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Business Laws and Ethics · Special Contracts - Indemnity and Guarantee; Bailment and Pledge; Laws of Agency

Termination of Agency under the Indian Contract Act

Updated 10 October 2026 · Fact-checked

Termination of agency means the principal-agent relationship comes to an end. Under Section 201, it ends by revocation by the principal, renunciation by the agent, completion of the business, death or unsound mind of either party, or the principal's insolvency. To solve questions, find the mode, then check notice, compensation and any agent's interest.

Understand Termination of Agency

An agency is a relationship created by authority. When that authority ends, the agency ends. Section 201 lists the ways it can end. Learn them as a list, because exam questions usually test one or two of them.

The modes are: the principal revokes the authority; the agent renounces the business of the agency; the business of the agency is completed; either the principal or the agent dies or becomes of unsound mind; or the principal is adjudicated an insolvent under an Act for the relief of insolvent debtors.

Revocation and renunciation need not be spoken or written. Section 207 says they may be express or implied from conduct. The Act's own illustration: A empowers B to let A's house, and A then lets it himself. That is an implied revocation of B's authority.

Termination can still carry a cost. Section 206 requires reasonable notice of revocation or renunciation. Without it, the party who caused the damage must make it good to the other. Section 205 deals with agency contracts to continue for a fixed period: if the principal revokes, or the agent renounces, without sufficient cause, compensation is payable.

The main limit on revocation is the agent's interest. Under Section 202, where the agent has an interest in the property that is the subject-matter of the agency, the agency cannot, without an express contract, be terminated to the prejudice of that interest. This is called an irrevocable agency or agency coupled with interest. Such an agency is not ended by the principal's revocation, nor by the principal's insanity or death, as the Act's illustrations show.

Key rules to remember

Modes of termination (Section 201)
Revocation by principal | Renunciation by agent | Business completed | Death or unsound mind of either | Principal adjudicated insolvent
Learn all five. Note that the agent's insolvency is not in the list.
Implied revocation or renunciation (Section 207)
Revocation / renunciation = express OR implied from conduct
Example: principal himself does the act he had authorised the agent to do.
Notice (Section 206)
Reasonable notice required, else damage resulting must be made good
Applies to both revocation and renunciation.
Fixed-period agency (Section 205)
Express or implied contract for a period + revocation/renunciation without sufficient cause = compensation
Compensation is paid by the party who ended it, to the other.
Agent's interest (Section 202)
Agent has interest in the subject-matter + no express contract to the contrary = cannot be terminated to prejudice of that interest
The interest must be in the property itself, not just a right to commission.
Duty on principal's death or insanity (Section 209)
Agent must take all reasonable steps to protect and preserve the interests entrusted to him, on behalf of the principal's representatives
Applies when agency ends by the principal's death or unsound mind.

How to solve Termination of Agency questions

Use this order for any problem on ending an agency. It keeps your answer tied to the sections.

  1. 1Read the facts and identify who acted: principal, agent, or an outside event such as death, insanity or insolvency.
  2. 2Name the mode of termination from Section 201, and state whether it is express or implied (Section 207).
  3. 3Check whether the agent has an interest in the subject-matter of the agency (Section 202). If yes, and there is no express contract, revocation to prejudice that interest is not allowed.
  4. 4Check whether the agency was for a fixed period. If so, see whether there was sufficient cause. If not, compensation is due (Section 205).
  5. 5Check whether reasonable notice was given (Section 206). If not, the party at fault makes good the damage.
  6. 6If the principal died or became of unsound mind, state the agent's duty to protect the interests entrusted to him (Section 209).
  7. 7Write a one-line conclusion that answers the exact question asked.

Quickest way: Four-question check

When to use it: Use this for MCQs and short case questions where you have about two minutes.

  1. Is the agent personally interested in the property? If yes, think irrevocable (Section 202).
  2. Is the agency for a fixed time and ended without sufficient cause? Think compensation (Section 205).
  3. Was notice missing? Think damages (Section 206).
  4. Did death, insanity or principal's insolvency occur? The agency ends under Section 201, unless Section 202 protects the agent's interest.

Common mistakes in Termination of Agency

  • Saying the agent's insolvency ends the agency.

