9911796707
TMI Blog1973 (2) TMI 86X X X X Extracts X X X X X X X X Extracts X X X X ..... November 28, 1961, exhibit A to the petition, operative with effect from 1st July, 1961. The agreement covers a period of five years. It appears that the appellant-company was already selling the same articles of respondent No. 5-company for an earlier period of five years from 1956 to 1961. We will refer to the relevant terms of this agreement a little later, but it may be noted that the territory covered by the sole distributors was the entire Union of India and the commission payable was 5% rebate on the sale price. The sole selling agents were to make their best efforts to procure a market for sale of these commodities and to establish a sales organisation which would be helpful in conducting and expanding the sales of the commodities of respondent No. 5-company. It may further be noted at this stage that the appellant-company was to find out customers and effect sales only with the prior confirmation of respondent No. 5-company and in case stocks of three months lay undistributed, respondent No. 5-company had the right to directly dispose of those goods. It was also a term of the agreement that, in exceptional circumstances, sale could be undertaken directly by the responden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egistrar of Companies to the Company Law Board and the Secretary by his letter dated November 17, 1964, called for certain information from respondent No. 5-company in terms of the provisions of clause (a) of sub-section (5) of section 294 of the Companies Act (hereinafter referred to as "the Act"). After the receipt of this letter, respondent No. 5-company wrote to the. appellant company by letter dated November 21,1964, accompanied by some extracts of the Company Law Board's letter dated November 17, 1964. So far as the record goes, the full text of the Company Law Board's letter does not seem to have been forwarded by the respondent No 5-company to the appellant-company. Respondent No. 5 company wrote to the Company Law Board on December 10, 1964, giving detailed reply to the queries made and also sent their own balance-sheet and audited accounts for three years. So far as the audited accounts of the appellant-company were concerned, respondent No. 5-company wrote to the Company Law Board that the appellant-company was being requested to forward the same directly to the Company Law Board. It appears that the appellant-company gave its own reply to the Company Law Board on the b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its own representations by a letter dated March 12, 1965, and made out its own grounds for not making the, proposed changes in the sole selling agency agreement. Respondent No. 5-company also gave its own reply dated March 13, 1965, and the reply in part creates an impression that they have not much objection to the changes being effected to the conditions of the agreement and in part, very feebly, they opposed the proposed change. Respondent No. 5-company also asked for a personal hearing and informed the Company Law Board that a representative of the appellant-company would also accompany the representative of respondent No. 5-company. Though the letter is not on record, it appears from the pleadings of the parties that the Company Law Board fixed 9th April, 1965, as the date for personal hearing and also informed respondent No. 5-company that there would be no objection if the representative of the appellant-company accompanies the representative of respondent No. 5-company. The two representatives actually waited upon the Board and they were heard in person. Thereafter, the impugned order dated April 20, 1965, came to be passed giving effect to the proposed changes to the agree ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding to the appellant-company, the provisions of sub-section (5) of section 294 of the Act are discriminatory and violative of the principles of article 14 of the Constitution of India. According to them, arbitrary and uncanalised powers have been vested in the Central Government to vary the terms and conditions of the contract of solemn agreement arrived at between a public limited company and the sole selling agent and that too after the proper approval of the general body of the shareholders. Not only the classification is bad but in the absence of any guidelines in the provisions, the Central Government or the Company Law Board, to which can be delegated the function of the Central Government under section 637 of the Act, have been vested with vast and arbitrary powers. Since the section on the face of it is violative of the principles of article 14, its vires are challenged. The second point of attack is that proceedings under section 294(5) of the Act are quasi-judicial in nature and not administrative. This being so, it was necessary for the Company Law Board to give reasons for its order. In other words the order not being a speaking one is defective on the face of it and s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spondent No. 4 which in fact purports to be on behalf of all the respondents Nos. 1 to 4. The position taken up in the affidavit in reply by respondents Nos. 1 to 4 is that the appellant company had no locus standi in the enquiry under section 294(5) of the Act. They had no right to be heard. However, as a matter of fact, they were heard and all that was said in writing by them as also orally at the hearing dated April 9, 1965, was considered along with the written and oral representations of respondent No. 5-company. The affidavit in reply further claims that the provisions of section 294(5) are intra vires and asserts that the order