Most overseas companies interested in investing in the Indian market take the route of appointing an Indian firm to represent their interests in the initial stages. The logic being that this would allow the overseas company enough time to study the market response before deciding to enlarge the scope and commitment to the Indian market. Since the primary purpose in such cases is marketing of the overseas company’s products or services it naturally follows that the relationship takes the form of a marketing agency. In tune with the marketing focus of this issue, we have attempted in this article to focus on some legal aspects of a marketing agency’s appointment and resultant liabilities. However, let me clarify that the same hold true for an Indian company, which is strong in one region and needs to expand into other regions of the Indian subcontinent.

Let me begin by defining what an agency is or what the term connotes. An Agency comes into effect when a Principal authorizes a person to act on his behalf and represent him in certain dealings with third parties. The person giving the authority is called the Principal and the person to whom the authority is given is called the Agent.

Moving on, in such an Agent-Principal relationship the Principal is bound by all the acts of the Agent. However the agreement granting the Agency should specify the powers/authorities the Principal grants the Agent. Except in extraordinary circumstances, any act of the Agent beyond these powers vested in him by the Principal, will not bind the Principal, and the Principal will not be liable for any consequences suffered by third parties, if any. The same rules of Agency apply to the appointment of a Marketing Agent.

While enjoying the advantages of having a Marketing Agent take care of the marketing of the Principal’s Products, the Principal runs a risk, in that the Principal is accountable for the actions of the Agent. So while the Principal is expected to be cautious in the appointment of a Marketing Agent, there might arise circumstance when it might become necessary for the Principal to terminate the Agency to prevent further loss or damage to himself. Hence the Law of Agency provides for the voluntary termination of the Agency by the Principal, by either giving the Marketing Agent sufficient notice or by paying him compensation.

The circumstances under which a Principal can terminate the Agency of a Marketing Agent are:

1. If the Marketing Agent is acting dishonestly or the acts of the Marketing Agent have caused a loss to the Principal.

2. If the Marketing Agent is dealing with or associating in products that are in competition with the Principal’s products without the consent of the Principal.

3. If there are any other contractual obligations specified in the contract/agreement that the Marketing Agent has not complied with (e.g. the Marketing Agent does not meet the targets set out)

Besides terminating the Agency of the Marketing Agent for the above reasons an Agency stands terminated for the following reasons:

1. If the agency was given for a specific assignment and the assignment has been completed

2. Either the principal or the agent becomes insane or dies.

3. The principal becomes insolvent.

4. An agent renounces the contract of agency and terminates it. In such cases notice of renunciation should be given to the principal, failing which the agent will be liable to compensate the principal for any loss or damage.

The above rules of termination apply to the relationship between the Principal and the Agent. However for third parties dealing with the Agent, the relationship of Agency is deemed terminated only when they come to know of the termination. Hence if the Principal is terminating the Agency it would be in his interest to ensure that third parties are aware of the termination of the Agency between himself and the Marketing Agent, by making sure the Agent discontinues the use of the Principal’s name and logos and other signs that were used to indicate the relationship of Agency between them.

While as a rule the Marketing Agent acts on behalf of the Principal and any contract that arises as a result of this is enforceable against the Principal, provided the Marketing Agent acts within the scope of the Agency, in certain cases however the Marketing Agent will be personally liable e.g. when:

1. In a contract for sale/purchase the principal is a foreigner

2. The name of the principal is not disclosed.

3. When a person pretends to act as the agent of a person who does not ratify the acts of the person.

4. When the Marketing Agent agrees with the Principal that he will be liable.

5. When the Marketing Agent acts beyond the scope of the Agency.

This is the Law applicable for the appointment and termination of an Agent within India. However for the growth of business, internationally, there might arise situations when the either the Agent or the Principal might not be within India. In such circumstances, it would be advisable to check the law relating to Agency in that particular country before an agreement, as these same principles might not be applicable in certain countries.

(The article is written by indialawinfo.com a legal portal based out of Bangalore. The opinion and facts mentioned in the article are that of the author and the firm he represents and businessgyan is not liable nor claims any responsibility for the same.)

Issue BG5 Aug01

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