking. The deviation from the chief's enthusiasm by the operator is
designated "organization costs".

The organization issue can be strengthened when a specialist follows up for the benefit of
numerous principals (see various head problem). When one operator follows up for different
principals, the various principals need to concede to the specialist's goals, however face an
aggregate activity issue in administration, as individual principals may campaign the specialist
or generally act to their greatest advantage as opposed to in the aggregate enthusiasm of all
principals. thus, there might be free-riding in guiding and monitoring, copy directing and
monitoring, or struggle between principals, all prompting high self-rule for the specialist. This
has been begat the numerous main issues and is a significant issue in especially the open
segment, where different principals are normal and both proficiency and equitable
responsibility are undermined without remarkable governance. This issue may happen, for
instance, in the administration of the official power, services, offices, intermunicipal
participation, open private associations, and firms with various shareholders.

Different components might be utilized to adjust the interests of the operator to those of the
head. In business, bosses (head) may utilize piece rates/commissions, benefit sharing,
proficiency compensation, execution estimation (counting budget summaries), the specialist
posting a security, or the danger of end of work to adjust laborer interests with their own.

EMPLOYMENT CONTRACT:

In the setting of the work contract, singular agreements structure a significant strategy for
rebuilding motivators, by associating as intently as is ideal the data accessible about
representative execution, and the pay for that presentation. In light of contrasts in the amount
and nature of data accessible about the presentation of individual representatives, the capacity

12 | P a g e
of workers to tolerate hazard, and the capacity of representatives to control assessment
strategies, the basic subtleties of individual agreements fluctuate generally, including such
systems as "piece rates, [share] choices, optional rewards, advancements, benefit sharing,
proficiency compensation, conceded pay, thus on." Typically, these instruments are utilized
with regards to various kinds of business: sales reps regularly get a few or the majority of their
compensation as bonus, generation laborers are normally paid a time-based compensation,
while office laborers are commonly paid month to month or semi-monthly (and whenever paid
extra time, ordinarily at a higher rate than the hourly rate suggested by the salary).[citation
needed] The manner by which these components are utilized is distinctive in the two pieces of
the economy which Doeringer and Piore called the "essential" and "auxiliary" segments (see
additionally double work advertise).

The optional segment is described by momentary work connections, next to zero possibility of
inside advancement, and the assurance of wages basically by market powers. As far as
occupations, it comprises fundamentally of low or untalented employments, regardless of
whether they are hands on (difficult work), salaried (e.g., documenting assistants), or
administration occupations (e.g., servers). These occupations are connected by the way that
they are described by "low ability levels, low income, simple section, work fleetingness, and
low comes back to instruction or experience." In various assistance employments, for example,
nourishment administration, golf caddying, and valet stopping occupations, laborers in certain
nations are paid for the most part or altogether with tips.

The utilization of tipping is a technique with respect to the proprietors or supervisors to adjust
the interests of the administration laborers with those of the proprietors or administrators; the
administration laborers have a motivating force to give great client assistance (along these lines
profiting the organization's the same old thing), since this makes it more probable that they will
get a decent tip.

The issue of tipping is some of the time examined regarding the head operator hypothesis.
"Instances of principals and operators incorporate supervisors and representatives and coffee
shops and servers." "The "head operator issue", as it is known in financial matters, manifests
whenever specialists aren't slanted to do what principals need them to do. To influence them
(agents), principals need to make it worth the specialists' while the better the coffee shop's
involvement, the greater the server's tip." "In the language of the business analyst, the tip fills
in as an approach to decrease what is known as the exemplary "head specialist" issue."

13 | P a g e
According to "Videbeck, a scientist at the New Zealand Institute for the Study of Competition
and Regulation in hypothesis, tipping can prompt a productive match between laborers' frames
of mind to support and the employments they perform. It is a way to make individuals buckle
down. Neighbourly servers will go that additional mile, procure their tip, and win a moderately
high income. On the other hand,] in the event that tipless wages are adequately low, at that
point surly servers may really leave the business and take occupations that would better suit
their personalities.'"