passed is entirely administrative and not quasi-judicial. In spite of the fact that it is an administrative order, the Company Law Board, bearing the principles of natural justice in mind, gave sufficient, adequate and full hearing to respondent No. 5-company as well as the appellant-company. The order is thus within the powers vested in the Company Law Board under section 294(5) of the Act and is in consonance with the show-cause notice issued. There is neither irregularity nor illegality in the matter of giving a hearing and observance of the princ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ariation" it was permissible for the Company Law Board to abrogate the contract of the sole selling agent and as such the impugned order was within the four corners of the authority vested in the Board under section 294(5). This being the view of the learned judge, the rule came to be discharged with costs. Being aggrieved, the petitioner-company has filed this appeal. In view of the arguments addressed to us, the following points arise for our consideration : (1) whether the provisions of section 294(5) of the Act are violative of the principles of article 14 of the Constitution ; (2) whether the impugned order is administrative or quasi-judicial; (3) if quasi-judicial, is it bad prima facie for not being a speaking order, that is, the order not giving reasons in support thereof ; (4) whether administrative or quasi-judicial, before the order was passed, have the rules of natural justice been properly observed so as to afford adequate and sufficient hearing to the appellant-company; and (5) has the Company Law Board any right to so vary the terms of appointment of the sole selling agent as to reduce him to the position of an ordinary agent. In other words, is the impugned order b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntered into by the two willing parties which has been ratified by the general body of the shareholders. However, provisions of sub-section (5) of section 294 of the Act appear to give uncontrolled and uncanalised powers to interfere with such contracts and to vary them. For doing this there are no norms indicated, nor any settled principles suggested on the basis of which the action contemplated is to be taken. Incidentally, Mr. Bhat also argued that the provisions appear to be vague as they do not clearly indicate the point of time at which a certain sole selling agency contract becomes "prejudicial". The provisions being so uncertain would serve as a handle in the hands of unscrupulous companies to take the help of a sole selling agent for a time when it suits them and to avoid the contract by applying to the Company Law Board when the circumstances change and the help of a sole selling agent is no more needed. The principles on which such a challenge to the constitutionality of a provision can be considered have been laid down in various judgments of the Supreme Court and they seem to be now almost settled. Shri Bhat argued that where the Act does not prescribe the guidelines, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stics which were peculiar to persons or to cases which were to be subjected to the special procedure prescribed by the Act. In a later judgment in Ram Krishna Dalmia v. Justice S. R. Tendolkar AIR 1958 SC 538, their Lordships had occasion to examine all case law on the subject available then and thereafter pointed out the broad principles which seem to have been well established from the proceedings examined. According to them, the result of the examination of case law on the subject seems to indicate two broad principles which must be fairly adhered to. The first is that the classification must be based on an intelligible differentia which distinguishes persons or things that are grouped together from others who are left out of the group, and the second principle is that the differentia must have a rational relation to the object sought to be achieved by the statute in question. By way of further amplification of the principles it is pointed out that it would be possible to conceive that a law would be constitutional even if a single individual is classified as a class, if on account of some special circumstances or reasons applicable to him and not applicable to others he could ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ves the policy of the Act, the classification and the conditions on which the power would be exercised are sufficiently indicated, the law would be considered as valid. We may point out that in the section which falls for interpretation, the policy of the law has been indicated by one expression, viz., the Central Government or the Company Law Board finds that a particular agreement of sole selling agency is "prejudicial" to the interests of the company and that power is to be exercised by effecting variations in those terms and conditions in such a manner as to make them "no longer prejudicial" to the interests of the company. Before we actually discuss the implications of these provisions it may be useful to refer to two judgments of the Supreme Court where this point has been considered. In the case of A. Thangal Kunju Musaliar v. M. Venkatachalam Potti [1956] 29 ITR 349 (SC), provisions of the Travancore Taxation of Income (Investigation Commission) Act were considered. It was permissible under the provisions of section 6 of that Act to appoint an authorised official to examine the cases where there had been "substantial" evasion of taxes. When challenge was held out to the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in such short supply that selling of these articles poses no problem whatsoever. It is possible to imagine that in such a case