    Students assume insolvency of either party is listed, as it is for the principal.

    Fix: Section 201 names only the principal's adjudication as insolvent. Do not add the agent's.

  • Thinking revocation must be in writing or by notice only.

    Students overlook that conduct can end the agency.

    Fix: Remember Section 207. Revocation and renunciation can be implied from conduct, such as the principal doing the act himself.

  • Treating an agent who merely earns commission as having an interest.

    The phrase 'agent with interest' sounds broad.

    Fix: The agent needs an interest in the property forming the subject-matter of the agency, as in the illustrations where he repays himself from the sale proceeds.

  • Assuming irrevocable agency can never end at all.

    The word 'irrevocable' is read too strongly.

    Fix: Section 202 protects the agent's interest in the absence of an express contract. Quote that condition and avoid absolute claims.

  • Forgetting compensation and notice after saying the agency ended.

    Students stop once the mode is named.

    Fix: Always add Sections 205 and 206: ask about fixed period, sufficient cause and reasonable notice.

  • Ignoring the agent's duty after the principal dies.

    Students think the agent's role is finished with the agency.

    Fix: Add Section 209: the agent must take reasonable steps to protect and preserve the interests for the principal's representatives.

Worked examples

Example 1

Asha appoints Bhaskar to sell her flat in Pune. Bhaskar has advanced ₹5,00,000 to Asha, and the authority lets him repay himself from the sale price. Asha then revokes the authority and later becomes of unsound mind. Can Asha revoke it? Is the agency ended by her unsound mind?

Show the solution
  1. Identify the facts: revocation by principal, and later unsound mind of the principal. Both are modes under Section 201.
  2. Check for agent's interest: Bhaskar has an interest in the subject-matter, as he is to repay his advance from the sale proceeds.
  3. Apply Section 202: with no express contract to the contrary, the agency cannot be terminated to the prejudice of that interest.
  4. This matches the Act's illustration, where the authority cannot be revoked and is not terminated by insanity or death.

Answer: Asha cannot revoke the authority to the prejudice of Bhaskar's interest, and her unsound mind does not terminate it. This is an irrevocable agency under Section 202.

Example 2

Meera appoints Rohan as her agent for one year to sell her handloom goods in Jaipur. After three months she dismisses him without cause and without notice. Advise Rohan.

Show the solution
  1. Mode: revocation by the principal under Section 201. It is express here.
  2. The agency was for a fixed period, by contract. Meera had no sufficient cause.
  3. Section 205: the principal must compensate the agent for revocation without sufficient cause.
  4. Section 206: reasonable notice was needed. Without it, Meera must make good the resulting damage to Rohan.
  5. Rohan has no interest in the goods as property, so Section 202 does not apply.

Answer: The agency ends, but Meera must compensate Rohan under Section 205 and make good damage caused by lack of notice under Section 206.

Exam tips

  • Write the section number beside each rule. Sections 201, 202, 205, 206, 207 and 209 cover most questions.
  • For case questions, name the mode of termination first, then test for agent's interest, fixed period and notice.
  • In MCQs, watch the wording: 'insolvency of the agent' is not a listed mode, but the principal's is.
  • Quote the Act's illustrations from memory, such as the house let by the principal himself, to show implied revocation.

Practice questions from Special Contracts - Indemnity and Guarantee; Bailment and Pledge; Laws of Agency

Termination of Agency in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Termination of Agency: frequently asked questions

What are the modes of termination of agency?

Section 201 lists them: revocation by the principal, renunciation by the agent, completion of the business, death or unsound mind of either party, and the principal being adjudicated insolvent.

When can a principal not revoke an agent's authority?

When the agent has an interest in the property forming the subject-matter of the agency, and there is no express contract otherwise. Under Section 202, the agency cannot be terminated to the prejudice of that interest.

Can revocation of agency be implied?

Yes. Section 207 says revocation and renunciation may be express or implied from conduct. For example, if the principal lets his house himself after authorising an agent to do so, the agent's authority is impliedly revoked.

Is compensation always payable when an agency is terminated?

No. Section 205 applies where the agency was to continue for a period and was ended without sufficient cause. Section 206 separately requires reasonable notice, failing which damage must be made good.