Chapter X - Agency
Section 232
Section 232: Preserved rights against an apparent principal
An undisclosed principal seeking performance takes it subject to the rights and obligations already subsisting between the apparent principal and the other party.
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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 one man makes a contract with another, neither knowing nor having reasonable ground to suspect that the other is an agent, the principal, if he requires the performance of the contract, can only obtain such performance subject to the rights and obligations subsisting between the agent and the other party to the contract.
Illustration
A, who owes 500 rupees to B, sells 1,000 rupees worth of rice to B. A is acting as agent for C in the transaction, but B has no knowledge nor reasonable ground of suspicion that such is the case. C cannot compel B to take the rice without allowing him to set-off A’s debt.
Rule and business relevance
The counterparty must neither know nor have reasonable grounds to suspect agency. The rice-sale illustration preserves the buyer’s set-off against the apparent seller.
Limits and related provisions
Do not import this result where the counterparty knew of agency without considering the different rule. Identify the actual subsisting rights, not invented deductions.
Hypothetical business example
Hypothetical example: A buyer reasonably treats the seller as principal and has a qualifying debt set-off against that seller. The later-appearing principal’s performance claim is subject to the applicable rights.
Practical decision flow
Establish the counterparty’s lack of knowledge and reasonable suspicion.
Identify subsisting rights and obligations with the agent.
Apply them to the principal’s demand for performance.
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 counterparty’s lack of knowledge and reasonable suspicion.
- Identify subsisting rights and obligations with the agent.
- Apply them to the principal’s demand for performance.
Avoid
- Do not import this result where the counterparty knew of agency without considering the different rule. Identify the actual subsisting rights, not invented deductions.
Glossary
- Set-off
- The adjustment illustrated using a debt owed by the apparent seller.
- Subsisting rights
- Rights existing between agent and counterparty relevant to performance.
Frequently asked questions
Can the hidden principal ignore existing counterparty rights?
No. Performance is subject to the stated rights and obligations.
Does the counterparty’s knowledge matter?
Yes. The provision requires absence of knowledge and reasonable grounds to suspect agency.
What does the statutory example preserve?
The buyer’s set-off of the agent’s debt in the described transaction.
Need help applying this provision to your situation?
Contact BizeneedLast updated 10 October 2026