As an answer for the head operator issue, however, tipping isn't impeccable. With expectations
of getting a bigger tip, a server, for instance, might be slanted to give a client an additional
enormous glass of wine or a second scoop of frozen yogurt. While these bigger servings make
the client upbeat and improve the probability of the server getting a decent tip, they cut into the
overall revenue of the eatery. What's more, a server may spoil liberal tippers while overlooking
different clients, and in uncommon cases lecture awful tippers.

CONTRACTS ACT, 1872:

‘Agent’ and ‘principal’ defined. An ‘agent’ is a person employed to do any act for 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’. An ‘agent’ is a person employed to do any act
for 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’."

ROLE OF THE AGENT:

In India, the specialist and guideline share a relationship that is legally binding in nature, and
thusly it is administered by the terms and states of the agreement between them. Part X of the
Indian Contract Act, 1872 gives the essential structure of decides and guidelines that
fundamentally administer the presentation and arrangement of an agreement including the
office contract. In organization contracts, there exists a legitimate connection between two
individuals whereby one individual follows up for the other. The individual following up for
the benefit of the other is called a specialist, and the individual from whom the operator infers
position to act is known as the head. The law of organization depends on the Latin adage "qui
facit per alium, facit essentially," which signifies, "he who acts through another is considered
in law to do it himself". Operator and chief are characterized under Section 182 of the Indian
Contract Act, 1872.

14 | P a g e
As indicated by the area "an operator is an individual utilized to do any represent another or to
speak to another in dealings with third people. The individual for whom such act is done, or
who is so spoken to, is known as the principal". The capable specialist is legitimately fit for
representing the vital versus the outsider. Presently who can turn into a specialist? Area 184
answers this inquiry. As indicated by this segment any individual can turn into an operator for
example there is no compelling reason to have an authoritative ability to turn into an operator.
Accordingly, a minor can likewise go about as a specialist. Be that as it may, the minor won't
be mindful to his principal. Different kinds of business specialists have been recognized under
Indian law like dealers, barkers, del credere operators, people depended with cash for acquiring
deals and protection specialists.

RIGHTS OF AN AGENT:

1. Right to remuneration– an agent is entitled to get an agreed remuneration as per the

contract. If nothing is mentioned in the contract about remuneration, then he is entitled
to a reasonable remuneration. But an agent is not entitled for any remuneration if he is
guilty of misconduct in the business of agency.

2. Right of retainer– an agent has the right to hold his principal’s money till the time his
claims, if any, of remuneration or advances are made or expenses occurred during his
ordinary course of business as agency are paid.

3. Right of lien– an agent has the right to hold back or retain goods or other property of
the principal received by him, till the time his dues or other payments are made.

4. Right to indemnity– an agent has the right to indemnity extending to all expenses and
losses incurred while conducting his course of business as agency.

5. Right to compensation– an agent has the right to be compensated for any injury suffered
by him due to the negligence of the principal or lack of skill.

15 | P a g e
CASE LAWS:

1. C.P.K. Trading Company vs Additional Sales Tax Officer:1

Facts- The petitioner in O.P. No. 2659 of 1980 N is the appellant in this writ appeal. The first
respondent is the Additional Sales Tax Officer, III Circle, Mattancherry, and the second
respondent is the State of Kerala. The appellant is a firm dealing in pepper, ginger, betelnuts,
etc. We are concerned with the assessment years 1976-77 and 1977-78. The appellant/assessee
claimed that transactions to the tune of Rs. 1,21,971.91, for the year 1976-77, and transactions
to the tune of Rs. 1,05,822.42, for the year 1977-78, are only consignment sales effected
through agents and so not exigible to sales tax under the Central Sales Tax Act.

