Agency vs Distribution Agreements in India: Which to Use, the Clauses Each Needs, and Managing a Channel at Scale

Companies expanding through channel partners sign "distributor agreements" with partners who never take title and "agency agreements" with partners who buy stock. The label does not fix the relationship; the structure does, and it decides credit risk, liability, tax and what restrictions will be enforced. This guide explains the two models, the clauses each needs under Indian law, and how to run a channel of many partners without losing control of the paper. Position as of October 2026.

The two models

Agent. Sells on the principal's behalf; the contract of sale is between the principal and the customer; the agent earns commission. Governed by Chapter X of the Indian Contract Act, 1872 (sections 182 to 238): the principal is bound by the agent's authorised acts (section 226), the agent owes duties of care, accounts and loyalty, and the agent must not deal on its own account without consent (section 215). Credit risk and product liability sit with the principal. GST applies to the agent's commission; TDS under section 194H of the Income-tax Act applies to commission payments.

Distributor. Buys from the supplier and resells in its own name; the contract of sale to the customer is the distributor's. Credit risk on the end customer sits with the distributor; product liability under the Consumer Protection Act, 2019 can attach to the distributor as a product seller (section 86) as well as to the manufacturer (section 84). GST applies to the sale to the distributor and the distributor's resale.

Choose agency where you want control of pricing and the customer relationship and are willing to carry credit risk; choose distribution where you want the partner to invest, stock and carry risk.

Clauses an agency agreement needs

• Appointment, territory, products; exclusive or non-exclusive; whether the agent may bind the principal (and limits).
• Commission: rate, basis (invoiced or collected), timing, clawback on returns.
• Duties: pricing adherence, reporting, no own-account dealing (section 215), confidentiality, compliance with the principal's policies.
• Principal's obligations: supply, marketing support, indemnity for product claims.
• Term, termination (section 201 et seq. on termination of agency; compensation where the agreement provides), post-termination handover of leads and customer data.
• Data: the agent processes customer personal data on the principal's behalf; a processing clause under section 8(2) of the DPDP Act, 2023 from 13 May 2027.

Clauses a distribution agreement needs

• Appointment, territory, products; exclusivity and minimum purchase commitments; online sales treatment.
• Pricing: the supplier's price to the distributor; the distributor's resale price is its own (resale price maintenance can raise issues under section 3(4) of the Competition Act, 2002; recommend rather than fix). ****
• Orders, delivery, Incoterms, risk and title; payment terms; credit limits; security.
• Stock, returns, warranty handling, recalls, product liability indemnity and insurance.
• Marketing, trademark licence with quality control, no registration of the supplier's marks by the distributor.
• Non-compete during the term (enforceable as a term of the relationship); post-term restraint void under section 27 of the Contract Act.
• Term, termination, buy-back of stock, de-branding.
• Data: the distributor is usually a separate Data Fiduciary for its own customers; define any data sharing.

Managing a channel at scale

With fifty partners the problem is version control and renewals. A workable system:

1. One agency template and one distribution template, with partner schedules (territory, products, commission or price list, minimums).
2. Onboarding with entity verification (GSTIN, PAN, Udyam for MSEs: the 45-day payment cap applies to commission or supply payments to an MSE partner under section 15 of the MSMED Act, 2006).
3. E-signature by the partner's authorised signatory (Aadhaar eSign or DSC) and the company; stamping per the partner's state of execution.
4. A register of minimums, reporting dates, commission settlements, insurance certificates, renewal windows and trademark-use approvals.
5. Reports: partners on superseded templates; minimums missed; renewals in 180 days; partners without a current insurance certificate.

Where Legatio fits. Legatio holds both templates with partner schedules, onboards and executes partners at scale with tracking, and maintains the channel register with alerts. The commercial model is your decision.

Position stated as of October 2026. General information, not legal or tax advice.