Chapter X - Agency
Section 205
Section 205: Compensation for premature termination
Ending an agreed-duration agency early without sufficient cause can require compensation by the party ending it.
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This article is for general information. Refer to the Indian Contract Act, 1872 official text for the official provisions. If you need professional advice for your situation, contact Bizeneed.
Statutory text
Bare law
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.
Rule and business relevance
The agreed continuation period may be express or implied. The principal compensates for premature revocation, or the agent for premature renunciation, where sufficient cause is absent.
Limits and related provisions
Do not assume all early endings have sufficient cause or that compensation is an automatic fixed sum. Establish the agreement, cause and compensable consequences.
Hypothetical business example
Hypothetical example: A distributor’s agency is agreed for a period but the principal revokes it early without sufficient cause. The compensation question is considered separately from whether authority has ended.
Practical decision flow
Establish the express or implied agreed period.
Identify the early revocation or renunciation and its cause.
Document the resulting compensation claim.
Check the applicable legal framework
This guide explains the central provision. Applicable State amendments, the agreement, transaction date and other governing laws can affect its application. Check the current legal framework before relying on it for a commercial decision.
Practical checklist
Do
- Establish the express or implied agreed period.
- Identify the early revocation or renunciation and its cause.
- Document the resulting compensation claim.
Avoid
- Do not assume all early endings have sufficient cause or that compensation is an automatic fixed sum. Establish the agreement, cause and compensable consequences.
Glossary
- Agreed duration
- The period for which the agency was expressly or impliedly to continue.
- Sufficient cause
- The justification relevant to avoiding the stated early-ending compensation.
Frequently asked questions
Can an implied duration agreement count?
Yes. The provision expressly includes it.
Can the agent owe compensation too?
Yes. It also covers early renunciation without sufficient cause.
Does the section state a fixed amount?
No. Compensation must be assessed in the applicable circumstances.
Need help applying this provision to your situation?
Contact BizeneedLast updated 10 October 2026