The commercial framework of modern India relies on intermediaries to bridge the gap between manufacturing hubs and consumer markets. Among these structures, the “Sole Selling Agency with Canvassing Rights” represents a specific legal instrument. It is frequently utilized yet often misunderstood. This relationship is not merely a commercial arrangement. It is a fiduciary one governed by a matrix of statutes including the Indian Contract Act 1872, the Companies Act 2013, and the Competition Act 2002.

The distinction between a “Sole Selling Agent” and a “Distributor” is the foundation of this analysis. A distributor operates on a principal-to-principal basis. They purchase the title to goods and bear the economic risk of resale. A sole selling agent acts as an arm of the manufacturer. They retain the principal’s title to the goods until the final sale. The specific qualification of “Canvassing Rights” limits the agent’s authority further. It confines their role to the solicitation of orders without the power to bind the principal contractually.

1. The Core Distinction: Agent vs. Distributor

The classification of a commercial intermediary is the first issue in any distribution agreement. The terminology used in the contract—”Agent”, “Distributor”, or “Partner”—is not final. Indian courts look to the substance of the relationship.

In a true agency relationship, the agent does not purchase the goods. The title remains with the Manufacturer (Principal) until the goods are sold to the third-party customer. The agent acts as a conduit. They bring the Principal and the Customer into a direct contractual relationship. Consequently, the privity of contract exists between the Manufacturer and the Customer.

Figure 1: Visualizing the Canvassing Agent’s role in the contractual chain.

In contrast, a distributor purchases the goods from the Manufacturer. Title passes to the distributor upon delivery or invoicing. The distributor then resells the goods on their own account and risk. There is no privity of contract between the Manufacturer and the ultimate consumer regarding the sale transaction.

The “Canvassing Rights” Specifics

The term “Canvassing Rights” implies a specific workflow. The Agent identifies potential customers and presents the Manufacturer’s products. They secure an “Intent to Purchase” from the customer and transmit this to the Manufacturer. The Manufacturer retains the absolute discretion to accept or reject these orders based on creditworthiness or stock.

2. Template Analysis: Modernizing Legacy Clauses

Many businesses still utilize agreement templates drafted under the regime of the Companies Act, 1956. A review of standard templates (like the one often circulated in pharmaceutical sectors) reveals critical “legacy” clauses that require immediate updating for 2025 compliance.

3. Competition Law: The Pricing Paradox

One of the most nuanced areas of agency law is pricing control. In a Distributorship, if a Manufacturer dictates the resale price, it is “Resale Price Maintenance” (RPM), which is generally prohibited under Section 3(4)(e) of the Competition Act, 2002.

However, a “Sole Selling Agent” creates a different legal reality.

• The Legal Exception: Since the Agent does not own the goods, they do not “resell” them. The sale is directly from Manufacturer to Customer. Therefore, the Manufacturer can legally dictate the final price without violating RPM rules.
• The Risk: If the agreement hides a true distributorship (where risk is transferred to the agent) but claims to be an agency to control prices, the Competition Commission of India (CCI) will pierce the corporate veil and penalize the Manufacturer.

4. The “Override Commission” Mechanism

A vital protection for Sole Agents is the “Override Commission” clause. This ensures the Agent is compensated even when the Manufacturer bypasses them.

5. The GST Implication: “Pure Agent”

The GST treatment depends on whether the agent handles the goods or just the orders. In the strict “Canvassing” model, the Agent never takes title.

• Flow: Manufacturer ships directly to Customer. Manufacturer invoices Customer (charging GST on goods). Agent invoices Manufacturer for Commission (charging GST @ 18% on service).
• Analysis: This is the most efficient model. The Manufacturer avails Input Tax Credit (ITC) on the GST paid on the commission. The Agent is purely a service provider.

6. The “Del Credere” Variant: Assuming the Risk

In standard canvassing, the Agent’s job ends when the order is transmitted. If the Customer defaults on payment, the Manufacturer bears the loss. However, manufacturers often demand a “Del Credere” Agency.

