INTRODUCTION

The Hon’ble Supreme Court of India (“SC”) in the judgment titled ‘P Seshareddy (D) Rep. by His LR. Cum Irrevocable GPA Holder and Assignee Kotemreddy Kodandarami Vs State of Karnataka & Ors.’; interpreted and analyzed the status of the powers vested with the agent, after lifetime of the principal. Vide this judgement, the SC has elaborated the principles as contained in Sections 201 and 202 of the Indian Contract Act, 1872 (“ICA”).

BRIEF FACTS

In the present case, one P. Seshareddy entered into a contract with the State of Karnataka for construction of certain parts of Shahapur Branch Canal as part of the Upper Krishna Project at Karnataka (“Contract”).

Subsequently, P. Seshareddy entered into a deed of assignment dated July 02, 1990 (“Assignment Deed”) in favour of Kotemreddy Kodandarami Reddy (“POA Holder”) assigning all the rights and liabilities under the Contract in favor of the POA Holder. Along with the Assignment Deed, P. Seshareddy also executed a general power of attorney (“POA”) in favour of the POA Holder, authorizing the POA Holder to do all the acts necessary with regard to the execution and performance of the said Contract.

During the tenure of the said Contract, certain disputes arose between the P. Seshareddy and the State of Karnataka regarding payment of consideration by the State of Karnataka to P. Seshareddy in terms of the said Contract; and the arbitration proceedings were initiated against the State of Karnataka by P. Seshareddy through the POA Holder.

During the pendency of the arbitration proceedings, P. Seshareddy expired on November 13, 1995; and owing to the non-appearance of the party, the arbitration proceedings got dismissed on May 30, 2008.

Subsequently, the POA Holder filed the restoration application of the said arbitration proceedings before the concerned Trial Court, basis the POA, which application was allowed by the Trial Court; and aggrieved to the said order of the Trial Court, the State of Karnataka filed a writ petition before the Hon’ble Karnataka High Court, which ultimately set aside the order passed by the Trail Court on the grounds that the agency relationship created between P. Seshareddy and the POA Holder terminated after the lifetime of P. Seshareddy.

Being aggrieved from the said order of the Hon’ble Karnataka High Court, the POA Holder approached the SC.

The State of Karnataka contended before the SC that the authority and agency created pursuant to the POA, terminated after the lifetime of P. Seshareddy, in terms of Section 201 of the ICA. In response thereto, the counsel of the POA Holder relied on Section 202 of the ICA and contended that since, the POA Holder had an interest in the said Contract in terms of the Assignment Deed, the agency created pursuant to the POA would subsist despite the expiry of P. Seshareddy.

OBSERVATIONS AND JUDGEMENT PASSED BY SC

Termination of Agency.

The question that arose before the SC was to decide on the validity of POA after the lifetime of the principal, where the agent itself has certain interest in the Contract, which forms subject matter of the agency.

Upon perusal of the Assignment Deed, the SC observed that P. Seshareddy had assigned all the rights and liabilities arising out of the said Contract in favour of the POA Holder; and an interest got accrued in favour of the POA Holder, by virtue of the said Assignment Deed.

Basis the aforesaid, the SC viewed that the judgement of Hon’ble Karnataka High Court was not in consonance with Section 202 of the ICA. The said Section is reproduced hereinbelow for ready reference:

“202. Termination of agency, where agent has an interest in subject-matter: Where the agent has himself 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.”

SC held that “no doubt, the learned Single Judge was right in holding that on account of the death of the original contractor, it amounted to termination of the agency. 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”.

SC also held that “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“.

Section 202 provides for termination of agency where agent has an interest in subject-matter and states that “where the agent has himself 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“.

Based on the aforesaid observations, the appeal was allowed.

OUR ANALYSIS

This judgement supports the existing jurisprudence; and emphasized the requirement to read Section 201 in conjunction with Section 202 of the ICA, to ascertain if the agency is created to accompany the interest of the agent in the property. SC vide this judgement held that the cessation of life of the principal cannot always terminate the agency created by such principal. If the agent has an interest in the property which forms the subject-matter of the agency, then the agency would not terminate after lifetime of the principal.

This judgement will also be very welcomed for the real estate joint development arrangements as the joint development transaction involves execution of power of attorney (POAs) by the landowners, as principal, enabling the agent viz. the developer to perform all necessary development/ construction acts, and continuity of such POAs is must for execution and completion of the project, even if the principal (landowner in such cases) ceases to exist.

There are certainly various other aspects connected to the agency contracts, on which we shall continue writing. Please do watch this space for more.