needy customers would be knocking at the doors of the company to supply the goods. An average shareholder is neither vigilant nor well informed of all the prevailing conditions of the market. It may be that the shareholders on the basis of the information given to them agree to the sanction and approval of the appointment of a sole selling agent on certain terms and conditions. It may be that it was later on realised that there was hardly any need for the appointment of a sole selling agent or at any rate it was not necessary to appoint any on such liberal terms as to commission and other payments which are incorporated in the contract. The contract itself as a whole or certain terms thereof might be considered prejudicial to the interests of the company. This would depend on a variety of circumstances present and a high powered body like the Company Law Board may be in a position to discover which contracts appear to be pre-judicial to the interests of the company and which do not. It may be noted that section 294 deals only with the sole selling agents ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before it is manufactured and comes out of the factory there are orders standing from buyers and the company finds it difficult to meet the pending orders. Throwing away sizable commission or rebate in favour of a sole selling agent in a case of this type might be at once styled as highly prejudicial to the interests of the company. There may be other cases where there is reasonable possibility of marketing a product but there is fair amount of competition. It is well-known that a large section of consumers usually accept goods which are generally available and are brought to their doors by canvassing by competent and able salesmen. In the circumstances mentioned in the second instance a competent and able sales organisation would be a welcome help and giving them enough rebate so that they would push their sales better would be conducive to the interests of the company and not at all prejudicial. We are not attempting to analyse the entire market conditions which would suggest when a prejudice is caused and when it is not by the appointment of a sole selling agent. This discussion is aimed at only pointing out that though the section has used only one expression, viz., the contr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opinion that the terms and conditions of appointment of the sole selling agent are prejudicial to the interests of the company, the Central Government may, by order, make such variations in those terms and conditions as would in its opinion make them no longer prejudicial to the interests of the company ; (d) as from such date as may be specified by the Central Government in the order aforesaid, the appointment of the sole selling agent shall be regulated by the terms and conditions as varied by the Central Government". The section quoted above speaks of the Central Government but in view of the provisions of section 637 of the Act, it is the Company Law Board that has passed the impugned order in this, case and in our discussion we will throughout refer to the Company Law Board only, though the provisions of the Act refer to the Central Government. Under clause (a) above, if there is good reason to do so, the Company Law Board may require the company to furnish such information regarding the terms and conditions of the appointment of the sole selling agent as it considers necessary for the purpose of coming to the conclusion whether or not such terms and conditions are prejudici ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her an action is administrative or quasi-judicial, it is enough if principles of natural justice are followed and full and proper hearing is given to a party. With that approach the facts of this case were examined and, as we pointed out earlier, a conclusion was reached that adequate and sufficient hearing was given to the appellant-company in compliance of the observance of the principles of natural justice. However, there has been of late further thinking on the subject and it is no more a matter of doubt that whether an administrative or judicial action, it must always be preceded with the observance of the principles of natural justice. Apart from that, the dividing line between an administrative power and a quasi-judicial power is quite thin and is being gradually obliterated as pointed out by the Supreme Court in A. K. Kraipak v. Union of India AIR 1970 SC 150. For determining whether a power is an administrative power or a quasi-judicial power one has to look to the nature of the power conferred, the person or persons on whom it is conferred, the framework of the law conferring that power, the consequences ensuing from the exercise of that power and the manner in which that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould not be allowed to be taken by adding to the pleading. So far as the technicality of amendment of the petition is concerned, we are now rejecting the application. While indicating our mind during arguments it was equally made clear at the Bar that even apart from the amendment of pleadings if, on the basis of the case law and on the facts and circumstances as they exist, it is possible for the appellant-company to raise that challenge by way of a pure question of law, it would be permitted to be argued. In fact an argument has been raised before us on these lines and we are called upon to consider whether the impugned order could be declared as void simply because it does not contain any reasons therefor. Such a conclusion could be possible only if it is held that it is a quasi-judicial order and further nothing beyond the order is expected to be