The complex nature of business forces an individual to seek assistance in dealing with transactions. It is understandable that due to shortage of time, he/she needs someone to delegate his/her work. As both servant and agent are hired to perform duties on behalf of the principal, there is a likelihood of causing confusion in construing their position. Though both servant and an agent work under the supervision of the master, the former term is deeply rooted in hierarchical, subservient personal and occupational relationship, whereas, the latter is a managerial, consensual, and fiduciary relationship. Agency is a broader institution and a catchall term, which is wide enough to include both master-servant and principal-agent relationships.
A principal-agent relation is said to be created when one party delegates his work to another in performing tasks on his behalf. A servant is a person who has been paid to enter into the service of devoting his labour to another for an agreed term. One of the significant rights conferred on the master after employing an individual either as an agent or servant is allocation of works and instruction of how that work has to be done. The concomitant of this right is that the employers are vicariously liable for the actions of employees committed during the course of employment (Principle of Vicarious Liability) and legally obliged to pay damages to the employee or his legal heirs for injuries inflicted during working hours (Doctrine of Notional Extension– Section 3 of Workmen’s Compensation Act, 1923).
In general, an individual’s jural relation with the master varies with a question of whether that recruited person acting on his behalf is within his ‘authority’ or ‘employment’. Such recruited representatives of the master would be grouped as servants or agents only after scrutinizing the nature of work by testing that it is operating through crystallized rules or authority. Disregarding the distinction as both fall within the scope of agency, a legal power is conferred on them to impose a legal obligation on the master.
To trace the line of distinction between both the relations, it is a prerequisite to comprehend both the concepts in detail to rule out the misconceptions pertaining to the constituent of the relationship indicating its character.
Who Is A Servant?
The antiquated term servant is used to describe the employee who is not an independent contractor; works under the control and direction of another individual called master for remuneration. The servant and master relationship arises with an express contract wherein an individual is consenting to perform tasks for and under the master’s supervision. The contract shall contain the definitive terms and conditions, which are legible and agreed upon by the parties. Since an employment contract is a legally enforceable document, failing to discharge one’s duty results in owing damages to the aggrieved party as it is an actual breach of contract. Even in the absence of a contract the consent of both parties is sufficient enough to establish a master-servant relationship. However, though there is no labour law in India that mandates an employment contract should be in writing, in terms of enforceability and certainty, it is prescribed that something has to be in written format, whether it be an appointment letter or an actual employment contract with terms and conditions.
It is pertinent to note that the definition of the master-servant relationship directly is often linked with the doctrine of at-will employment, which empowers an employee to terminate employment at any time without giving any reason at all. Though renowned industrialized countries like the USA retain this doctrine, the recognition has not been given in India.
Essentials of Master-Servant Relationship
According to Lord Thankerton, in order for a master-servant relationship to exist, there must be a contract of service between the master and the servant. The same was held in the case of Stevenson Jordan & Harrison Ltd. V. Macdonald & Evans. The condition for a contract of service was laid down in the case of Ready Mixed Concrete v. Minister of Pensions and National Insurance. Besides, the following are the other four essentials enumerated by him,
- Master’s power to select the servant
- Master’s right to instruct the mode of performing the task
- Payment of wages or salary
- Master’s right of suspension and termination of employment
If the aforementioned are said to be presented in a relationship, it would be perceived as a master-servant relationship.
Who Is An Agent?
Reiteratively, the principal and agent relationship creates when the principal appoints another person to act on his/her behalf. Such an agent who creates a binding relationship between the principal and the third party could be an individual viz. employee or partner, or could be an organization like an outsourcing firm or accountancy firm. This relationship itself is fiduciary as there involves a paramount trust from the principal’s side that the agent would always act for the principal’s benefit.
The concept of Agency has been dealt with under Chapter X of the Indian Contract Act, 1872. Section 182 of the Act defines an agent as a person who is employed to do any act for another or to represent another in dealing with a third party. The person being represented by the agent is named as principal and has been defined by the same provision as a person who delegates authority to another called agent.
In the case of National Textile Cooperation v. Nareshkumar Badrikumar, it was elucidated by the Apex Court that the term agent denotes the person who is capable of establishing a relationship between a third party and his principal by making him legally accountable to the latter.
However, considering someone as an agent just because he/she is giving advice in terms of business to another is not exactly what the concept of agency covers. Some examples of agency relationships are lawyer-client, corporation-officer, and so on. A principal and agent relationship is the manifestation of assent by both the parties involved i.e. in general, the delegation and authorization shall be written in the form of contract that details the standard task procedures and work manner. Nonetheless, the authorization does not mandatorily be in a writing rather can be given orally or impliedly as well.
Essentials of Principal-agent relationship
As held in the case of Syed Abdul Kader v. Rami Reddy, a principal and agent relationship has its genes in the contract. Thus, the competency of the parties to enter into a contract is an essential to create a principal-agent relationship. Besides, other essentials are as follows,
- Expressed or implied appointment of an individual as an agent by the principal.
- An agent is duty-bound to perform the tasks on the directions given by the principal.
- Agent’s right to be remunerated.
- Principal’s right to revoke the authority bestowed upon the agent.
While the aforementioned are some of the essentials of the principal-agent relationship, the Indian Contracts Act, 1872 dealt with the rights, liabilities, and duties of agent and principal in detail under Chapter X.
Difference Between Agent And Servant
In the case of Lakshminarayan Ram Gopal and Sons v. Hyderabad Government, the Supreme Court of India has explained that despite having too much of similarities, how an agent and servant could be differentiated from one another. The point of distinction is as follows,
|Meaning||The servant is the person who has been appointed by the master to carry out labour works.||The agent is the person who has been appointed by the principal to carry out works on his/her behalf.|
|Accountability||A servant is bound to work under the control of his/her master.||Though an agent is not subject to the direct control of the principal, the principal has the right to direct what work has to be done.|
|Remuneration||Wages or salary is paid on the bases of the work performance of the servant.||The commission is paid on the bases of work done by the agent.|
|Authority||The servant is not authorized to create a contractual relationship on behalf of his/her master.||An agent acting on behalf of the principal is not precluded from creating a contractual relation that binds the principal and a third party.|
|Number of Masters||A servant devotes his labour to only one master.||An agent can work for numerous principals. For instance: an advocate conducts cases in court on behalf of his clients.|
|Liability||The master is liable for all the acts performed by the servant during the course of employment.||The principal is liable for all the works conducted by the agent on his behalf within the scope of authority.|
|Assignment of Duty||A servant can be assigned the duties of the agent on certain occasions.||An agent can never be acted as a servant.|
In a nutshell, both servant and agent work for another person, but the crucial difference between servant and agent is that the latter would be conferred with greater discretion in work, whereas the former wouldn’t. Further, while a servant is always subjected to the direct control and supervision of the master, an agent is merely bound to work instructions with provided job autonomy. And usually, the rights and duties of the agent and principal rely on the contractual term. Conversely, servant-master relationship may or may not require any contract binding on the parties.
 (1952) 1 TLR 101.
 (1968) 2 QB 497.
 AIR 2012 SC 264.
 (1979) 2 SCC 601.
 AIR 1954 SC 364.