Legal Environment for Business in Nepal

19 December 2016

Saroj Shrestha 1

Agency Contract is also one of the Specific contract.A contract of agency is one that creates a legal relationship between the principal and an agent. The ‘person who has been delegated the authority to act on behalf of principal’ is called ‘an agent’, and the ‘person who authorizes another to carry out some responsibility on his behalf is called ‘a Principal’.

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The Rana rulers had arranged an ordinance “Istihar” like an Act to manage and control activities relating to agency, in 1992 B.S.

It was active until the Agency Act, 2014 BS came into force.

Now, Contract Act, 2056, Chapter 8, Section 56 to 64 provide provisions in this regard.

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Sec 56 of Contract Act, 2056 defines ‘Contract of Agency’ that “Any person may appoint any other person as his/her agent to do anything on his/her behalf, except something connected with his/her personal skills or to conduct business as his/her agent of may transaction with a third person on his behalf or to represent himself to such person, or to establish any kind of legal relation with the person appointing an agent and a third person, and in case an agent is so appointed, a contract relating to agency shall be deemed to have been concluded.”

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Sec 2 (a) of Nepal Agency Act, 2014 defines ‘agent’ that , “An agent is one who works for any domestic or foreign business firm all over Nepal or in any part of Nepal and the term ‘agent’ may mean a distributor, stockist, nominee or a representative.

The Indian Contract Act, 1872 defines ‘agent’ that “an agent is a person employed to do an act for another or to represent another in dealings with third persons. The person for whom such an act is done, or who is represented, is called the principal.”

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There should be an appointment of an agent by the principal or a contract between them.

The principal should delegate authority to the agent to act for him

The principal is responsible for the act done by the agent

The object of the appointment of an agent must be to establish a legal relationship between the principal and third party

Consideration is not necessary in a contract of agency

The relationship of agency must be based on confidence and good faith between the principal and the agent

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The law of agency is based on the principal – ‘Whatever a person can do, he may do so through his agent’ . There are three important points relating to a contract of agency:

The person who is adult and healthy may become an agent

The person who is not an adult may also become an agent but he would not be responsible for the act.

There is not necessary consideration in the contract of agency, it may be gratuitous and non-gratuitous.

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The principal must be competent to conclude contract but the agent may or may not be competent.

GENERAL RULSES OF AGENCY1.Whatever a person can do (except

personal act), he may do so through an agent.

1.One, who has an act done through another, done it by himself. (sec. 57 of Contract Act, 2056)

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Commercial Agent1.Factors: The person to whom bills of lading

or other documents of title are consigned for sale by merchant residing at a distance and sale is in the agent’s name. It has right possession, right of lien and insurable interest.

2. Broker: The person who makes bargains for another and receives commission. He can sale goods in his own name or principal’s name.

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3. Commission agent: The person buys goods from foreign market. He is in the position of independent purchaser.

4. Del credere agent: The person receives extra remuneration for guaranteeing to his principal that third person performs his obligation. If not done becomes responsible.

5. Auctioneers: The person who sells goods by auction to the highest bidder in public competition. He has authority to warrant goods sold and can deliver goods only on receipt of the price.

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6. Bankers: The bankers also is an agent of customers for buying and selling securities, collecting cheques, dividents, bills and notes on behalf of the customer. The Banker has right of lien and provides services of self custody.

7. Indenters: Indenters acts for commission on purchase of sale or a purchase on behalf of principal with a merchant abroad.

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Non commercial Agent1.Law Agents (Advocate or Barrister)2.Attorney agents3.WifeBased on Authority of Agent:1.Special agents: Appointed for specific

transaction.2.General agents: Anything within the

authority given3.Universal agents: Anything without

limitation all over the world.

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13Saroj Shrestha

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Thank you !