They were only despatched to commission agents outside the State. The plea was that those
inter-State transactions were only consignment sales. For both these years, the
appellant/assessee produced sale pattials and F forms in support of the claim. The assessing
authority took the view that the documents prescribed under Rule 5A of the Central Sales Tax
(Kerala) Rules, 1957, were not produced by the appellant and so there was a failure to prove
the principal-agent relationship between the appellant and the dealers in other States. The case
made out was that copies of bills issued by the agents to the purchasers were not produced, as
required by Rule 5A(d) of the Central Sales Tax (Kerala) Rules, It was held that in view of the
failure to produce the documents prescribed under Rule 5A of the Central Sales Tax (Kerala)
Rules, the appellant failed to prove the relationship of principal-agent and so the sales by the
appellant to the dealers at the other end should be treated as inter-State sales and assessments
were completed accordingly. On this basis, exhibits P3 and P4 assessment orders were passed,
for the years 1976-77 and 1977-78, on 15th February, 1980.

Principles used-

Section 6A of the Central Sales Tax Act:

"6A. Burden of proof, etc., in case of transfer of goods claimed otherwise than by way of sale.
Where any dealer claims that he is not liable to pay tax under this Act, in respect of any goods,
on the ground that the movement of such goods, from one State to another was occasioned by
reason of transfer of such goods by him to any other place of his business or to his agent or

1
C.P.K. Trading Company vs Additional Sales Tax Officer, O.P. No. 2659 of 1980
16 | P a g e
principal, as the case may be, and not by reason of sale, the burden of proving that the
movement of those goods was so occasioned shall be on that dealer and for this purpose he
may furnish to the assessing authority, within the prescribed time or within such further time
as that authority may, for sufficient cause, permit, a declaration, duly filled and signed by the
principal officer of the other place of business, or his agent or principal, as the case may be,
containing the prescribed particulars in the prescribed form obtained from the prescribed
authority, along with the evidence of despatch of such goods.

(h) A register showing the date and mode of remittance of the amount to the principal.

11C. (1) A dealer who claims that he is not liable to pay tax in respect of any goods on the
ground that the movement of such goods from one State to another was occasioned by reason
of transfer of such goods by him to any other place of business, or his agent or principal, as the
case may be, and not by reason of sale in the course of inter-State trade or commerce shall
obtain a declaration in form F in duplicate duly filled and signed by the principal officer of the
other place of business or his agent or principal, as the case may be, and shall attach to his
return to the assessing authority the portion marked 'original'. The assessing authority may in
its discretion, also direct the dealer to produce for inspection the portion of the declaration
marked 'duplicate'.

(2) When goods are received on transfer, and not by reason of sale or purchase in the course of
inter-State trade or commerce, from a head office, branch, agent or principal in another State
by the branch, head office, principal or agent within the State, the person empowered under
Sub-section (1) of Section 6A or Clause (a) of Sub-rule (7) of Rule 12 of the Central Sales Tax
(Registration and Turnover) Rules, 1957, as the case may be, shall issue a declaration in form
F obtained from the registering authority and duly filled and signed by him to the head office,
branch, agent or principal, as the case may be, in the other State.

2. Panna Lal Babu Lal vs The Commissioner of Sales Tax2:

The plaintiff claimed damages, and the question arose as to what was the relationship between
the parties. If the relationship was that of a principal and agent the liability and measure of

2
Panna Lal Babu Lal vs The Commissioner of Sales Tax, AIR 1956 All 710, 1956 7 STC
722 All
17 | P a g e
damages would be different from that which it would be if the relationship was that of a vendor
and purchaser.

The Court held that the relationship between the plaintiff and the defendant was not that of a
vendor and purchaser but of principal and agent, and that therefore the true measure of damages
which the plaintiff was entitled to recover was not the difference between the value of the
opium ordered and shipped but the loss actually sustained in consequence of the opium not
being of the description ordered: Fry L. J. observed at page 806 of the report:

"It is said, however, that there must be such a contract inferred for two reasons, first, because
otherwise the property in the goods would not pass to the English merchant for whom the agent
abroad bought them. In my judgment the property would pass. If the articles was specific it
would pass by the purchase, and if not specific, but was appropriated by the agent for his
principal, it would pass by virtue of the appropriation.

