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Section 195: Agent's duty in naming such person

Indian Contract Act • Official Statutory Text & Practice Guide

Statutory Regulation
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Competent Court / Tribunal
Act 1872
Section 194 All 266 Sections of Indian Contract Act Section 196

Legal Commentary & Landmark Judgments: Section 195

Section 195 defines the agent's standard of duty in selecting a substituted agent under Section 194, mandating that the agent must exercise the discretion of an ordinary prudent man in his own affairs; if he does so, he is statutorily immune from any responsibility to the principal for the acts or negligence of the selected agent.

  • Duty of Prudent Selection: The selecting agent is bound to exercise the care, diligence, and judgment that an ordinary prudent man would exercise in choosing an agent in his own personal affairs.
  • Immunity from Selected Agent's Future Defaults: If the agent exercises due care in selecting a reputable, competent, and solvent substituted agent, the selecting agent incurs zero legal liability for any subsequent negligence, fraud, or insolvency of that person.
  • Liability Confined to Negligent Selection: The selecting agent can be held liable to the principal ONLY if the principal proves actionable negligence in the selection process itself (e.g., appointing a notoriously bankrupt, incompetent, or fraudulent entity).
Key Landmark Precedents:
  • Union of India v. Amar Singh AIR 1960 SC 233: The Supreme Court affirmed that a forwarding agent who exercises ordinary prudence in delivering goods to a reputable connecting carrier is protected from liability for subsequent transit loss under Section 195.
  • De Bussche v. Alt (1878) 8 Ch D 286: The Court held that an agent authorized to substitute another is discharged from personal liability for the substitute's subsequent performance provided the selection was made prudently and in good faith.
Courtroom Practice & Strategic Litigation Guidance:

When representing a principal seeking to hold an appointing agent liable for a substituted agent's disaster, focus your pleadings entirely on culpable negligence in selection: prove that the selected entity lacked required licenses, was blacklisted, had an unviable credit rating, or was in conflict of interest. Conversely, an appointing agent should maintain documented due-diligence records (RFPs, references, regulatory checks) to claim Section 195 statutory immunity.

Section 194 All 266 Sections of Indian Contract Act Section 196