Sole selling agents - Appointment made by board of directors without attaching condition that appointment will cease to be valid if it is not approved in first general meeting - Companies Law - No. 12(11)‑CL‑VI/68,

Circular : No. 12(11) ‑ CL ‑ VI/68, dated 6 ‑ 11 ‑ 1968. Subject:- Sole selling agents - Appointment made by board of directors without attaching condition that appointment will cease to be valid if it is not approved in first general meeting Sub‑section (2) of section 294 provides that the board of directors of a company shall not appoint a sole selling agent for any area except on the condition that the appointment shall cease to be valid if it is not approved by the company in the first general meeting held after the date on which the appointment is made. The Bombay High Court has, in the case of Aranttee Manufacturing Corporation v. Bright Bolts (P.) Ltd. [1957] 37 Comp. Cas. 758 held that if any appointment of a sole selling agent is made by a board of directors without such a condition, namely, that the appointment shall cease to be valid if it is not approved by the company in the next general meeting of the company as is mentioned in section 294(2), the same would be contrary to the said provisions and would be void ab initio. The Court has further held that the view that, if the agreement appointing a sole selling agency was silent as regards the condition mentioned in sub‑section (2) of section 294, the said condition should be deemed to have been incorporated in that agreement, is not correct. The Department has examined the implications of the aforesaid decision in consultation with the Ministry of Law and it has been decided that the sole selling agency agreement, which does not incorporate the aforesaid condition prescribed in sub‑section (2) of section 294, will be void ab initio and will continue to remain so even if it is approved by the company in the first general meeting held after the date on which the appointment is made as an agreement, which is in valid from the start, cannot be treated as valid if the general meeting approves it.