An Agent�۪s Power Coupled With Interest: An Analysis

Principal and Agent under the Indian Contract Act, 1872��

• Section 182 of the Indian Contract Act, 1872 (���Contract Act�۝) defines an agent as a person employed to do any act for another, or to represent another in dealings with third person (���Agent�۝).
• Section 182 of the Contract Act defines principal as the person for whom the said act is done or so represented (���Principal�۝).

��Termination of Agency & Agent�۪s Interest

In terms of Section 201 of the Contract Act, an agency is terminated in the following circumstances:

• When the Principal revokes his authority;
• When the Agent renounces the business of agency;
• When the business of the agency is completed;
• When either the Principal or the Agent is dead;
• When either the Principal or the Agent becomes of unsound mind; and
• When the Principal is adjudicated as insolvent under the provisions of any law for the relief of insolvent debtors.

However, the termination of agency as set forth above, will not be applicable to cases where the Agent himself has an interest in the property, which forms the subject-matter of the agency, in terms of Section 202 of the Contract Act, which��provides:

���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.

What is an Agent�۪s Interest under the Contract Act?

The nature and meaning of an agent�۪s interest under Section 202 of the Contract Act was considered by the Hon�۪ble High Court of Delhi in Harbas Singh vs Shanti Devi[1]. In the said case, Harbas Singh was the allottee of a shop from the Government. Harbas Singh being unable to pay the dues to the Government, entered into an agreement to sell with Shanti Devi. The said agreement also referred to a general and special power of attorney to one, Gulati. The special power of attorney was for enabling Gulati to pay the dues to the Government and the general power of attorney was for enabling Gulati to sell the shop to any purchaser. Pursuant to a dispute, Harbas Singh cancelled the power of attorney. Thereafter, Gulati executed a sale deed in favour of Shanti Devi.

The question before the Court was whether the power of attorney granted by Harbas Singh in favour of Gulati was irrevocable. In order to determine the question, the Court examined the meaning of ���interest�۪ as used in the Contract Act. The Court held that, in terms of Section 54 of the Transfer of Property Act, 1882, a contract of sale may not create an interest in the immovable property, but a beneficiary of such contract of sale has a right or interest in the subject-matter of sale under the Contract Act. Thus, the word ���interest�۪ as used in the Contract Act does not mean ownership or title in the immovable property but an advantage or benefit or a legally enforceable right.

Irrevocability of Agent�۪s Power Coupled with Interest

With respect to the nature of an agent�۪s interest, the High Court of Delhi in Harbas Singh vs Shanti Devi[2] opined that ���when an authority is a security, or other proprietary interest or part of the security or its conferring constitutes the performance of the obligation on the party creating it, such authority is referred to as ���power coupled with interest�۪ and is irrevocable�۪.

The irrevocable nature of agent�۪s interest was also considered by the Hon�۪ble Supreme Court of India in Seth Loon Karan Sethiya vs Ivan E. John and Others[3], whereby a debtor had given a ���power of attorney�۪ to a bank for executing a decree in a suit. The suit was decreed in favour of the debtor, pursuant to which the bank filed an execution application in the name of the debtor. The debtor challenged the execution application based on the averment that no sum was granted by the bank to the debtor against the security of the decree in question. The major question before the execution Court was ���Whether the ���power of attorney�۪ granted by the debtor to the bank is a power coupled with interest, if yes can the same be revoked?�۪

The execution Court and the appellate High Court held that the ���power of attorney�۪ granted by the debtor to the bank is a ���power coupled with interest�۪ and the same cannot be revoked in terms of Section 202 of the Contract Act. In appeal, the Supreme Court affirmed the decision of High Court and held that: ���There is hardly any doubt that the power given by the appellant in favour of the bank is a power coupled with interest. That is clear both from the tenor of the document as well as from its terms. Section 202 of the Contract Act provides that 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. It is settled law that where the agency is created for valuable consideration and authority is given to effectuate a security or to secure interest of the agent, the authority cannot be revoked.�۝ (Emphasis supplied)

Conclusion

In view of the above, an agency cannot, in the absence of an express contract, be terminated to the prejudice of interest of the Agent in the property, which forms the subject-matter of the agency. Further, an agency created for valuable consideration and/or to secure interest of the Agent can also not be revoked.

The views and opinions expressed in this article belong solely to the author and do not reflect the position of Tatva Legal Hyderabad.

[1] 1977 RLR 487

[2] ibid

[3] MANU/SC/0222/1968