Under this structure, the Agent guarantees the solvency of the Customer. If the Customer fails to pay, the Agent must pay the Manufacturer. In exchange, the Agent receives an additional “Del Credere Commission” (typically 1-2% above standard).

Legal Impact: This does not change the Agent into a Distributor. They still do not take title. They act as a surety. However, for tax purposes, if the Agent makes payment to the principal before receiving it from the customer, GST authorities might view this as a form of lending or “supply,” complicating the tax position. It is crucial to draft the payment terms such that the Agent pays only upon “Customer Default,” not upfront.

7. Intellectual Property & Digital Encroachment

Modern agreements must address the digital marketplace. “Canvassing Rights” typically imply offline solicitation (visiting doctors, retailers, stockists). Does this right extend to listing the product on Amazon or Flipkart?

8. Statutory Indemnity: Section 205 (Contract Act)

A common omission in drafted templates is the statutory protection against premature termination. Section 205 of the Indian Contract Act, 1872, mandates that if an agency is for a fixed term and is revoked before expiry without “sufficient cause,” the Principal must compensate the Agent.

“Sufficient Cause” is a high bar. Merely missing a sales target by a small margin may not suffice. The agreement should explicitly define “Material Breach” to include failure to meet Minimum Guaranteed Sales (MGS) for two consecutive quarters to protect the Manufacturer from Section 205 claims.

9. Drafting Audit Checklist

Use this grid to audit your current drafts against the latest precedents.

10. Recommended Agreement Structure (Skeleton)

A robust agreement for 2025 should follow this specific skeleton to ensure compliance and clarity.

11. The “Restraint of Trade” Boundary (Section 27)

A critical aspect of agency agreements is the Non-Compete Clause. Clause 12 of the reference template states that the “Distributor shall not sell or attempt to sell medicines for any other company.” This is legally valid during the term of the agency.

However, manufacturers often attempt to extend this restriction after the termination of the agreement (e.g., “Agent cannot sell rival products for 2 years post-exit”). Under Section 27 of the Indian Contract Act, 1872, such post-termination restraints are void. The Supreme Court in Percept D’Mark (India) Pvt. Ltd. v. Zaheer Khan clarified that while you can restrict a partner during the partnership, you cannot restrain their trade once the relationship ends.

12. The Data Fiduciary Risk (DPDP Act)

In the context of canvassing, agents collect significant personal data: names of doctors, their prescription habits, clinic addresses, and mobile numbers. Under the Digital Personal Data Protection Act (DPDP), this data handling creates liability.

• Manufacturer as Data Fiduciary: Since the Agent collects data for the Manufacturer, the Manufacturer determines the “purpose and means” of processing. This makes the Manufacturer the “Data Fiduciary.”
• Agent as Data Processor: The Agent is merely the “Data Processor.”

The Risk: If the Agent leaks doctor data or uses it to spam them without consent, the Manufacturer is liable for penalties (up to ₹250 Cr). The Agreement must now include a specific Data Processing Addendum (DPA) mandating the Agent to implement security safeguards.

13. Stamp Duty and Registration

Unlike a simple Purchase Order, a Sole Selling Agency Agreement is a distinct legal instrument that attracts Stamp Duty. The rate is not uniform; it is a state subject.

In states like Maharashtra, Article 5(h)(A)(iv) of the Stamp Act prescribes ad-valorem duty (e.g., 0.2% of the contract value) on agreements that create specific obligations. In Karnataka and Delhi, specific articles for “Agency” or “Agreement” apply.

Warning: An unstamped or insufficiently stamped agreement is inadmissible as evidence in court (Section 35, Indian Stamp Act). If a dispute arises and you try to invoke arbitration, the Arbitrator is legally bound to impound the document until the deficit duty plus a penalty (often 10x) is paid.

14. Full Reference Agreement Text

Below is the standard legacy format for reference purposes. Note the specific inclusion of “Canvassing Rights” in the title and the “Schedule” methodology for products.

Frequently Asked Questions