Commission Agent Agreement (Pakistan)

A Commission Agent Agreement in Pakistan governs the arrangement between the parties and the conditions on which it operates.

The Contract Act 1872 governs the legal relationship between principal and agent thoroughly. Section 182 of the Contract Act 1872 defines an agent as a person employed to do any act for another or to represent another in dealings with third persons, and the person for whom such act is done, or who is so represented, is called the principal. Under Section 185 of the Contract Act 1872, no consideration is necessary to create an agency — but in a Commission Agent Agreement, the consideration is the commission payable to the agent on completion of each transaction. Section 188 of the Contract Act 1872 limits the agent's authority to acts necessary for the purpose of the authority given — a commission agent authorised to sell goods may do all lawful things necessary to effect the sale, including giving warranties customary in the trade, but cannot pledge the principal's goods without specific authority under Section 178A.

The commission agent (arhtia) is a uniquely important institution in Pakistan's agricultural marketing system. The Agricultural Produce Markets Act — enacted by each province (Punjab Agricultural Produce Markets Act 1939, Sindh Agricultural Produce Markets Act 1939, etc.) and reformed under market committee regulations — regulates the function of commission agents (arthias) in government-regulated wholesale markets (mandis). An arhtia in a regulated mandi must be licensed by the Market Committee, maintain prescribed accounts, and comply with the commission rate fixed by the Market Committee. Unlicensed commission agents operating in regulated mandis commit an offence under the provincial Agricultural Produce Markets Act.

Outside the agricultural sector, commission agents operate across industries including: textile and garments export — agents facilitating sales to international buyers on behalf of Pakistani manufacturers; real estate brokerage under the Pakistan Real Estate Regulatory Authority (PRERA) framework being developed under the Real Estate Regulatory Authority Act 2020; insurance distribution — insurance agents appointed by life and non-life insurance companies under the Insurance Ordinance 2000 and regulated by the Securities and Exchange Commission of Pakistan (SECP); and import/export — customs clearing agents and freight forwarders acting as commission agents for importers and exporters under the Pakistan Customs Act 1969.

A commission agent may act as a disclosed agent (where the third party knows the agent is acting for a principal) or as an undisclosed agent (where the third party does not know the agent is acting for a principal). Under Section 230 of the Contract Act 1872, an agent who acts for an undisclosed principal and contracts in their own name is personally liable to the third party on the contract — an important distinction in drafting Commission Agent Agreements.

A Commission Agent Agreement in Pakistan is required whenever a business appoints an agent to sell goods or services on a commission basis and needs a formal written document defining the scope of authority, commission structure, territory, and obligations of both parties.

A Commission Agent Agreement is needed when a Pakistani manufacturer — textile, surgical instruments, sports goods, pharmaceutical — appoints a sales agent to represent its products to buyers in domestic markets or to international buyers through export-oriented commission arrangements. Pakistan's export sector, particularly in Sialkot (surgical instruments, sports goods), Lahore, Faisalabad (textiles), and Karachi, relies heavily on commission agents to access buyers in export markets.

A Commission Agent Agreement is required when an agricultural commodity trader or exporter appoints an arhtia (commission agent) to purchase agricultural produce from farmers in a regulated mandi (wholesale market) in Punjab, Sindh, or KPK. The agreement governs the arhtia's authority to bid at mandi auctions, the rate of commission (typically 2.5% to 5% of the transaction value), and accounting obligations under the provincial Agricultural Produce Markets Act.

A Commission Agent Agreement is needed when an insurance company licensed by SECP under the Insurance Ordinance 2000 appoints an individual or corporate insurance agent to sell life insurance, health insurance, motor insurance, or general insurance policies on a commission basis. SECP's Insurance Rules 2017 require written agency agreements between insurance companies and their agents.

A Commission Agent Agreement is required when a real estate developer or property seller appoints a commission agent (property dealer) to market and sell residential or commercial properties — specifying the commission percentage (typically 1-2% of sale price in Pakistani property markets), the marketing territory, and the agent's obligations regarding client introduction and transaction facilitation.

A Commission Agent Agreement is needed when a multinational company establishes a distribution network in Pakistan by appointing regional commission agents in Lahore, Karachi, Islamabad, Peshawar, and Quetta — each responsible for soliciting orders within their territory and earning a commission on confirmed sales. The agreement must clearly distinguish between a commission agent (who does not take title to goods) and a distributor or reseller (who does), as the legal and tax treatment differs significantly.

