Home  /  Indian Contract Act  /  Section 194

Section 194: Relation between principal and person duly appointed by agent to act in business of agency

Indian Contract Act • Official Statutory Text & Practice Guide

Statutory Regulation
Legal Standard
Competent Court / Tribunal
Act 1872
Section 193 All 266 Sections of Indian Contract Act Section 195

Legal Commentary & Landmark Judgments: Section 194

Section 194 governs the appointment of a substituted agent, providing that where an agent has express or implied authority to name another person to act for the principal in the business of the agency and names such person, that person is not a sub-agent, but becomes a direct agent of the principal for that part of the business.

  • Authority to Name a Substituted Agent: The original agent holds express or implied authority not to delegate his own work, but to name and select an independent professional or agent for the principal.
  • Creation of Direct Privity with Principal: Upon nomination, the person named ceases to be an underling of the agent and steps directly into a contractual relationship of principal and agent with the original principal.
  • Extinguishment of Intermediate Agent's Privity: The intermediate agent drops out of the legal chain regarding that part of the business, incurring no continuing liability for the substituted agent's performance once properly named.
Key Landmark Precedents:
  • Central Bank of India v. Siriguppa Sugars & Chemicals Ltd. (2007) 8 SCC 353: The Supreme Court recognized that where an institution has authority to appoint an expert or custodian for the debtor or principal, direct agency relations are established under Section 194.
  • Union of India v. Amar Singh AIR 1960 SC 233: The Supreme Court held that where a forwarding railway names and delivers goods to a connecting railway under lawful authority, the connecting railway becomes the direct agent/bailee of the consignor under Section 194, creating direct privity.
  • De Bussche v. Alt (1878) 8 Ch D 286: The Court of Appeal analyzed the distinction between a sub-agent and a substituted agent, holding that authority to name another to act directly for the principal creates privity of contract between principal and substituted agent.
Courtroom Practice & Strategic Litigation Guidance:

In international trade, project finance, and freight forwarding, contracts often involve naming local clearing agents, lawyers, or surveyors. Explicitly specify whether the agent has authority to 'name a substituted agent under Section 194'. If so, once the substituted agent is engaged, the naming agent cannot be sued for the substituted agent's subsequent defaults.

Section 193 All 266 Sections of Indian Contract Act Section 195