Sections 204 and 205 of Indian Contract Act 1872: Revocation of Agency and Compensation
Sections 204 and 205 of the Indian Contract Act, 1872 deal with important consequences of terminating an agency. Section 204 protects acts and obligations that have already arisen where an agent has partly exercised the authority granted by the principal. Section 205 deals with compensation when an agency agreed to continue for a specified period is prematurely revoked or renounced without sufficient cause.
Last reviewed: 21 September 2026
Sections 204 and 205 at a glance
- Section 204: Authority cannot be revoked in relation to acts and obligations arising from acts already performed by the agent.
- Section 205: Compensation may be payable for premature revocation or renunciation of an agency agreed to continue for a period.
- These provisions form part of the law governing termination and revocation of agency under the Indian Contract Act, 1872.
- Sections 202 to 210 should be read together when considering the legal consequences of termination of an agency.
Section 204 - Revocation where authority has been partly exercised
Section 204. The principal cannot revoke the authority given to his agent after the authority has been partly exercised, so far as regards such acts and obligations as arise from acts already done in the agency.
Meaning and effect of Section 204
Section 204 places a limitation on the principal's power to revoke an agent's authority. As a general rule, Section 203 permits the principal to revoke authority before it has been exercised so as to bind the principal. Section 204 addresses the position where the agent has already partly exercised that authority.
Once acts have been performed under the authority and those acts have produced obligations, the principal cannot use revocation to undo the authority in relation to those completed acts and resulting obligations. The provision therefore distinguishes between authority that remains unexercised and the consequences of authority that has already been acted upon.
Illustrations to Section 204
Practical principle under Section 204
The important question is not merely whether the agent has taken some step under the authority. It is necessary to consider whether the acts already done have created rights or obligations for which the authority must continue to be recognized. Revocation cannot operate retrospectively so as to defeat obligations protected by Section 204.
Section 205 - Compensation for revocation by principal or renunciation by agent
Section 205. Where there is an express or implied contract that the agency should be continued for any period of time, the principal must make compensation to the agent, or the agent to the principal, as the case may be, for any previous revocation or renunciation of the agency without sufficient cause.
Meaning of Section 205
Section 205 applies where the parties have expressly or impliedly agreed that the agency will continue for a particular period. If one party ends that agency prematurely without sufficient cause, the party responsible for the premature termination may have to compensate the other.
The provision operates in both directions. A principal may be required to compensate the agent for premature revocation, while an agent may be required to compensate the principal for premature renunciation.
Conditions relevant to Section 205
- There should be an express or implied agreement that the agency will continue for a period of time.
- The agency must be revoked by the principal or renounced by the agent before the agreed period has expired.
- The premature termination must be without sufficient cause for the statutory compensation rule to apply.
- Whether sufficient cause exists will depend on the facts, contractual terms and circumstances of the particular agency relationship.
Difference between Sections 204 and 205
| Point | Section 204 | Section 205 |
|---|---|---|
| Subject | Effect of revocation after authority has been partly exercised | Compensation for premature revocation or renunciation |
| Main focus | Acts and obligations already arising from exercise of authority | Financial consequence of ending an agreed agency period without sufficient cause |
| Who acts? | Principal seeks to revoke authority | Principal may revoke or agent may renounce |
| Legal consequence | Revocation cannot affect protected acts and obligations already arising | Compensation may become payable |
Relationship with Sections 202 and 203
Sections 204 and 205 should be understood with the immediately preceding provisions. Section 202 concerns an agency in which the agent has an interest in the subject matter. Section 203 states the general rule regarding when a principal may revoke an agent's authority.
Section 204 then deals with the consequences where authority has already been partly exercised, while Section 205 addresses compensation in cases involving an agency intended to continue for a period.
Related provisions on termination of agency
The statutory scheme continues beyond Sections 204 and 205. Section 206 concerns reasonable notice of revocation or renunciation; Section 207 deals with express or implied revocation and renunciation; Section 208 addresses when termination takes effect as against the agent and third persons; Section 209 concerns the agent's duty following the principal's death or insanity; and Section 210 deals with termination of a sub-agent's authority.
Frequently asked questions
What is Section 204 of the Indian Contract Act?
Section 204 deals with revocation where an agent's authority has been partly exercised. A principal cannot revoke the authority in relation to acts and obligations arising from acts already done by the agent under that authority.
Can a principal revoke an agent's authority after the agent has acted?
The principal's ability to revoke is restricted by Section 204 to the extent that acts already performed by the agent have given rise to acts or obligations protected by the section.
What is Section 205 of the Indian Contract Act?
Section 205 deals with compensation where an agency that was expressly or impliedly agreed to continue for a period is prematurely revoked by the principal or renounced by the agent without sufficient cause.
Does Section 205 apply to both the principal and the agent?
Yes. The section provides for compensation by the principal to the agent or by the agent to the principal, as the case may be, where its statutory requirements are satisfied.
Is every revocation of an agency prohibited?
No. The Act recognizes termination and revocation of agency, but different provisions regulate when authority may be revoked, the effect of acts already performed, notice requirements and possible compensation.