Agency Won't Be Terminated Upon Death Of Principal If Agent Has Interest In Property Which Is Subject Matter Of Contract: Supreme Court

The Supreme Court observed that the death of the original contractor would not preclude the agent (power of attorney) from initiating the proceedings arising out of the contract if the agent holds an interest in the contract being expressly mentioned in the contract.

Reversing the findings of the High Court, the bench comprising Justices BR Gavai and BV Nagarathna stated that where the agent has himself an interest in the property, expressly mentioned in the contract, which forms the subject matter of the agency then the contract of agency wouldn't be terminated under Section 201 of Indian Contract Act, 1872 (“1872 Act”) upon the death of the principal.

Section 201 of the 1872 Act prescribes conditions where the contract of agency would get stand terminated, where one of the conditions is the death of the principal contractor.

Section 202 of the 1872 Act deals with situations where an agent has an interest in subject matter. It states that where the agent has an interest in the property that forms the subject matter of the agency, the agency cannot, in the absence of an express contract, be terminated to the prejudice of such interest.

The court opined that when the power of attorney, being an agent, holds an interest in the contract then there wouldn't be an automatic termination of the agency upon the death of the principal contractor under Section 201 of the Act as Section 201 of the Indian Contract Act couldn't be read in isolation by ignoring Section 202 of the Act when the agent holds an interest in the contract.

In the present case, the principal contractor executed a power of attorney in favor of the appellant. After the death of the principal contractor, the respondent sought for termination of the agency i.e., power of attorney. However, it was contended by the appellant that since he holds an interest in the contract therefore the termination of the agency upon the death of the original contractor wouldn't be done based on Section 201 of the Act.

The appellant by placing reliance on Section 202 of the Act contended that since he holds an interest in the property which forms the subject-matter of the agency, the agency cannot, in the absence of an express contract, be terminated to the prejudice of such interest.

“However, learned Single Judge could not have read Section 201 of the Indian Contract Act in isolation by ignoring Section 202 of the Indian Contract Act. The learned Single Judge failed to take into consideration that on account of the assignment deed, an interest accrued in the said contract in favour of the appellant. Indisputably, the said contract was the subject matter of the agency and as such in the absence of an express provision to the contrary, the appellant was entitled to continue with the said agency.”, the court observed.

Based on the aforesaid observation, the appeal was allowed and the appellant was allowed to continue the agency i.e., power of attorney.

Case Title: P. SESHAREDDY (D) REP. BY HIS LR. CUM IRREVOCABLE GPA HOLDER AND ASSIGNEE KOTAMREDDY KODANDARAMI Vs. STATE OF KARNATAKA & ORS.

Citation : 2024 LiveLaw (SC) 379

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