Agent and principal are defined under Section 182 of the Indian Contract Act, 1872.

According to the section “an agent is a person employed to do any act for another or
to represent another in dealings with third persons. The person for whom such act is
done, or who is so represented, is called the principal”.

Sections 194 and 195 talk about substituted agents. When an agent having the
authority to do so, names another person to act for the principal in the business of
the agency, then such a person is called a substituted agent and not a sub-agent.
Thus a contractual relation comes in existence between the principal and the
substitute agent and therefore the substituted agent is directly liable to the principal
to perform his duties.

The distinction between a sub-agent and a substituted agent is important because

an agent is liable in relation to the acts of a sub-agent, but an agent carries no
liability to the principal for the acts of the substituted agent.

It has been seen in the case of Palestar Electronics Private Limited v. Additional
Commissioner21 that the acts of the agent within the scope of his authority bind the
principal. Contracts entered into through an agent, and obligations arising from acts
done by the agent, may be enforced in the same manner, and will have the same
legal consequences, as if the contracts had been entered into and the acts done by
the principal in person.22 It is necessary for this effect to follow that the agent must
have done the act within the scope of his authority. The authority of an agent and
more particularly its scope are subjects to some controversy.23

The authority of an agent means his capacity to bind the principal. It refers to “the
sum total of the acts it has been agreed between principal and agent that the agent
should do on behalf of the principal.”25 When the agent does any such acts, it is said
he has acted within his authority as was seen in the case of Nand Lal Thanvi v. LR of
Goswami Brij Bhushan.26

With regards to contracts and acts which are not actually authorised, the principal
may be bound by them, on the principle of estoppels, if they are within the scope of
the agent’s ostensible authority, but in no case is he bound by any unauthorised act
or transaction with respect to persons having notice that the actual authority is being
exceeded.27

When an agent has, without authority, done acts or incurred obligations to third
persons on behalf of his principal, the principal is bound by such acts or obligations if
he has by his words or conduct induced such persons to believe that such acts and
obligations were within the scope of the agent’s authority.48 A case on this point is
that of Bissessardas Kasturchand v. Kabulchand49 where the court said:
“Their Lordships of the Judicial Committee of the Privy Council ruled that the right of
a third party against the principal on the contract of his agent though made in excess
of agent’s actual authority was nevertheless to be enforced when the evidence
showed that the contracting party had been led into an honest belief in the existence
of the authority to the extent apparent to him.’50

When an agent does more than he is authorised to do and when the two can be
separated, so much only of what he does as is within his authority is binding as
between him and his principal.67 If the act cannot be separated from what is within
it, the principal is not bound to recognize the transaction.68

It is only when a person acts as representative of the other in business negotiations

that is to say, in the creation, modification or termination of contractual obligations
between that other, and the third persons, that he is an agent. 11 (Krishna v.
Ganapathi, AIR 1955 Mad 648) The definition of agent given in section 182 is very
wide and embraces a servant pure and, simple. 12 (AIR 1938 Nag 254: 176 IC
675.) The agent carrying out his undertaking within the scope of his authority binds
his principal as the agents acts are deemed to be those of his principal. 13 (Laxmi
Ginning & Oil Mills v. Amrit Banaspati Co. Ltd., AIR 1962 Punj 56.)

To hold a person bound by the acts of his agent, it must be shown that the agent,
acted within the scope of his authority.143 (Monohur Das v. Deen Dyal, 3 NWP
179) And if the authority is established, the mere fact that the principal did not
receive any benefit,144 or that the agent did not intend the principal’s benefit, 145(Bank
of Bengal v. Ramanathan, 43 IA 48: 43 Cal 527) does not rid the principal of his
liability. All that is required that the agent should hold himself out as having such
authority and his principal by his conduct induce the third, party to reasonable belief
that he is authorized to do the act he does.

Where a principal gives an express authority to do a particular act or class of

acts on his behalf the principal is bound, as against third persons, by every
act done by the agent who is so expressly authorized, which is necessary for
the proper execution of the business, even though the express authority is
unknown to the third persons.146( Jayantilal v. Popatlal, 1937 Bom 262: 170 IC
147.)
Further, every act done by an agent in the course of his employment on
behalf of his principal and within the apparent scope of his authority binds the
principal, unless the agent, is in fact unauthorized to do the particular act and
the person dealing with him has notice that in doing such an act he is
exceeding his authority.147 (Stocking v. Tata Iron and Steel Co., (1917) Pat
273: 41 IC 175.)