examined by the courts. Mr. Bhat placed strong reliance upon the judgment of the Supreme Court in Travancore Rayons Ltd. v. Union of India AIR 1971 SC 862. The cases on which Mr. Bhat is relying, as the one cited just now, are mostly cases where there are either statutory appeals or revisions provided to higher authorities from the or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Code, section 100, but also in appeals arising out of writ matters that the High Courts and the Supreme Court have permitted arguments on pure questions of law when no new facts need be pleaded or proved. In other words, if what is pleaded itself leads to the raising of a question of law, it is not the requirement of the pleading that the law should be pleaded. For instance, in the case of Bhagat Ram Patanga v. State of Punjab [1972] 2 SCC 170; AIR 1972 SC 1571, the matter reached the Supreme Court after a Full Bench of five judges of the Punjab and Haryana High Court answered the reference made to it. It appears that in this case the matter commenced before a single judge. The matter then went in appeal to a Division Bench which referred certain points to a Full Bench. All the three judges of the Full Bench in turn again referred those points to a further larger Bench of five judges. At the appeal, for the first time, the appellant raised a contention that the proceedings initiated against him are quasi-judicial and as such the State was bound to give reasons in its order. The appellate Bench of the Punjab and Haryana High Court permitted the raising of such a point on the ground ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ersons must be invested with powers and sometimes an administrative order can have much more far reaching effects than the quasi-judicial orders. Affecting the civil rights of persons can be a common feature of orders administrative as well as quasi-judicial. Where there is a duty cast under the Act to act judicially the order would tend to be quasi-judicial. This is not to suggest that it is only in the case of quasi-judicial matters that there is a need to act in a fair and just manner. Approach on the basis of observance of principles of natural justice is common to both. That being a necessary approach for the just decision of a controversial point whether the administrative tribunal or the quasi-judicial tribunal needs to follow the principles of natural justice, cannot be over-emphasized. The learned counsel on both sides have taken us through some cases which, according to them, have approached the factual position which is similar to the one under section 294(5). They, therefore, rely upon those cases to indicate that the order is either administrative or quasi-judicial. Before we consider those cases it would be appropriate that the provisions above-quoted of sub-section ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oubtedly some kind of hearing to the parties who will be adversely affected by the opinion that has to be formed, seems to follow as a natural consequence which is inherent in the process of forming the opinion itself. When the terms and conditions of the sole selling agent are varied by which the prejudice so-called to the company is relieved, it stands to reason that the order would normally benefit the company and deprive the sole selling agent of some advantage which he was getting under the terms and conditions of appointment. When the provisions on the face of them have been vested in a body of persons and that authority is calculated to be exercised in a manner which will affect the rights of parties, civil consequences do seem to follow from the action that is contemplated under clause (c) at the hands of the Company Law Board. The first two requirements thus being satisfied, the only question that remains to be considered is, does the language and the contents of clause (c) show that the Company Law Board is also further obliged to act judicially ? It is now well settled that the need to act judicially could be seen from the express provisions of the Act itself or could b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ose rules should be made inapplicable to administrative enquiries also. In this limited sense a just decision by observance of certain rules of code of conduct is not to be confused with the requirement of a law to act judicially. Unless that is writ large either expressly or by necessary implication by the provisions of law, it may not be possible to infer that the inquiry contemplated is quasi-judicial. Looked at from that point of view and looking to the purpose and function of sub-clause (c) of sub-section (5) of section 294 we find it difficult to persuade ourselves that the enquiry that the Company Law Board must make before forming the opinion could be described as a quasi-judicial one. On the material already collected as per clause (a) or (b) and after hearing the parties on that material, the Company Law Board has to form an honest and unbiased opinion and if that opinion really is that the existing terms and conditions of the sole selling agent are prejudicial to the interest of the company, it has at once to take a step which will bring about a condition contemplated by the last portion of clause (c) of sub-section (5) of section 294. Shri Joshi for the respondents re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bility of a person to be appointed as a managing agent, would depend upon the consideration of all the material that may be available about the person concerned. That person will have a right to lead evidence and disprove certain allegations which are being otherwise made against him. If he is made aware of the facts which are against him and