Chapter X - Agency
Section 211
Section 211: Following directions and business custom
An agent must follow the principal’s directions, or in their absence the relevant local business custom.
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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
An agent is bound to conduct the business of his principal according to the directions given by the principal, or, in the absence of any such directions, according to the custom which prevails in doing business of the same kind at the place where the agent conducts such business. When the agent acts otherwise, if any loss be sustained, he must make it good to his principal, and if any profit accrues, he must account for it.
Illustrations
(a) A, an agent engaged in carrying on for B a business, in which it is the custom to invest from time to time, at interest, the moneys which may be in hand, omits to make such investment. A must make good to B the interest usually obtained by such investments.
(b) B, a broker, in whose business it is not the custom to sell on credit, sells goods of A on credit to C, whose credit at the time was very high. C, before payment, becomes insolvent. B must make good the loss to A.
Rule and business relevance
If the agent acts otherwise, loss must be made good and profit accounted for. The relevant custom concerns business of the same kind at the place where the agent conducts it.
Limits and related provisions
Do not invoke custom to override actual directions. Establish the custom with evidence rather than relying on personal habit.
Hypothetical business example
Hypothetical example: A broker sells on credit contrary to the applicable business custom and the buyer defaults. The loss consequences follow the statutory illustration’s distinction.
Practical decision flow
Locate the principal’s directions.
If none apply, establish the relevant local business custom.
Account for resulting losses or profits from departure.
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
- Locate the principal’s directions.
- If none apply, establish the relevant local business custom.
- Account for resulting losses or profits from departure.
Avoid
- Do not invoke custom to override actual directions. Establish the custom with evidence rather than relying on personal habit.
Glossary
- Business custom
- The prevailing custom for similar business at the relevant place.
- Accounting for profit
- Disclosing and accounting to the principal for profit from the departure.
Frequently asked questions
Do directions take priority over default custom?
Yes. The custom rule applies in the absence of directions.
Can profit from an unauthorised departure simply be kept?
No. The agent must account for it.
Is the agent’s own habit enough to establish custom?
No. The provision refers to the prevailing custom for that kind of business.
Need help applying this provision to your situation?
Contact BizeneedLast updated 10 October 2026