Page 70 - DMGT407Corporate and Business Laws

Unit 3: Contracts of Bailment and Agency

Notes
any way extremely difficult to monitor. Advocates of this view point out that in most
countries, insurance companies are even allowed to extend credit to their customers for
premiums. In India, a claim is payable if and only if the premium has been received in full.
Rebating is in a way an informal credit extended to the customer by the agent.
After all, the agent is paying out of his pocket. Why prohibit rebating only in the insurance
industry, when discount is a way of life in all other industries?
But insurance companies do not like it. Mr Dilip Gazaaro, Head-Retail Sales, HDFC Standard
Life, says that his company actually dismissed an agent for rebating.

At Aviva, the Financial Planning Advisers are trained to handle such demands, says
Ms Ghosal. “They can explain the customer as to why he needs to pay the agent for his
service. If the customer can pay substantial amounts for premium, he also needs to ensure
that the advice he receives and the service he avails of for his policy are the best in terms
of quality and integrity.” Max New York Life’s spokesman echoes similar views. “We as
an industry are also establishing a code of conduct against such practices. At the Life
Insurance Executive Council, we have recommended that the penalty for rebating be
increased from ` 500 to ` 10,000.” There are others who believe that rebating should
continue to be illegal, no matter how difficult it is to monitor. Says Mr N. Raveendran,
Director, Alegion Risk Management Services (which proposes to become a general
insurance broker), “Legalising rebating would drive away the serious agents who do not
usually give rebates”. He says that there would come a time, when the society matures
enough to be willing to pay for a service, that rebating will automatically go away.
After all, you don’t necessarily go to the doctor who charges the least. But legalising
rebating would push back the arrival of such a time.

Source: thehindubusinessline.com

3.6 Principal’s Duties to the Agent and his Liability to Third Parties

3.6.1 Duties of a Principal

The rights of agent are in fact the duties of the principal. Thus a principal is (i) bound to indemnify
the agent against the consequences of all lawful acts done by such agent in exercise of the
authority conferred upon him (s.222); (ii) liable to indemnify agent against the consequences of
an act done in good faith, though it causes an injury to the rights of third persons (s.223);
(iii) bound to compensate his agent in respect of injury caused to such agent by the principal’s
neglect or want of skill (s.225).
The principal is, however, not liable for acts which are criminal in nature though done by the
agent at the instance of the principal (s.224).

3.6.2 Liability of Principal to Third Parties

1. Agent being a mere connecting link binds the principal for all his acts done within the
scope of his authority (s.226).

Example: A, being B’s agent with authority to receive money on his behalf,
receives from C a sum of money due to B. C is discharged of his obligation to pay the sum in
question to B.

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