The other reason for inferring the relation of vendor and purchaser was said to be because the
foreign agent who has bought for his principal has the right of stoppage in transitu, but that, in
my opinion, is no reason for such inference. Since the leading case on the subject, 'namely, that
of Lick-barrow v. Mason 1 Sm LC 8th Edn. 753 (B) the person who stops goods in transitu
must be a consignor, but there are numerous cases in which the right has been allowed of
stopping in transitu without the relationship existing of vendor and purchaser.

This case in our opinion is authority only for the proposition that a commission agent who has
purchased goods on credit without disclosing the name of his principal and who was, therefore,
liable to pay the price of these goods, had the right to stop the goods in transitu; and in doing
so he exercised the same right as that possessed by an unpaid vendor.

The learned Standing Counsel also relied on Bhagwan Das v. Kanjiseoji (H) to which reference
has been made earlier in support of his contention that the dealings between a pakka adatia or
a commission agent and his customer are dealings between principal and principal and not
between an agent and principal.

A commission agent when he agrees to work for his principal as the latter's agent and to obtain
for his principal the goods which the latter wants, undertakes a duty which he has to discharge
by purchasing the goods required and supplying them to his principal. The transfer of the goods
purchased by him to his customer is an act done in discharge of his duty as an agent. The

18 | P a g e
contract between the principal and the commission agent is not, in our opinion, one of sale but
of agency, and the transfer of the property in the goods is not a sale within the meaning of the
Sale of Goods Act.

3. Steel and General Mills Co. Ltd. vs General Accident, Fire and Life3:
The second point which was urged by the plaintiff was that a part of the cause of action arose
in Delhi. In support of that Mr. Dev Raj Narang, P.W. 1, stated that the claim of the plaintiff
Company was put in Delhi, where the office of the defendant Assurance Company was in those
days. Mr. Deva, P.W. 2, stated that he was the principal agent of the defendant Assurance
Company and his circle was from Delhi to Peshawar. Previously his office was at Lahore but
now it is in New Delhi. He stated that he received information about the loss at Delhi. In cross-
examination he stated that he was registered as principal agent of the defendant Assurance
Company in the Calcutta Accident Insurance Association and that he did not know whether
before the partition of the country the Hindustan Trust Ltd., was the principal agent of the
defendant Assurance Company or not prior did he know if it is the principal agent or not since
the partition up to date.
In rebuttal of this evidence, the defendant Assurance Company produced Mr. Mukherjee, its
Branch Superintendent, as a witness. He stated that there was no office of the defendant
Assurance Company in Delhi before February, 1950. Mr. Deva was an ordinary agent of the
Company to secure fire and riot work. He was their principal agent for insurance work in
connection with motor and other accidents, but was not their principal agent for fire and riot
work and according to rules no person can be appointed as principal agent of any company for
are and riot work at a distance of over 50 miles from Calcutta. He stated that the Hindustan
Trust Limited was the principal agent of the defendant Company for motor and miscellaneous
work and is so even now. He further stated that Mr. Deva was appointed as principal agent for
Northern India.
Delhi Province was riot included in it. Ordinary agents like Mr. Deva had no authority from
the Company to receive claims, etc. In cross-examination he stated that the chief office of the
defendant Assurance Company was in Bombay and its branch office was in Calcutta and this
was so even before partition of the country. All the claims of Northern India and Delhi were
settled in Calcutta. He further stated that he could not say whether or not Mr. Deva secured any
business from Delhi Iiaqa after partition, but he has also been working similarly in Delhi as
agent of defendant Assurance Company. If any claim was given to Mr. Deva in Delhi the
defendant Assurance Company settled the same, but he had no authority on behalf of the
Company to receive it. The company did not return the same. Prom this evidence it is not quite
clear whether the defendant Assurance Company has an office in Delhi or not.

