INTRODUCTION

The principal-agent relationship is fundamental in many facets of contemporary life, especially business and law. It is the arrangement whereby individuals or corporations assign power and responsibility to third parties to act on their behalf. The essence of this relationship is the interaction between two parties: the principal, who permits another party, the agent, to carry out particular duties or make decisions on their behalf.[1] This structure is typical in various circumstances, from corporate governance to day-to-day transactions, where people designate agents to carry out simple chores to intricate talks. In this arrangement, the principal grants the agent specific authority to act on their behalf, whether that authority is for commercial purposes (e.g., designating a sales representative to negotiate contracts) or legal purposes (e.g., hiring an attorney to handle legal concerns). Notably, the fiduciary aspect of the relationship is emphasised by the principal’s continued overall control and ultimate accountability for the agent’s activities. The agent has a fiduciary duty to act in the principal’s best interests. by being devoted, truthful, and thorough in completing assigned tasks.[2]

Examining the principal-agent relationship’s practical ramifications and legal foundations is necessary to comprehend it. Each party’s rights, obligations, and responsibilities are governed by statutory requirements, standard law rules, and contractual agreements, which also define the parameters of their relationship. The dynamics between principals and agents are also influenced by variables, including the extent of authority granted, the limits of agency powers, and the termination of agency arrangements.

Furthermore, there are several difficulties and complexities in the principal-agent relationship. Concerns, including conflicts of interest, agency expenses, and the possibility of agent misconduct, highlight the necessity of meticulous management and supervision. However, when managed and structured well, the principal-agent relationship promotes specialisation, efficiency, and teamwork, helping individuals and organisations accomplish their goals more successfully.

The principal-agent relationship is a crucial mechanism that facilitates delegation, cooperation, and accountability in numerous domains of human effort. It also has a critical role in risk management, transaction facilitation, and the advancement of corporate goals.[3]

“Agent” and “principal” are defined in Section 182- “An agent is a person employed to do any act for another, or to represent another in dealings with third persons. The person for whom such act is done, or who is so represented, is called the principal.”[4]

[1]James Chen, ‘Principal-Agent Relationship: What It Is, How It Works’ (Investopedia) <https://www.investopedia.com/terms/p/principal-agent-relationship.asp> accessed 13 March 2024

[2]‘Business Law: The Principal-Agent Relationship’ <https://www.lawshelf.com/shortvideoscontentview/business-law-the-principal-agent-relationship/>.

[3]‘Principal-Agent Problem Causes, Solutions, and Examples Explained’ (Investopedia) <https://www.investopedia.com/terms/p/principal-agent-problem.asp> accessed 13 March 2024

[4]Indian Contracts Act 1872