Difference Between Sub-Agent and Substituted Agent | Law Optional Notes for UPSC PDF Download

Introduction

• A sub-agent is someone working for and under the authority of the original agent, conducting tasks within the agency's business scope. 
• Conversely, a substituted agent is an individual designated by the original agent, with the principal's approval, to manage particular aspects of the agency's business directly on behalf of the principal.

Here’s a table highlighting the differences between a sub-agent and a substituted agent:

Sub-Agent

• A sub-agent, as defined under Section 191 of the Indian Contract Act, is an individual employed by and acting under the control of the original agent in the business of the agency.
• The original agent engages the sub-agent to work under their control and authority. The relationship between the original agent and the sub-agent is akin to that of principal and agent. Consequently, the rules governing the agency apply automatically to the relationship between the sub-agent and the agent. The sub-agent can create the same rights and liabilities for the original agent as the agent can create for the principal.
• In the case of Balsamo v. Medici (1984), the Chancery Court ruled that the principal cannot directly sue the sub-agent for negligence due to the absence of a direct contractual relationship between them. However, Section 192 of the Indian Contract Act allows the principal to directly sue the sub-agent in cases of fraud and intentional wrongdoing.
• In Raghunath Prasad v. Seva Ram Tikam Das (1980), the Allahabad High Court held that the principal could sue the sub-agent through the original agent for any losses, given the contractual relationship between the original agent and the sub-agent.
• A duly appointed sub-agent can render the principal liable for any contracts entered into on behalf of the principal, treating the contract as if entered into personally by the principal. The original agent is answerable to the principal for any actions of the sub-agent, including negligence, fraud, intentional wrongdoing, or any other breach of duty.
• In Nensukhdas Shivnaraen v Birdichand, the Bombay High Court ruled that if the principal desires, they can directly sue either the sub-agent or the original agent for the sub-agent’s fraud or intentional wrongdoing.
• If an agent appoints a sub-agent without the authority to do so, the agent is considered a principal to the sub-agent. The original agent bears full responsibility to both the principal and third parties for the actions of this individual. However, this individual is not considered as representing the principal and therefore cannot enter into contracts on behalf of the principal. The principal cannot be held liable for the actions of such a sub-agent.

Substituted Agent

• A substituted agent, according to Section 194 of the Indian Contract Act, 1872, is an individual appointed by the original agent with the principal's consent to manage a specific part of the agency's business.
• Before appointing a substituted agent, the original agent must meet two conditions: first, the principal must have authorized the original agent to make such appointments, and second, the original agent must assign someone to act on the principal's behalf in that specific area of the agency's business.
• When the original agent appoints a substituted agent, they are simply acting on the authority granted to them by the principal, as established in the Nensukhdas Shivnaraen v. Birdichand case.
• The appointment of a substituted agent does not signify a transfer of the principal's duties by the original agent. Instead, it establishes a direct relationship between the principal and the person designated by the original agent, creating privity between them.
• The appointed person becomes the agent of the principal, not the original agent, and is directly accountable to the principal for fulfilling their responsibilities.
• The authority to name substitutes is implied when it can be reasonably inferred from the nature of the business or common trade practices. Once the substitute is accepted by the principal, the original agent is no longer involved in their transactions.
• The original agent is not liable for the substitute agent's actions or performance. Once privity is established between the substitute and the principal, the original agent cannot be held responsible for the substitute's conduct.
• Section 195 imposes a duty on the agent to exercise the same level of care that a reasonable person would when selecting a substitute agent. By doing so, the agent safeguards themselves from liability for the substitute's negligence or actions.