Where a power is conferred or a duty is imposed by statute or otherwise, and

there is nothing expressly inhibiting the exercise of the power of the
performance of duty by any limitations or restrictions, it is reasonable to hold
that it carries with it the power of doing all such acts or employing such means
as are reasonably necessary for such execution.164(AIR 1953 Nag 188)
 The authority of every agent whether express or implied is confined within the
limits of the powers of his principal and an agent of a corporation or an
incorporated company cannot have any authority express or implied to do any
act on behalf of the corporation or company which is ultra vires of the powers
of the company.165( Matajog G. Dobey v. Bhari, HC AIR 1956 SC 44:)
In Bhim Shanker v. Union of India,166 the plaintiff was claiming to be the agent
of Rajaram Shri Kishan Oil Factory when he indented for the wagon and
cancelled the allotment. He must be deemed responsible for paying
demurrage as the duly authorized agent Rajaram Shri Kishan Oil Factory on
their behalf. He could have recovered the same from his principal.

Agent with limited authority

A person who deals with an agent whose authority he knows to be limited
does so at his peril, in this sense, that should the agent be found to have
exceeded his authority the principal cannot be made responsible. 167(AIR 1984
All 77) If a person deals with a known agent, endowed with limited authority
and power, he is bound to ascertain the scope of the agent’s authority;
otherwise, if such a person deals with an agent and the agent exceeds the
limit of his authority and the person so dealing with him incurs loss or damage
by reason of the agent exceeding his authority, then such a person cannot
hold the principal liable for the acts of the agent done outside and beyond the
scope of his authority.168(Russo-Chinese Bank v. Li Yau Sam, 14 CWN 381,
(PC).)
But where the principal did not by any negligence or improper act allow the
agent to be apparently invested with an authority beyond or greater than the
limited authority which the customer knew him to possess, there could not be
any estoppel as against the principal in respect of any of the steps in a
transaction whereby the customer was deceived by the agent acting beyond
his authority.176(Lakshman v. Chidambaram, (1919) MWN 72) The mere fact
that the act falls within the scope of the usual or apparent authority of an
agent will not bind another person as his principal when the act itself was
unauthorized and not ratified by latter, and the third party was dealing with the
agent treating him as principal himself and not as an agent. 177(Russo-Chinese
Bank v. Li Yan Sam, 14 CWN 381, PC)
The principal will not normally be liable for the unauthorized criminal acts of
the agent or for the other acts done by him in excess of his authority.178(AIR
1958 Bom 445.) When an agent having no authority to borrow money does so
and such borrowing is neither justified by necessity nor it is in the usual
course of his business, the principal is not liable. 179(T.D. Board v. S.N.
Moothathu, AIR 1955 Trav-op 83: 56 Cri LJ 845.)

A principal would not be bound by an unauthorized act done by his agent, even
though he derived benefit therefrom, and when the agent did not disclose the name
of the principal there can be no claim against the principal. 109(Jagmohanprasad v.
Firm of Sampat, 1932 Nag 27) Similarly, the principal is not bound by the act of his
agent in excess of his authority.

The principle, on when the principal may, in certain cases, be held bound by the acts
of his agent in excess of the agent’s authority, is that the principal has, by his words
or conduct, induced a third person to believe that the agent’s acts were within the
scope of his authority.118(Prembhai v. Brown, 10 BHC 319, 323.) So in a case the
right of a third party against the principal on a contract of his agent, though made in
excess of the agent’s authority, was nevertheless enforced where the evidence
showed that the contracting party had been led into an honest belief in the existence
of the authority to the extent apparent to him. 119(Ram Pertab v. G. Marshall, 26 Cal
701 (PC).)

If the person enters into a contract with another, believing him to be the principal in
the transaction, though in fact that other is acting as an agent, but he subsequently
discovers who the real principal is, even though he may first have been given credit
to the party who subsequently turns out to be an agent, he may nevertheless, upon
discovering who the principal is, substitute him as his debtor.256