A valid Commission Agent Agreement in Pakistan under the Contract Act 1872 must contain the following essential elements to clearly define the agency relationship and protect both principal and agent.

Parties and Authority: Full legal names of the principal and the commission agent, with CNIC numbers (individuals) or SECP registration numbers (companies) and NTN numbers. The agreement must clearly state the nature of the authority granted — whether the agent is authorised to conclude contracts on behalf of the principal (with full authority to bind the principal) or merely to solicit orders for the principal's approval (limited authority). Under Section 188 of the Contract Act 1872, an agent has authority to do every lawful thing necessary to carry out the purpose of the agency — so the scope of authority must be explicitly defined to prevent the agent from exceeding their mandate.

Scope of Products or Services: A precise description of the goods or services the agent is authorised to sell or procure — including product specifications, model numbers, price lists, and any restrictions on the categories of customers the agent may approach. In Pakistan's textile export sector, commission agents are commonly appointed for specific product categories (woven fabrics, knitwear, home textiles) and specific export markets.

Territory: The geographic area within Pakistan (or internationally) in which the agent has authority to operate — whether exclusive (agent is the only appointed agent in the territory) or non-exclusive (principal may appoint other agents in the same territory). Exclusive territorial rights are significant commercial protection — if the principal appoints multiple agents in the same territory in breach of an exclusivity clause, the excluded agent is entitled to compensation under Section 73 of the Contract Act 1872.

Commission Rate and Calculation: The commission percentage — stated as a percentage of the net sale price, gross invoice value, or collected amount — and whether commission is earned on order placement, invoice issuance, or actual payment collection. For Pakistani agricultural commission agents (arthias), the market committee fixes commission rates — the agreement must comply with these regulated rates. Payment frequency (monthly, quarterly, or per-transaction settlement) and currency (PKR) must be specified.

Agent's Duties: The agent's obligations including: using best efforts to promote the principal's products within the territory; providing regular sales reports (weekly, monthly); maintaining confidentiality of the principal's pricing, customer lists, and trade secrets; not acting for competing principals without disclosure; complying with all applicable laws (Sales Tax Act 1990, Federal Excise Act 2005, Income Tax Ordinance 2001); and maintaining professional indemnity insurance if required by the principal.

Principal's Duties: The principal's obligations including: supplying the agent with adequate product samples, catalogues, and marketing materials; maintaining competitive pricing within the territory; fulfilling orders introduced by the agent within agreed lead times; providing sales training and product knowledge support; and paying commission on time as agreed.

Accounting and Records: The agent must maintain accurate books of account recording all transactions conducted on the principal's behalf, and must render accounts to the principal at the agreed intervals. Under Section 213 of the Contract Act 1872, the agent is bound to render proper accounts to the principal on demand. The principal has a right to inspect the agent's records relating to the principal's business under Section 215 of the Contract Act 1872.

Withholding Tax: Under Section 233 of the Income Tax Ordinance 2001, commission payments made by a principal to a commission agent attract withholding tax — currently 12% for filers and 15% for non-filers. The principal is responsible for withholding this tax and remitting it to the Federal Board of Revenue (FBR). The commission agent should receive a withholding tax certificate (Form 161) from the principal to claim credit against their annual income tax liability.

Termination: The grounds and notice period for termination — commonly 30 to 90 days' written notice for termination without cause, and immediate termination for material breach (fraud, acting for a competitor without disclosure, misuse of funds). Under Section 202 of the Contract Act 1872, an agency cannot be terminated by the principal to the prejudice of the agent where the agent has an interest in the subject matter — a commission agent who has incurred expenses in developing the territory may have a claim for reasonable compensation upon termination.

Forms-legal.com provides this Commission Agent Agreement (Pakistan) template as a practical resource for principals and their commission agents across Pakistan's diverse commercial sectors. The template reflects requirements under the Contract Act 1872, Chapter X (Sections 182-238), the Income Tax Ordinance 2001, and sector-specific regulations. Legal advice from an advocate enrolled at a provincial Bar Council is recommended for exclusive agency arrangements and high-value commission agency relationships.