3
Steel and General Mills Co. Ltd. vs General Accident, Fire and Life, AIR 1952 P H 229
19 | P a g e
4. J.K. Sayani vs Bright Brothers Pvt. Ltd. on 26 April, 1979:4

Judgement- 1. This Letters Patent Appeal is directed against the judgment of Ismail, J. now
reported in Bright Brothers Ltd. v. J. K. Sayani, AIR 1976 Mad 55. The plaintiff in O. S. No.
4905 of 1968, the file of the City Civil - Court, Madras, is the appellant before us. The plaintiff-
appellant entered into an arrangement with the defendants and respondents under which the
plaintiff appellant became the sole selling agents of the respondents with regard to a specified
area.
It is admitted that the said arrangement did not prescribe any particular period during which
the said agency should be in vogue. The plaintiff was purchasing the goods from the
respondents from time to time as well as booking orders for the sale of the respondents' goods.
A commission of 6.112 per cent was to be paid by the respondents to the appellant in respect
of such dealings. An extra commission of 1.1/2 per cent was also provided for in certain
circumstances. Under Ex. A. 44, dated 27-2-1964, though there were certain modifications
regarding the percentage of commission and the circumstances under which such entitlement
as to commission by the appellant could be claimed, there was no further material alterations
in the arrangement. This agency of the appellant was terminated by a letter dated 28/30-09-
1964 marked as Ex. B. 56. The plaintiff-appellant instituted a suit for recovery of various sums.

5. Suganchand & Co. vs Brahmayya & Co.5

These are three connected appeals against the orders of Rajagopalan J. passed on the Original
Side & raise an important & interesting question regarding the rights of a person who has
entrusted a bank with collecting his dues & remitting them to him by demand drafts where the
bank has gone into liquidation & the drafts are, therefore, left uncashed. The question is
whether a person in such a case will be entitled to get his full dues as a preferential creditor or
must rank only with the other creditors & be content to receive the dividends given in
liquidations; in other words, whether the fiduciary relationship of principal & agent or the jural
relationship of creditor & debtor will obtain, & in what circumstances each of these
relationships will obtain.
6. M/S. The Kerala Agro Industries vs M/S. Beta Engineers:6

A reading of the aforesaid provisions shows that the relationship of principal and agent
can be express or implied or partly express or partly implied. The relationship of
principal and agent therefore can also arise on account of the principal and agent
conducting themselves as such. Once a person is taken as an agent unless therefore
there are words restricting the authority of the agent, ordinarily an agent would be
entitled to represent the principal within the ordinary scope of business conducted by
the agent on behalf of the principal. At this stage it is important to allude to a portion of

4
J.K. Sayani vs Bright Brothers Pvt. Ltd. AIR 1980 Mad 162, (1980) 1 MLJ 130
5
Suganchand & Co. vs Brahmayya & Co. AIR 1951 Mad 910 a, 1951 21 CompCas 224 Mad,
(1951) 2 MLJ 9
6
M/S. The Kerala Agro Industries vs M/S. Beta Engineers RFA No. 418/2003
20 | P a g e
 the pertinent perceptions of the Supreme Court on the part of relationship of head and
operator as contained in the judgment revealed as Chairman, Life Insurance Corpn.
what's more, Ors. Versus Rajiv Kumar Bhasker (2005) 6 SCC 188. The outline of
various sections of this judgment relating to relationship of head and specialist are
contained in head note D of this judgment which peruses as under:

"The relationship of head and specialist must be set up by the assent of the head and the
operator. The assent need not really be to the relationship of head and specialist itself.
The "head" and "specialist" will be held to have assented on the off chance that they
have consented to a condition of certainties on which the law forces the outcomes which
result from organization, regardless of whether they don't remember it themselves and
regardless of whether they have pronounced to disavow it. Nor is the utilization of or
oversight of "operator" convincing. The assent must, be that as it may, have been given
by every one of them, either explicitly or by suggestion from their words and direct.
Organization is a lawful idea which is utilized by the Court when it gets important to
clarify and resolve the issues made by certain reality circumstances. At the point when
the presence of an organization relationship would choose an individual issue, and the
realities grant a court to infer that such relationship existed at a material time, at that
point whether any express or suggested agree to the formation of an office may host
been given by one gathering to another, the Court is qualified for presume that such
relationship was in presence at the time, and for the reason being referred to.

