Revocation of authorityCentral

Section 201 of The Indian Contract Act, 1872

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.

Summary

Under Section 201 of the Indian Contract Act, 1872, an agency is terminated when the principal revokes the authority or the agent renounces the business.
An agency is also terminated when the business of the agency is completed.
The relationship ends if either the principal or the agent dies or becomes of unsound mind, or if the principal is declared insolvent under the laws in force.

Practical examples

1Vikram appoints Amit to sell his old car. Amit finds a buyer and completes the sale of the car. Under Section 201 of the Indian Contract Act, 1872, the agency relationship between Vikram and Amit is immediately terminated because the business of the agency has been completed.

2Priya employs Rahul as her business agent. A month later, Priya is declared insolvent by a court. Under Section 201 of the Indian Contract Act, 1872, Rahul's authority as an agent is automatically terminated by Priya's bankruptcy.

FAQ

1. What are the ways an agency can be terminated under Section 201 of the Indian Contract Act, 1872?

Under Section 201 of the Indian Contract Act, 1872, an agency is terminated by the principal revoking his authority, the agent renouncing the business, the business being completed, either party dying or becoming of unsound mind, or the principal being declared insolvent.

2. Does the death of the agent terminate the agency under Section 201 of the Indian Contract Act, 1872?

Yes, under Section 201 of the Indian Contract Act, 1872, the death of either the principal or the agent automatically terminates the agency relationship.

3. What happens to an agency if the principal becomes of unsound mind under Section 201 of the Indian Contract Act, 1872?

Under Section 201 of the Indian Contract Act, 1872, the agency is terminated if either the principal or the agent becomes of unsound mind.

4. Does the insolvency of the agent terminate the agency under Section 201 of the Indian Contract Act, 1872?

No, under Section 201 of the Indian Contract Act, 1872, only the insolvency of the principal terminates the agency. The provision does not state that the insolvency of the agent terminates the agency.

Test yourself

Q1.Under Section 201 of the Indian Contract Act, 1872, which of the following events terminates an agency by operation of law?

Q2.Under Section 201 of the Indian Contract Act, 1872, what are the two actions by the parties themselves that can terminate an agency?

Q3.Under Section 201 of the Indian Contract Act, 1872, what is the status of an agency once the specific task or business for which it was created is fully achieved?

Q4.Under Section 201 of the Indian Contract Act, 1872, which of the following is NOT a ground for the termination of an agency?

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