Implied Authority of an Agent in Indian Law

The Doctrine of Implied Authority of an Agent in Indian Law: A Juristic Analysis

Introduction

The law of agency forms a cornerstone of commercial and contractual interactions, enabling individuals and entities to act through representatives. Within this framework, the authority vested in an agent by a principal is paramount in determining the legal ramifications of the agent's actions, particularly concerning third parties. While express authority is conferred through explicit words, spoken or written, implied authority arises from the conduct of the parties, the circumstances of the case, or the ordinary course of dealing. This article undertakes a comprehensive analysis of the concept of implied authority of an agent under Indian law, drawing upon statutory provisions, principally the Indian Contract Act, 1872, and significant judicial pronouncements that have shaped its interpretation and application.

Statutory Framework: The Indian Contract Act, 1872

The Indian Contract Act, 1872 ("ICA") provides the foundational legal structure for agency relationships in India. Several sections are pertinent to understanding implied authority:

  • Section 182: 'Agent' and 'principal' defined. 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'.
  • Section 186: Agent's authority may be express or implied. This section explicitly states that the authority of an agent can be either express or implied.
  • Section 187: Definitions of express and implied authority. This is the pivotal section, defining implied authority: "An authority is said to be express when it is given by words spoken or written. An authority is said to be implied when it is to be inferred from the circumstances of the case; and things spoken or written, or the ordinary course of dealing, may be accounted circumstances of the case."
  • Section 188: Extent of agent's authority. An agent having an authority to do an act has authority to do every lawful thing which is necessary in order to do such act. An agent having an authority to carry on a business has authority to do every lawful thing necessary for the purpose, or usually done in the course, of conducting such business.

These provisions collectively establish that implied authority is not a mere theoretical construct but a legally recognized form of authority, the existence and scope of which are to be determined by a careful examination of the factual matrix of each case.

Judicial Interpretation and Application of Implied Authority

Indian courts have extensively deliberated upon the nuances of implied authority, providing clarity on its inference, scope, and limitations in various contexts.

Nature and Inference of Implied Authority

The inference of implied authority is fundamentally a question of fact, derived from the conduct and relationship of the parties. As articulated in Smt. Shashikala Baranwal v. Union of India Post office (State Consumer Disputes Redressal Commission, 2022) and Smt. Nitya Baranwal v. Union of India Post office (State Consumer Disputes Redressal Commission, 2022), "implied authority can be inferred from the circumstances of the case and from the ordinary course of dealing between the parties." In these cases, an agent appointed by the District Magistrate as Chief Saving Officer, who handled all transactions for the Post Office concerning the complainant, was deemed to be impliedly working as an agent of the Post Office. This was supported by reference to Dev Narayan Rao v. Kukur Bind (1902 ILR 24 All. 319), where the High Court noted that authority can be given by words written or spoken or by conduct.

The Supreme Court in Chairman, Life Insurance Corpn. And Others v. Rajiv Kumar Bhasker ((2005) 6 SCC 188), further elaborated on this. The Court observed that for determining the legal nature of the relationship, the use or omission of the word "agent" is not conclusive. If an employee had reason to believe that his employer was acting on behalf of the Corporation (LIC, in this instance, under a Salary Savings Scheme), a contract of agency might be inferred. The Court stated, "Once an agent is appointed, his authority may be express or implied in terms of Section 186 of the Contract Act." This sentiment was echoed in ITC LTD. v. GADAT VIBHAG VIVIDH KARYAKARI SAHAKARI KHEDUT MANDAL LTD. (Gujarat High Court, 2024), which quoted Rajiv Kumar Bhasker, emphasizing that consent of both principal and agent is necessary, even if not explicitly recognized by them, to establish agency.

In Harihara Iyer v. Bhageerathi Amma (Kerala High Court, 1985), the court reiterated that under Section 187 ICA, an authority is implied when inferred from the circumstances, citing Syed Abdul Khader v. Rami Reddy (AIR 1979 SC 553) for the principle that agency arises when one person has authority to act for another and consents to do so.

Implied Authority in Specific Contexts

The doctrine of implied authority has found application across diverse scenarios:

  • Commercial Transactions: In Valappad Co-Operative Stores Ltd. v. K.H Srinivasa Iyer Brothers (1963 SCC ONLINE KER 34, Kerala High Court, 1963), the secretary of a co-operative store, responsible for its day-to-day operations, was held to have implied authority to purchase goods on credit. The Court reasoned that a person entrusted with running a business must be deemed to have such powers as are necessary and usual for carrying on that business. Importantly, it was noted that "if there is any secret limitation on the usual and implied authority of an agent a third party acting in good faith will not be bound by that secret limitation."
  • Employer-Employee Facilitating Schemes: The Supreme Court in Delhi Electric Supply Undertaking v. Basanti Devi And Another ((1999) 8 SCC 229) dealt with a Salary Savings Scheme where DESU (employer) deducted insurance premiums for LIC. The Court held that DESU acted as an agent of LIC for collecting premiums. It cited Halsbury's Laws of England, stating, "The authority need not be an express authority; it may be implied from the circumstances." Thus, LIC was bound even if DESU failed to remit the premiums, as the employee had fulfilled their obligation by allowing deduction from salary. This aligns with the reasoning in Chairman, LIC v. Rajiv Kumar Bhasker, where the employer, in facilitating an insurance scheme, was found to be an agent of the insurer for certain purposes, particularly from the perspective of the employees who dealt only through the employer.
  • Public/Administrative Bodies: The Income Tax Appellate Tribunal in Chandigarh Housing Board v. Additional Commissioner of Income-tax (2012) considered whether the Board was an agent of the Chandigarh Administration for a project. The counsel argued for implied agency under Sections 182, 186, 187, and 188 of the ICA, based on the Board's nomination as the nodal agency, contending that no separate agreement was necessary. This illustrates the application of agency principles in public sector undertakings.
  • Procedural Matters: The issue of implied authority or waiver has arisen in the context of statutory notices. In Chaturbhuj-Ram Lal v. Secretary Of State For India (1926 SCC ONLINE ALL 291, Allahabad High Court, 1926), service of a notice on the Chief Commercial Manager, instead of the Agent of the Railway as statutorily required, was considered. The Court opined that if the Chief Commercial Manager retains and deals with such a notice, "he must be taken to do so as the subordinate and agent of the Agent, and on the strength of the old maxim that ‘every thing is presumed to be done correctly,’ it must be presumed that, if he does so he does it with the implied consent and, therefore, with the authority of the Agent." A similar line of reasoning was discussed in Ram Padarath v. Union Of India And Others (1974 SCC ONLINE ALL 307, Allahabad High Court, 1974), distinguishing cases based on whether the subordinate officer actually acted upon the notice.

