ARTICLE
22 January 2025

Agency Relationships In Digital Realm: A Complete New Concept Out Of The Purview Of The Contract Act

Ka
Khurana and Khurana

Contributor

K&K is among leading IP and Commercial Law Practices in India with rankings and recommendations from Legal500, IAM, Chambers & Partners, AsiaIP, Acquisition-INTL, Corp-INTL, and Managing IP. K&K represents numerous entities through its 9 offices across India and over 160 professionals for varied IP, Corporate, Commercial, and Media/Entertainment Matters.
Provision of Section 182 of Indian Contract Act, 1872 are essentially based upon the conventional understanding of agency relationships that was often characterized by direct physical interaction between the principal and the agent.
India Corporate/Commercial Law

DEFINING AGENCY RELATIONSHIPS IN THE DIGITAL REALM

Provision of Section 182 of Indian Contract Act, 1872 are essentially based upon the conventional understanding of agency relationships that was often characterized by direct physical interaction between the principal and the agent.1 The emergence of e-commerce models and digital business models have changed this conventional norm drastically to result in a de facto mergence of the principal, the agent, and the customer.

In the traditional walk-in and brick-and-mortar business environment, agency was ordinarily well defined. The agents would include the sales representative, a broker, or a commissioned intermediary who physically deals with the customers, negotiates terms, and completes a transaction on behalf of a principal. The authority given to the agent, in most cases, is specifically defined, thus providing room for the simple and direct application of the principles found in Section 182.

The digital revolution in commerce has brought new complexities in what constitutes an agency relationship and how it can be granted in practice. New e-commerce intermediaries have evolved, playing multifaceted roles that break out of the traditional principal-agent framework.2 E-commerce platforms no longer merely connect principals or sellers with customers but instead orchestrate much of the transaction lifecycle, from payment processing to logistics handling and even product curation.

Such scenarios may even create a platform that assumes the role of an agent acting on behalf of a principal-the seller-to interact with the customers and to follow up on the sales. On the other hand, the platform may also be authorized to take decisions, run algorithms to personalize the recommendations and even engage in direct sales or marketing activities-function that had hitherto been the dominion of the principal.3

It smudges the lines between the principal, the agent, and the customer and provokes fundamental questions regarding the nature of the agency relationship and the applicability of Section 182. Scholars assert that the existing legal framework may become inadequate in precisely defining and accommodating these digitally moving agency relationships.4

In this regard, one of the most important considerations has been the degree of control that the principal exercises over the digital activities of the agent. The very concept underlying the old agency model was the ability of the principal to issue directions and supervision over the agent's activities. However, with the platforms for electronic commerce, the authority of the principal that is the seller might be significantly reduced as far as the decision-making processes on the control of customer engagement strategies and overall management of the transaction are concerned.5

The growing role of technological agents, such as artificial intelligence and algorithms, adds yet another layer of difficulty when agency relationships need to be defined. Such agents can be conferred the single capability either of making decisions autonomously or of entering into and performing transactions, and interact with customers in ways that call into question the entire distinction of principal-agent of who has power and control. Sharma & Dutta, 2021.

The issue is hereby set in this perspective: addressing this complexity necessitates a holistic review of the prescriptions under Section 182 to allow it to cater to digital agency relations. Responding to this perspective, scholars have suggested that the legal framework must recognize the distinct roles and responsibilities assumed by an e-commerce platform as a new kind of digital agent with rights, duties, and liabilities.

This, the digital world would redefine the relationship between agency for making clear boundaries over the control of the principal, the authority of the agent, and clarity regarding the requirement of transparency in the virtual world. For instance, it could provide guidelines on the level of autonomy that needs to be granted in the case of the E-commerce platform, parameters that define the oversight of the principal and the degree up to which decisions taken by the platform need to be open for directions by the approval of the principal.

Additionally, the new legal framework could take into account the impact of technological intermediaries, such as AI-driven algorithms working on behalf of the principals in the digital space. Such provisions can further describe the agency relationship between the principal and the technological agent, liability of the principal for the actions of the technological agent, and remedy opportunities for the customers who may have disputes or grievances with the technological agents.

By redefining the agency relationship within the digital landscape, Section 182, that is a constituent of the legal framework, would be better positioned to issue clear guidelines, execute principles of transparency and accountability, and therefore, would promote the thriving e-commerce environment of all the parties interested in form of principals, agents, and customers.

CHANGE OF PLATFORM - DIGITAL

With the numerous proliferations of e-commerce and the emergence of digital business models, the commercial landscape is marked in a rather distinct manner, which gives rise to new complexities and challenges in the application of agency law as defined by Section 182 of the Indian Contract Act, 1872.

In the traditional, brick-and-mortar business environment, the agency relationship often took the form of immediate, tangible contacts between the principal and the agent. Agents would be sales representatives or brokers or commissioned middlemen who would go out to customers and confer terms and effect transactions for and on behalf of the principal. The agency relationship and the extent of the agent's authority were generally known or ascertainable, and so it was easy to apply section 182 and its provisions straightforwardly.

The emergence of e-commerce platforms and digital business models has significantly disrupted this traditional agency paradigm. The changed intermediaries - such as online marketplaces and social media influencer networks as real and powerful agents - connect principals (sellers and service providers) with their customers in the virtual world. These digital platforms often act as an intermediary to accommodate the transaction, payment processing, logistics, and even curating of product offerings-an area from which principals previously operated directly or through traditional agents.

This blurs lines between the principal, the agent and the customer in this virtual world creating new and emergent challenges in ascertaining the extent of the agency relationship, responsibility and applicable legal principles. For instance, the degree to which the principal may control the digital agent's activities, the openness of the agency relationship with the customer, and the implications of the decision-making processes of the platform through automated systems could not neatly fall within the provisions of Section 182.

Technological intermediaries, such as artificial intelligence and algorithms that can independently make decisions, execute transactions, and interact with customers on behalf of a principal, further complicate the application of agency law. Indeed, questions arise regarding whether the agency relationship is properly classified, the level of control exercised by the principal, or the proper assignment of liability.

It is but more and more clear that the more, e-commerce and digital business models become widespread, the more rethinking there is in need of revisiting seriously the above traditional understanding of agency and adapting it to the special requirements and complexities of the digital era so as not to suffer from the unacceptable rigidity of Section 182 of the Indian Contract Act, 1872.

Footnotes

1. The Indian Contract Act, 1872, s. 182.

2. Gopinath, R., & Sharma, A., Redefining Agency Relationships in the Digital Economy, 4 Indian L. Rev. 23 (2020).

3. Khanna, V., & Arora, R., The Blurred Lines of Agency: Navigating Liability in Online Marketplaces, 2019 Mich. St. L. Rev. 301 (2019).

4. Agrawal, A., & Jain, P., Enhancing Transparency in E-commerce Platforms: Implications for Agency Law, 17 J. E-Commerce L. & Pol'y 45 (2021).

5. Bansal, A., & Gupta, N., Liability Allocation in the Age of Algorithmic Agency, 31 Harv. J.L. & Tech. 612 (2018).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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