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Agency Agreement in India

Agency Agreement in India: A Comprehensive Guide

An agency agreement is a legally binding document that defines the relationship between two parties, wherein one party (the agent) is authorized to act on behalf of the other party (the principal). In India, agency agreements are governed by the Indian Contract Act, 1872, and there are different types of agency agreements, including commercial agency, distribution agency, and franchise agreement.

This article will provide a comprehensive guide to agency agreements in India, including their benefits, types, essential clauses, and legal considerations.

Types of Agency Agreements in India

1. Commercial Agency Agreement: A commercial agency agreement is a contract between a principal and an agent wherein the agent is authorized to sell goods or services of the principal. The agent is paid a commission for every sale made, and the agreement usually last for a fixed term.

2. Distribution Agreement: A distribution agreement is a contract between a supplier and a distributor wherein the distributor is authorized to distribute the supplier`s products in a particular territory. The distributor buys the products from the supplier and resells them to the customers.

3. Franchise Agreement: A franchise agreement is a contract between a franchisor and a franchisee wherein the franchisee is authorized to use the franchisor`s brand, trademark, and business model in exchange for a fee. The franchisee operates the business under the franchisor`s guidelines and pays a share of the profits to the franchisor.

Essential Clauses of Agency Agreements in India

1. Scope of Work: The agency agreement should clearly define the scope of work of the agent, including the products or services to be sold, the territory covered, and the responsibilities of the agent.

2. Commission: The commission to be paid to the agent should be clearly stated in the agreement, along with the method of calculation and payment frequency.

3. Term and Termination: The agreement should specify the duration of the agreement and the circumstances under which the agreement can be terminated by either party.

4. Confidentiality and Non-Compete: The agreement should include a confidentiality clause that prohibits the agent from disclosing any confidential information of the principal. It should also include a non-compete clause that restricts the agent from competing with the principal during the term of the agreement and for a specified period after termination.

Legal Considerations

1. Registration: There is no legal requirement for registering an agency agreement in India. However, it is recommended to do so to avoid any future disputes.

2. Taxes: The agent is responsible for paying any applicable taxes on the commission earned.

3. Dispute Resolution: The agreement should include a dispute resolution clause that specifies the method of resolving any disputes between the parties, such as litigation or arbitration.

Benefits of Agency Agreements in India

1. Increased Market Reach: Agency agreements help principals expand their market reach without investing in sales and distribution infrastructure.

2. Reduced Risk: By appointing an agent, the principal reduces the risk of losses due to bad debts, inventory management, and sales.

3. Cost-Effective: Agency agreements are a cost-effective way of expanding business operations in a new territory.


Agency agreements are an effective way for businesses to expand their operations in a new territory without making significant investments. However, it is essential to have a comprehensive agreement that covers all aspects of the relationship between the principal and the agent. By understanding the various types of agency agreements, essential clauses, legal considerations, and benefits, businesses can make informed decisions when entering into agency agreements in India.