Scope and Limitations of Implied Authority

While implied authority expands the capacity of an agent to act, it is not without limits. Section 188 of the ICA delineates that an agent's authority extends to doing every lawful thing "necessary" to perform the authorized act or "usually done in the course" of conducting such business. This "usual authority" is a key component of implied authority.

However, the acts must be within the ambit of the agency. The Supreme Court's decision in State Bank Of India (Successor To The Imperial Bank Of India) v. Smt Shyama Devi ((1978) 3 SCC 399) provides an important distinction. In this case, a bank employee committed fraud. The Court held the bank not vicariously liable for certain transactions because the employee, in those specific fraudulent dealings, was found to be acting more as the plaintiff's agent rather than within the scope of his employment or the bank's authority. The Court emphasized that "an employer is not liable for wrongful acts committed by an employee if those acts are entirely outside the scope of employment" (referencing Leesh River Tea Co. Ltd. v. British India Steam Navigation Co. Ltd. (1966)). This underscores that implied authority cannot be stretched to cover acts that are clearly a "frolic of his own" or a departure from the principal's business.

Distinction from Apparent/Ostensible Authority

Implied authority, as derived from Section 187 ICA, arises from the actual relationship and conduct between the principal and agent, leading to an inference of conferred authority. It is sometimes conflated with apparent or ostensible authority (often linked to Section 237 ICA concerning agency by estoppel or holding out). Apparent authority arises when a principal, by words or conduct, represents to a third party that another person has authority to act on their behalf, and the third party relies on this representation. While the lines can blur, implied authority is rooted in the principal's actual (though unstated) consent, whereas apparent authority is based on the principal's manifestation to a third party, irrespective of actual consent to the agent.

The Supreme Court in Chairman, LIC v. Rajiv Kumar Bhasker touched upon this when it cited Bowstead & Reynolds on Agency: "Where a person, by words or conduct, represents or permits it to be represented that another person has authority to act on his behalf, he is bound by the acts of that other person..." This description leans towards apparent authority, but the case also heavily relies on inferring agency from the scheme itself, blending elements of both implied and apparent authority from the perspective of the employees dealing with their employer as an intermediary for LIC.

Consequences of Agency and the Role of Implied Authority

Once an agency relationship is established, and the agent acts within their express or implied authority, the principal is generally bound by such acts and liable to third parties. Conversely, an agent is typically not personally liable for contracts entered into on behalf of a disclosed principal. Section 230 of the ICA codifies this: "In the absence of any contract to that effect, an agent cannot personally enforce contracts entered into by him on behalf of his principal, nor is he personally bound by them."

The Supreme Court in Prem Nath Motors Limited v. Anurag Mittal ((2009) 16 SCC 274) affirmed that an agent could not be sued under Section 230 when the principal had been disclosed. However, Section 230 itself provides exceptions, such as where there is a contract to the contrary, where the agent does not disclose the name of his principal, or where the principal, though disclosed, cannot be sued. The Oriental Insurance Co. Ltd. v. M/S. Interfit India Ltd. (Madras High Court, 2014) elaborated on these exceptions, noting that the presumption against an agent's personal liability is rebuttable, and an agent can be liable if there is an express provision in the contract or if the principal cannot be sued (Section 230(3)). The existence and scope of implied authority are thus critical in determining whether the agent's actions bind the principal or, in exceptional circumstances, the agent themselves.

Conclusion

The doctrine of implied authority is an indispensable element of agency law in India, providing flexibility and pragmatism to commercial and other dealings. It recognizes that authority need not always be formalized in writing or explicit words but can be legitimately inferred from the circumstances, conduct of parties, and the ordinary course of business. The Indian judiciary, through consistent interpretation of Sections 186, 187, and 188 of the Indian Contract Act, 1872, has affirmed that the inference of such authority is fact-dependent, requiring a careful assessment of the specific relationship and context.

Cases like Chairman, LIC v. Rajiv Kumar Bhasker and Delhi Electric Supply Undertaking v. Basanti Devi demonstrate the protective ambit of implied agency for third parties, especially in structured schemes where an intermediary plays a crucial role. Conversely, decisions such as State Bank of India v. Smt Shyama Devi delineate the boundaries, ensuring that principals are not held liable for acts clearly outside the agent's legitimate, albeit implied, scope of authority. The continued application of this doctrine underscores its importance in balancing the interests of principals, agents, and third parties in the dynamic landscape of Indian commerce and law.