Sections 194 and 195 of the Indian Contract Act, 1872: Person Appointed by Agent and Duty in Selection

Sections 194 and 195 form part of the law of agency under the Indian Contract Act, 1872. They explain when a person selected by an authorised agent becomes an agent of the principal rather than a sub-agent, and the standard of care that the original agent must follow while making that selection.

Updated: 21 September 2026

In brief: Section 194 deals with the legal relationship created when an agent has express or implied authority to name another person to act for the principal. Section 195 requires the selecting agent to use the discretion that a person of ordinary prudence would use in his own case.

Section 194 - Relation between principal and person duly appointed by agent

Meaning: Section 194 applies where an agent has express or implied authority to choose another person to act for the principal in the agency business. If the agent makes such an appointment within that authority, the person appointed is the principal's agent for the entrusted part of the business and is not merely a sub-agent of the original agent.

Statutory rule: Where an agent who has express or implied authority to name another person to act for the principal names such a person, that person is not a sub-agent. The appointee becomes an agent of the principal for the portion of the agency business entrusted to that person.

Illustrations to Section 194

(a) A directs B, his solicitor, to sell his estate by auction and to employ an auctioneer. B names C, an auctioneer, to conduct the sale. C is not B's sub-agent; C is A's agent for conducting the sale.

(b) A authorises B, a merchant in Calcutta, to recover money due to A from C and Co. B instructs D, a solicitor, to take legal proceedings for recovery. D is not B's sub-agent; D acts as solicitor for A.

Why Section 194 matters

The original agent must have authority, express or implied, to name another person.
The person is appointed to act for the principal, not merely under the control of the original agent.
The appointee is treated as the principal's agent for the entrusted work.
This is distinct from a sub-agent under Sections 190 and 191.

Section 195 - Agent's duty in naming such person

Meaning: Section 195 sets the standard of care for an agent who is authorised to select another agent for the principal. The selecting agent must exercise the same degree of discretion that a person of ordinary prudence would exercise in his own affairs.

Statutory rule: If the original agent exercises the required prudence in selecting the other agent, the original agent is not responsible to the principal merely because the selected agent later acts negligently or otherwise causes loss.

Illustrations to Section 195

(a) A instructs B, a merchant, to buy a ship. B employs a ship surveyor of good reputation to select one. If the surveyor negligently selects an unseaworthy ship and it is lost, B is not responsible merely for that negligence where B exercised proper care in the selection; the surveyor is responsible to A.

(b) A consigns goods to B, a merchant, for sale. B properly employs an auctioneer in good credit and allows the auctioneer to receive the sale proceeds. If the auctioneer later becomes insolvent without accounting for the proceeds, B is not responsible to A for those proceeds merely because of that later insolvency.

Section 194 compared with a sub-agent

A useful distinction is between a person appointed for the principal under Section 194 and a sub-agent under Section 191. A sub-agent is employed by and acts under the control of the original agent. By contrast, when Section 194 applies, the person duly selected is an agent of the principal for the relevant part of the business. The legal consequences therefore depend on the authority to appoint and the nature of the relationship created.

Practical effect of Sections 194 and 195

Read together, the provisions permit an authorised agent to select an appropriate person to perform a part of the agency for the principal, while imposing a duty of prudent selection. The original agent is protected from responsibility for the selected agent's acts or negligence only when the required standard of care in selection has been observed.

Official text: The Indian Contract Act, 1872 is Act No. 9 of 1872 and is administered by the Ministry of Law and Justice, Legislative Department. For the current central text and section list, see India Code - The Indian Contract Act, 1872.

Related provisions

For the surrounding statutory scheme, see Sections 190 and 191 - delegation and sub-agent, Sections 192 and 193 - responsibility for sub-agents, and Sections 196 and 197 - ratification.