Source: Supreme Court

Why in News?

In a recent hearing, the Supreme Court reaffirmed that even in the event of the principal's death, the agency remains legally binding if the agent maintains a vested interest in the property outlined in the contract.

• This reaffirmation was made in the case of P. Seshareddy (D) Rep. By His LR. Cum Irrevocable GPA Holder And Assignee Kotamreddy kodandarami v. State of Karnataka.

What was the Background of P. Seshareddy (D) Rep. By His LR. Cum Irrevocable GPA Holder And Assignee Kotamreddy kodandarami v. State of Karnataka & Ors. Case?

• P. Seshareddy (appellant) appointed Kotemreddy Kodandarami Reddy as his General Power of Attorney for a contract with the State of Karnataka (respondent).
• Disputes arose, leading to arbitration initiated by Seshareddy.
• After his death, his legal heirs took over, but the case was dismissed.
• Kodandarami Reddy filed for restoration, granted by the Trial Judge.
• The respondent filed writ petitions against the Trial Judge's orders, which the Single Judge allowed, setting aside the Trial Judge's orders.
• The appellant argued that the Single Judge only considered Section 201 of the Indian Contract Act,1872 (ICA) and overlooked Sections 202 and 209. It was emphasized that the appellant had a legitimate interest in the contract, enabling them to continue proceedings despite the principal contractor's death and allowed the writ petition(s) filed by the respondent-State.
• The Supreme Court deemed the Single Judge's interpretation as flawed, highlighting Section 202 of ICA. The assignment deed established the appellant's interest in the contract, allowing continuation of the agency absent express provisions to the contrary. The Trial Judge's decision was deemed appropriate, and the Single Judge's ruling was overturned.
• The appeals are disposed of.

What were the Court’s Observations?

• The Supreme Court remarked that the learned Single Judge erred by solely considering Section 201 of ICA without considering Section 202.
• Additionally, the Court noted that the learned Single Judge overlooked the fact that an interest had been gained by the appellant in the contract due to the assignment deed.
• It is undeniable that the contract in question was the focal point of the agency. Therefore, without any explicit provision indicating otherwise, the appellant had the rightful entitlement to proceed with the agency.
• The bench, overturned the High Court's conclusions, asserting that if the agent has a personal interest in the property specifically outlined in the contract, which serves as the focal point of the agency, then the agency contract would not be terminated under Section 201 of the Indian Contract Act, 1872 ("1872 Act") upon the principal's death.
• The appellant asserted that under Section 202 of the Act, their interest in the property forming the agency's subject matter prevents termination of the agency without an explicit contract, which would unfairly impact their interest.
• The Supreme Court highlighted that the demise of the primary contractor wouldn't hinder the agent (power of attorney) from instigating proceedings arising from the contract if the agent possesses a specified interest within the contract.
• In the current scenario, the principal contractor granted power of attorney to the appellant.
• Following the principal contractor's demise, the respondent sought to terminate the agency, i.e., the power of attorney.
• However, the appellant argued that since they maintain a vested interest in the contract, the termination of the agency upon the principal contractor's death wouldn't be applicable under Section 201 of the Act.

What is Section 201 and 202 of Contract Act, 1872?

About

• Section 201 of ICA, 1872 states that an agency relationship is terminated by the principal's death or insanity.
• Section 202 of ICA, 1872 deals with termination of an agency where the agent has an interest in the subject matter of the agency.
  • It specifies that if the agent has a personal interest in the property, which is the agency's subject matter, the agency cannot be terminated to the prejudice of such interest unless there is an express contract allowing such termination.

Legal Provision

• Section 201 deals with termination of agency.
  • An agency is terminated by the principal revoking his authority; or by the agent renouncing the business of the agency; or by the business of the agency being completed; or by either the principal or agent dying or becoming of unsound mind; or by the principal being adjudicated an insolvent under the provisions of any Act for the time being in force for the relief of insolvent debtors.
• Section 202 deals with termination of agency, where agent has an interest in subject-matter.
  • Where the agent himself has 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 are the Various modes for Termination of Agency?

Section 201 of ICA, 1872 describes the various modes of termination of agency.

• Termination of agency by act of the parties: -
  • Agreement
    • The relation of principal and agent, like any other agreement, may be terminated at any time and at any stage by the mutual agreement between the principal and the agent.
  • Revocation by Principal
    • According to Section 203, ICA, 1872 the principal may revoke the authority of the agent at any time before the agent has exercised his authority so as to bind the principal unless the agency is irrevocable.
  • Renunciation by Agent
    • An agent is entitled to renounce his power by refusing to act or by notifying the principal that he will not act for the principal.
• Termination of agency by operation of law-
  • Performance of the Contract-
    • Where the agency is for a particular object, it is terminated when the object is accomplished or when the accomplishment of the object becomes impossible.
  • Expiry of Time-
    • When the agent is appointed for a fixed period of time, the agency comes to an end after the expiry of that time even if the work is not complete.
  • Death and Insanity-
    • As per Section 209 of ICA,1872, When the agent or the principal dies or becomes of unsound mind, the agency is terminated.
  • Insolvency-
    • The insolvency of the agent, it is accepted, also terminate the agency unless the acts to be done by the agent are merely formal acts.
  • Destructions of Subject matter-
    • An agency which is created to deal with a certain subject-matter comes to an end by the destruction of the subject-matter.
  • Principal and Agent becoming Alien company-
    • The contract of agency is valid so long as the countries of the principal and the agent are at peace. If war breaks out between the two countries, the contract of agency is terminated.
  • Dissolution of a Company-
    • When a company is dissolved, the contract of the agency with or by the company automatically comes to an end.

Case Law

In the case of Bhagwanbhai Karamanbhai v. Arogyanagar Co-op. Hsg. Socy. Ltd. (2003) an irrevocable power of attorney was executed by all landowners for the sale of land. Also, the landowners relinquished their authority in favor of the power of attorney holder. The Gujarat High Court determined that upon the death of one of the landowners, there was no requirement for the power of attorney holder to seek consent from the heirs and legal representatives of the deceased landowner. This was because there was no explicit contract stipulating the termination of the agency.