7. Dcit, New Delhi vs M/S. Sistema Shyam Teleservices7

Submission was that the understanding drawn out the accompanying huge perspectives
demonstrating "head and specialist" relationship:

(a) Full legitimate and impartial title and enthusiasm for paid ahead of time SIM card
and revive coupons conveyed to the wholesalers consistently stays with the assessee.

(b) The merchants store the SIM card and energize coupons so as to plainly demonstrate
consistently that the paid ahead of time SIM card/revive coupons are possessed by ICL
and isn't permitted to expel, darken or erase any imprint set on paid ahead of time SIM
card/revive coupons.

(a) costs of head cum-specialist relationship, which was deficient for this situation;

(b) instalment or credit by the assessee to its wholesalers, which characteristic was
again absent; and

(c) the sum, which the Revenue professes to be liable to TDS under area 194H must be
appeared to the pay of the beneficiary, which ingredient again was missing.

7
Dcit, New Delhi vs M/S. Sistema Shyam Teleservices ITA No. 5083/Del/2013
21 | P a g e
 8. All India Radio Commercial vs Ito8

Shri P.K. Sahu, Advocate made elaborate submissions. The assessee has also filed
written submissions. According to the learned counsel to attract the provisions of
section 194H it is necessary to establish the relationship of principal and agent between
the payer and the payee and to show that the amount was received as commission or
brokerage, by the agent, directly or indirectly, for services rendered.

4.1 The learned counsel pointed out that the commission paid to the advertising
agencies was not for rendering services as agent. According to him, the relationship
between the DDCS and the assessee was that of principal to principal and as per the
contract between the assessee and the agency, the agency was allowed to retain discount
out of the revenue brought by the agency. The learned counsel pointed out that the
relationship of principal to agent was between the advertiser and the agency and not
between the assessee and the agency. It was pointed out by him that neither in the
contract nor in the invoice name of any advertiser is mentioned which further shows
that the contract entered into by the assessee was with the advertising agency who acted
on behalf of the advertiser as its agent. The learned counsel also submitted that the
agency cannot act as agent for the advertiser as well as for the assessee i.e., it cannot
act as agent for and on behalf of two persons at the same time and in the same contract.
The learned counsel also pointed out that in second year i.e., financial year 2002-03 the
Commissioner (Appeals) has decided the issue in favour of the assessee by holding that
the payment to the agency was not payment of commission to the agent within the
meaning of section 194H. In support of his arguments the learned counsel also made
reference to Circular No. 714 reported in 215 ITR and Circular No. 715 reported in 215
ITR 12. According to him, as per these circulars also, the provision of section 194H
are not attracted in the case of the assessee.

9. Hindustan Coca-Cola Beverages vs Ito9

The contentions for the assessee's direction before the evaluating official in regard of
head to-head relationship is that duty of gathering of installment in regard of offers
made by merchant decisively lies with wholesalers themselves and loss of terrible
obligations additionally borne by them as it were. Indeed, even in head operator
relationship it is very basic that this duty rest with specialist as it were. The edge of
commission whenever fixed remembering such possibility in such circumstances.
Indeed, Pucca Arahtia, which is a known class of commission operators working
everywhere throughout the nation uniquely in Mandies are additionally liable for the
accumulation of installments. Likewise, share specialists are additionally going about
as Brokers or commission operators for the benefit of merchants are completely liable
for gathering of offer continues and terrible obligations. Along these lines, above
contention of assessee is unmistakably not legitimate and not adequate to demonstrate
its perspective.

