Section 238 of the Indian Contract Act 1872: Effect of Misrepresentation or Fraud by Agent

Section 238 deals with the legal effect of a misrepresentation or fraud committed by an agent while acting for a principal. In substance, conduct of an agent within the course of the agency can affect an agreement in the same manner as conduct of the principal, while conduct outside the agent's authority does not affect the principal under this section.

Updated: 21 September 2026

Text of Section 238

238. Effect, on agreement, of misrepresentation or fraud, by agent. Misrepresentations made, or frauds committed, by agents acting in the course of their business for their principals, have the same effect on agreements made by such agents as if such misrepresentations or frauds had been made or committed by the principals; but misrepresentations made, or frauds committed, by agents, in matters which do not fall within their authority, do not affect their principals.

The official text of the Indian Contract Act, 1872 is available from India Code, Ministry of Law and Justice.

Meaning and Scope of Section 238

Section 238 applies the law of agency to fraud and misrepresentation. When an agent makes a misrepresentation or commits fraud while acting in the course of business for the principal, the resulting agreement is affected as though the principal had made the representation or committed the fraud. The rule protects a person who deals with an agent in matters falling within the agency.

The section also fixes an important limit: where the fraud or misrepresentation concerns a matter that does not fall within the agent's authority, it does not affect the principal merely because the wrongdoer happens to be an agent.

Key Legal Terms

Agent and Principal

Under Section 182 of the Indian Contract Act, 1872, 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 the act is done, or who is represented, is called the "principal".

Fraud

Section 17 defines fraud for the purposes of the Act. It covers specified acts committed by a party to a contract, or with that party's connivance, or by the party's agent, with intent to deceive another party or the other party's agent, or to induce that person to enter into the contract.

Misrepresentation

Section 18 defines misrepresentation and includes specified positive assertions not warranted by the maker's information, certain breaches of duty that mislead another without an intent to deceive, and innocently causing a party to make a mistake as to the substance of the subject matter.

Effect on Consent

Section 19 generally provides that when consent to an agreement is caused by coercion, fraud or misrepresentation, the agreement is voidable at the option of the party whose consent was so caused, subject to the qualifications stated in that section. Section 238 addresses when an agent's fraud or misrepresentation is attributed to the principal for the agreement made through the agent.

Illustrations in Section 238

Illustration (a): A, being B's agent for the sale of goods, induces C to buy them by a misrepresentation which A was not authorized by B to make. The contract is voidable as between B and C at C's option. The illustration shows that a principal may be affected even where the principal did not specifically authorize the misrepresentation, provided the agent was acting in the relevant course of the agency.

Illustration (b): A, the captain of B's ship, signs bills of lading without having received on board the goods mentioned in them. The bills of lading are void as between B and the pretended consignor. This illustrates the statutory limit where the agent acts in a matter outside the relevant authority.

Practical Effect of Section 238

For Section 238, the central question is the connection between the agent's conduct and the authority or business entrusted by the principal. A court may therefore need to examine the nature and scope of the agency, the transaction in which the representation was made, and whether the impugned act fell within the agent's authority.

Section 238 should be read with the surrounding agency provisions, particularly Sections 226 to 237, which deal with enforcement of agents' contracts, excess of authority, undisclosed principals, personal liability, pretended agents and the principal's responsibility where the principal induces a belief that an unauthorized act was authorized.

Official Legal Resource

For the current statutory text and legislative reference, consult the India Code portal. The statutory text should be checked before relying on the provision in pleadings, contracts or legal advice.