that seems to be necessary in any fair enquiry, he will lead evidence to disprove what is being alleged against him, or he might point out the circumstances under which these events occurred and the need to appreciate them in the correct perspective. There is, therefore, no doubt on the face of it that the section calls for a judicial disposal of the dispute. It may be that the enquiry is by the Company Law Board and the only party is the person whose status to be appointed as a managing agent is under enquiry. We do not think that the provisions of section 326 could be said to be comparable to the provisions of section 294. It is stated at the Bar that except for this litigation there has been no occasion to consider the provisions of section 294. As we find that neither section 326 nor section 237 of the Act was comparable to the provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany Law Board to the appellant. However, a conclusion has been reached that the appellant-company has acted in close collaboration with respondent No. 5-company and there is ground to infer that the appellant-company must have received all the material from respondent No. 5-company. So far as the present petition is concerned, it appears that respondents Nos. 1 to 3 have placed on record the material that was available to them. Out of this material two important documents do not seem to have been made available to the appellant-company by respondent No. 5-company. When the Registrar of Companies wrote to respondent No. 5-company on the basis of the complaint of the shareholders, a reply was sent by respondent No. 5-company to the Registrar of Companies. That correspondence was ultimately referred to the Company Law Board. However, neither the letter of the shareholders addressed to the Registrar of Companies nor the reply of the respondent No. 5-company to the Registrar of Companies was made available to the appellant either by the Company Law Board or by respondent No. 5-company. Shri Bhat points out that the Company Law Board calls for certain information from respondent No. 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reasonable and comparable to such other contracts in the field of chemical trade and that such commission was necessary because it involves setting up of a sales organisation. In the reply of the company to the show-cause notice there are certain references which give the impression that the company is sitting on the fence and neither wants to give up its selling agency nor does it want to take up an attitude which could be attacked subsequently in a share-holders' meeting. In the second paragraph of their letter dated March 13,1965, they point out to the Company Law Board that the Board had not given the reasons for the proposed action and in the absence of these reasons the respondent No. 5-company was unable to know the circumstances which call for their intervention. The further part then deals with the existing terms and conditions and the operation thereof. There is also admission that the company has not fulfilled its obligation to the equity shareholders and has only partly discharged its obligation towards the cumulative preference shareholders. Regarding the proposed change No. (ii) in clause (12) of the distributorship agreement, respondent No. 5-company makes a query w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ween the periods 1959-60 to 1965 there would have been to that extent an improvement in the financial position of the company. In this manner these pieces of information which tend to indicate that the terms and conditions of the present agreement worked prejudicially against the interest of the company are not made available to the appellant-company either by the Company Law Board or respondent No. 5-company. However, from the two broad circumstances it is being inferred that the appellant-company must have knowledge of this material placed before the Company Law Board. It is being assumed that the appellant must have read the full text of the letter dated November 17, 1964, as also the earlier letter of the shareholders making a grievance against the sole selling agent and the rebate paid to them. Some dates are considered as representing the action taken by the appellant-company and respondent No. 5-company in close collaboration of each other. The first reply by the appellant-company is dated 9/15th December, 1964, whereas the reply by respondent No. 5-company is dated 10th December, 1964. When the show-cause notice comes which calls upon the respondent No. 5-company to give i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance which has gone against the appellant-company is that it voluntarily attended the personal hearing on March 9, 1965, when the respondent No. 5-company was called for a personal hearing. The oral representations of both the representatives were heard by the Company Law Board. Even the appellant-company admits in its petition that it was given a personal hearing along with the representative of respondent No. 5-company. What was the nature of the discussion or address that took place, there is no indication in the petition nor in the affidavit-in-reply. A general statement has been made in the affidavit-in-reply that both the representatives were fully heard. There is a further statement in the affidavit-in-reply that after taking into consideration all the material before the Board together with the points that were made out at the personal hearing, the Company Law Board formed the requisite opinion under section 294(5)(c) of the Act. From the fact of personal hearing it was sought to be argued on behalf of the respondents that the question relating to the prejudice in the context of the complaint of the shareholders and the explanation of the company must have been discussed. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed prejudicial to the interest of respondent No. 5-company, it was but natural that the appellant-company was entitled to know all the material which was before the Board. Some advantages which the appellant-company procured by the contract are sought to be varied and taken away from it. In a case of this type, it is a sole selling agent who is primarily adversely affected. When it is the view of the Company Law Board that that party has no locus standi and they need not hear that party, the hearing that has taken place in this case is the result of the voluntary action of the appellant-company itself. The appellant-company has thrust itself upon the Company Law Board and since they did not prevent the appellant from giving written reply and also appearing at the personal hearing, this voluntary action on the part of the appellant-company has been responsible for making available to the appellant such hearing as it got. There is no doubt that in the affidavit-in-reply filed by the Company Law Board they pleaded that the appellant has been fully heard. It is also true that it is a high power body but the real question is whether this affidavit can be accepted at its face value. This ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o. 5 as sole selling agent and it is normally the management of the company which makes contracts and places them before the general body of the shareholders. However, at a point of time when the Company Law Board was seized of the enquiry it is difficult to say that the interest of the appellant-company and respondent No. 5-company or the management thereof were not in conflict with each other. Those in management of the company are fully aware of the various provisions of the Act and the interference that is possible in the management of the company. If at all, we find that their attitude exhibited in their conduct and return is not to oppose the proposed amendment very seriously nor to support them wholeheartedly. In one place they point out that the commission agreed is reasonable and the appellant-company has set out a sales organisation which seems to be necessary. In an earlier reply they pointed out that Rs. 13 lakhs were paid as commission and that amount could have been saved and the company's financial position would have improved. They also suggest that a free hand in sales be given without any rebate to appellant-company. It is, therefore, difficult for us to see that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... portance to this argument of Shri Bhat. However, for the earlier reasons stated by us we are of the view that there has been failure of the observance of principles of natural justice. The next point that must be considered relates to the nature of the order passed by the Company Law Board. According to Shri Bhat, the Company Law Board is authorised under section 294(5)(c) to vary the terms of appointment of a sole selling agent and when this is done the statutory consequence that follows from clause (d) of the same section is that the appointment of the sole selling agent has to be regulated from the date nominated, by the new terms and conditions, viz., the varied terms and conditions by the order of the Company Law Board. The primary argument, therefore, is that the character of the sole selling agent has to be retained as such, if the Company Law Board desires that the appointment should still continue on the varied terms and conditions. This point was also raised before the learned single judge but the conclusion arrived at was that the word "variation" has been given an artificial meaning by the definition clause (50) of section 2 of the Act. That clause says that "variation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gent, in the sense, the only agent of respondent No. 5-company. Even if the entire product is directly sold by the company and not one bag is given to the appellant-company, so long as no other agent is appointed, the appellant would still be the "sole" selling agent, Mr. Joshi argues. The permission granted under the amended terms and conditions by the impugned order is not to appoint any other agent but to effect direct sales on principal to principal basis either to dealers, consumers, Government and semi-Government institutions. This being so, the order in no way affects the rights of the appellant-company as sole selling agent. In other words, Shri Joshi wants to say that the manufacturers have not parted with their right to sell their goods in favour of the appellant, much less in an exclusive manner. When we go to the terms of appointment, we find that clause (1) of the agreement says that the manufacturers have appointed the appellant-company as the sole distributors for the entire territory of the Republic of India for marketing the three articles, which we have already noted earlier. The sole distributors are enjoined with the responsibility of arranging sales to the cus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tributors have not been able to dispose of the stocks equivalent to three months' production due to causes not attributable to the manufacturers, the manufacturers shall be at liberty to dispose of the products in excess of three months' stock and shall not allow rebate to the sole distributor on such sales. Under clause (19) the sole distributor shall appoint adequate sub-distributors and/or dealers in any part of the Republic of India on such terms and conditions as the sole distributors deem fit and proper and subject to the approval thereof by the