8
All India Radio Commercial vs Ito 2006 8 SOT 513 Delhi
9
Hindustan Coca-Cola Beverages vs Ito, Tds Range-7 2005 97 ITD 105 JP
22 | P a g e
 10. Shree Digvijay Cement Co. Ltd. vs The State Trading Corporation10

significant factor to be considered is likewise the way wherein the gatherings

comprehended the exchange. It has been seen in Chairman, LIC and Ors. case (Supra)
that the assent for the relationship need not really be of head and specialist itself
however insofar as they have consented to condition of actualities on which the law
forces outcome which result from organization, it is the relationship of head and
operator which would administer the gatherings.
The litigant in actuality made portrayals to the Government to at first look for
unwinding on the obligation to relieve the misfortunes. This was found not adequate to
the Government which vide its correspondence dated 21/22.3.1978 saw that the
respondent being a business association needs to direct an enormous number of
exchanges and should be set up to shoulder misfortunes in some of them and benefits
in others. The issue was additionally followed up vide correspondence dated
26.10.1978.
The Government thought of it as fitting to allow authorization for the producers of the
bond to use the packs imported through the permit got through the respondent subject
to specific terms and conditions. Indeed, even in the said correspondence it was
stipulated that the authorization would not establish an endorsement of the Government
for utilization of imported specialty paper under any standards/guidelines and it would
be the duty of the litigant/buyer to acquire such freedom.

10
Shree Digvijay Cement Co. Ltd. vs The State Trading Corporation AIR 2006 Delhi 276, III
(2006) BC 405, 2006 (2) CTLJ 34 Del, 128 (2006) DLT 319
23 | P a g e
CONCLUSION:

The principal-agent relationship is an arrangement in which one entity legally appoints another
to act on its behalf. In a principal-agent relationship, the agent acts on behalf of the principal
and should not have a conflict of interest in carrying out the act. The relationship between the
principal and the agent is called the "agency," and the law of agency establishes guidelines for
such a relationship.
A principal agent relationship is regularly characterized in formal terms depicted in an
agreement. For instance, when a financial specialist purchases portions of a file finance, he is
the head, and the store chief turns into his operator. As a agent, the list support principal must
deal with the reserve, which comprises of numerous principals' benefits, such that will amplify
returns for a given degree of hazard as per the store's outline.

The principal-agent relationship can be gone into by any willing and capable gatherings with
the end goal of any legitimate exchange. In basic cases, the principal inside the relationship is
a sole person who doles out an agent to complete an assignment; nonetheless, different
connections under this pretense have a principal that is a company, a philanthropic association,
an administration office or an organization.

The agent is regularly an individual equipped for comprehension and at last completing the
undertaking relegated by the principal. Normal instances of the principal-agent relationship
incorporate employing a temporary worker to finish a fix on a home, holding a lawyer to
perform lawful work, or requesting that a speculation guide broaden an arrangement of stocks.
In every situation, the principal is the individual searching out the administration or guidance
of an expert, while the agent is the expert playing out the work.

24 | P a g e
BIBLIOGRAPHY:
SOURCES-
1. C.P.K. Trading Company vs Additional Sales Tax Officer, O.P. No. 2659 of 1980
2. Panna Lal Babu Lal vs The Commissioner of Sales Tax, AIR 1956 All 710, 1956 7
STC 722 All
3. Steel and General Mills Co. Ltd. vs General Accident, Fire and Life, AIR 1952 P H
229
4. J.K. Sayani vs Bright Brothers Pvt. Ltd. AIR 1980 Mad 162, (1980) 1 MLJ 130
5. Suganchand & Co. vs Brahmayya & Co. AIR 1951 Mad 910 a, 1951 21 CompCas
224 Mad, (1951) 2 MLJ 9
6. M/S. The Kerala Agro Industries vs M/S. Beta Engineers RFA No. 418/2003
7. Dcit, New Delhi vs M/S. Sistema Shyam Teleservices ITA No. 5083/Del/2013
8. All India Radio Commercial vs Ito 2006 8 SOT 513 Delhi
9. Hindustan Coca-Cola Beverages vs Ito, Tds Range-7 2005 97 ITD 105 JP
10. Shree Digvijay Cement Co. Ltd. vs The State Trading Corporation AIR 2006 Delhi
276, III (2006) BC 405, 2006 (2) CTLJ 34 Del, 128 (2006) DLT 319

25 | P a g e