Establish authority before classifying the third party
Under section 190 of the Indian Contract Act, 1872 an agent generally cannot delegate acts undertaken personally unless the ordinary custom of trade permits a sub-agent or the nature of the agency requires one. Determine whether the principal actually authorised the appointment and whether the act was undertaken personally, taking account of the terms, trade custom and the nature of the work. Under section 191, a sub-agent acts under the original agent's control in the business of the agency. An independent service label does not settle the legal relationship.
Read the applicable text: Indian Contract Act, 1872, sections 190–200.
Distinguish proper and improper appointments
Under section 192 a properly appointed sub-agent represents the principal as regards third persons; the original agent remains responsible to the principal for the sub-agent's acts. The sub-agent is generally responsible to the agent rather than directly to the principal, except in cases of fraud or wilful wrong. Under section 193, an unauthorised sub-agent does not represent the principal under that provision; the original agent is responsible for the sub-agent's acts to the principal and third persons. The unauthorised sub-agent is not responsible to the principal under section 193. Check other facts, including any valid ratification, independently rather than treating an internal register as conclusive.
Identify a substituted agent under section 194
An agent with authority to name another person to act for the principal may appoint that person as the principal's agent for the specified work, rather than as a sub-agent. Under section 195 the selecting agent must use the care an ordinarily prudent person would use in their own case; if that standard is met, the selecting agent is not responsible to the principal for the selected agent's acts or negligence under that provision. Preserve the selection and appointment evidence.
Match authority to actual decisions
List who can approve orders, accept revised prices, collect money, handle documents and bind the principal. Compare those limits with every delegated act. Verify dates, instructions, customary practice if relied on, oversight and actual customer communications. Avoid assuming authority to appoint also means unlimited authority for the appointee.
Reconcile affected transactions
Separate transactions within verified authority from unconfirmed items and disputes. Notify through the authorised business process where appropriate, obtain legal review of external obligations and resolve cash, stock or documents without treating the amount of an exception as proven loss.
Six worked illustrations
All facts and amounts are fictional. Calculations illustrate the stated assumptions, not a predetermined legal outcome.
Illustrative example 1: Check an appointment limit
The principal authorises the sales agent to appoint a controlled sub-agent for orders up to ₹3 lakh per order. Orders of ₹2.20 lakh and ₹3.40 lakh are taken. The latter exceeds the stated limit by ₹40,000; flag the whole order for authority review.
Illustrative example 2: Reconcile delegated receipts
A properly appointed collection sub-agent reports ₹4.80 lakh of supported customer receipts and remits ₹4.20 lakh. The ₹60,000 difference requires reconciliation; classify liability separately.
Illustrative example 3: Distinguish a principal's agent from a controlled sub-agent
An authorised agent names two brokers for separate lots worth ₹5 lakh and ₹7 lakh, each to act directly for the principal. The combined scope is ₹12 lakh. Verify section 194 appointment and section 195 selection care for each broker.
Illustrative example 4: Ring-fence an unauthorised population
An agent assigns five contracts valued at ₹1 lakh each to another party without apparent authority. Two later have independently documented approval and three remain disputed. Review ₹3 lakh of unresolved orders without assuming approval necessarily cures every earlier act.
Illustrative example 5: Verify permitted scope separately
The delegated appointment covers 12 collections but excludes two credit variations valued at ₹30,000 and ₹45,000. Keep ₹75,000 of variations outside the assumed delegated approval and investigate.
Illustrative example 6: Distinguish authorisation from loss
Four affected transactions total ₹9 lakh and ₹6.50 lakh is supported as delivered and accepted. The unreconciled value is ₹2.50 lakh; prove actual loss and responsibility separately.
Ten-step verification table
| Step | Action | Evidence |
|---|---|---|
| 1 | Identify the original agency | Principal's mandate and appointment terms |
| 2 | Isolate acts requiring personal performance | Responsibilities and agreed exceptions |
| 3 | Verify authority to appoint another person | Express power, trade custom or necessity evidence |
| 4 | Determine control and reporting lines | Actual instructions and supervision |
| 5 | Classify sub-agent or substituted agent | Appointment wording and facts |
| 6 | Assess selection care | Due diligence and review record |
| 7 | Map limits by act and value | Approved mandates and thresholds |
| 8 | Reconcile affected transactions | Order, receipt and approval register |
| 9 | Flag disputes and approvals separately | External communications and legal review |
| 10 | Close cash and document balances | Signed handover and exceptions log |
Sixteen practitioner FAQs
1. Can every agent delegate contracted work?
No. Check express authority and section 190.
2. Can trade custom be relevant?
Yes, but retain evidence of a real applicable custom.
3. Who controls a sub-agent?
The original agent under section 191.
4. Can a properly appointed sub-agent represent the principal?
Yes, as regards third persons under section 192.
5. Does that remove the original agent's responsibility?
No. The original agent remains responsible to the principal for the sub-agent's acts.
6. Does a sub-agent normally owe direct responsibility to the principal?
Section 192 identifies fraud or wilful wrong as exceptions to the general rule.
7. What if appointment was unauthorised?
Apply section 193 and examine other facts separately.
8. Is every outsourced specialist a sub-agent?
No. Determine function, control and authority.
9. What makes a substituted agent different?
An authorised appointment to act for the principal on the specified work under section 194.
10. What does section 195 require of the selecting agent?
Ordinary prudence in selection.
11. Does appointment authority allow every act?
No. Verify what was actually authorised for the appointee.
12. What if the principal later approves one transaction?
Determine whether there was valid ratification under sections 196–200, including knowledge of material facts, the effect on the whole transaction and any prejudice to third parties.
13. Does an over-limit order mean only the excess is disputed?
No. Review the authority and transaction as a whole.
14. Can an exception value be booked as proven loss?
No. Measure loss and liability independently.
15. What evidence supports approved collections?
Mandate, debtor communication, receipt and remittance evidence.
16. What should be retained at close?
The mandate, appointment, decision limits and transaction reconciliation.