manufacturers in writing. Under clause (25) the directors of the appellant-company for the time being shall be jointly and severally responsible to the manufacturer for the payment due to the manufacturers under this agreement. We have summarised all the relevant clauses for the purpose of finding out the real nature of the sole selling agency. A mere look at these clauses would point out that the manufacturers have parted with their right of selling the goods in favour of the sole distributors with only two exceptions. One is the sale under exceptional circumstances and the other is the right of selling when stocks in excess of thre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion asked for by the plaintiff was refused by the learned single judge but was granted in a Letters Patent Appeal by a Division Bench. What is relevant for us is the meaning of the word "sole selling agent", as the plaintiff in that case claimed interim injunction on the basis of his right as a sole selling agent. The learned single judge in Shalagram Jhajharia v. National Company Ltd. [1967] 1 Comp LJ 29 (Cal.) observes at page 34 as follows : "To my mind it appears that the meaning of ' sole selling agency ' is that the agent alone has been given the selling right in respect of the goods and such agency need not be in respect of all classes of goods as long as a particular kind of goods or a particular cammodity is provided as sole agency of a person or a company. It is in my opinion sole selling agency of that company". We do not find any elaborate discussion by the learned single judge on that subject, but when the matter was carried in appeal by the plaintiff, the report appears in the same case, Shalagram Jhajharia v. National Co. Ltd. [1965] 35 Comp Cas 706 (Cal.). One of the questions raised was that the sole selling agent does not appear to be an agent but appears to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ors shall not be entitled to any rebate, commission or any other remuneration on such direct sales". On the face of it this clause gives a free hand to the respondent No. 5-company to sell its goods directly to any consumers, dealers, Government and semi-Government institutions. We may incidentally refer to the reply given by respondent No. 5-company to the show-cause notice issued by the Company Law Board in which they dealt with clause (12). They quoted the proposed variation and also quoted the original clause (12). Thereafter, the comment of the company is as follows i "Is it the intention of the Company Law Board that notwithstanding the above clause (12) the company can sell directly and that on such sales and on sales effected to the sub-distributors the sole-distributors are not entitled for any rebate. This matter may please be clarified". It appears that it is this reply of respondent No. 5-company which is partly responsible for the ultimate shape that clause (12) has now taken in the order of the Company Law Board. Such a variation, according to Shri Bhat, suffers from two vices. One is that such a variation is far beyond the power of the Company Law Board under sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t or semi-Government institutions and if in a seller's market, which is conceived of, there is direct demand with the manufacturers, it is possible that nothing or very little will be sold through the sole selling agent. In any case it will lead to conflict and litigation on the appropriate construction of this clause in juxtaposition to the other clauses which survive as a part of the contract. In that context we must think that, prima facie, the new clause reduces the sole selling agent to the position of a mere agent who may sell the goods as and when received from the manufacturers who are otherwise entitled to sell directly to various customers. Is it the intention of section 294(5) to so amend the contract as neither to retain the appellant-company as a sole selling agent nor to abolish the contract altogether ? What is done is a third thing altogether, viz., the sole selling agent is reduced to the position of an ordinary agent. We do not think that the scheme of this section permits the mutilation of the contract in such manner as to change the character of the agency. The terms and conditions may be varied in such a manner as to make them no longer prejudicial to the compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th by retaining the character of the sole selling agent as such. It is, therefore, clear that, in passing the present order and substituting with the new clause (12), the Company Law Board has acted beyond the powers vested in it under sub-section (5) of section 294 of the Act. For the purpose of this appeal we are not called upon to decide whether under sub-section (5) the Company Law Board could in fact terminate or cancel the appointment of a sole selling agent. That power may be assumed for the time being. However, in view of the compulsion on the sole selling agent to continue to function as such, and in view of the provisions of sub-section (4), we are of the view that transformation of a sole selling agent into just an ordinary agent is beyond the scope of section 294, sub-section (5)(c). Another aspect of the question will be that the appellant-company was never made aware, apart from the consequences which can flow under section 294(5) under which the appellant-company would be compelled to act as an ordinary agent and would cease to be the sole selling agent. For effecting such a change the proposed clause in the show-cause notice does not give enough notice to the part ..... X X X X Extracts X X X X X X X X Extracts X X X X
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