Court voids agent appointment, upholds force majeure defense, awards damages, remands for fresh hearing.

VD. Swami & Co. (P.) Ltd. Versus Southern Switchgear Ltd.

VD. Swami & Co. (P.) Ltd. Versus Southern Switchgear Ltd. - [1995] 84 COMP. CAS. 932 (MAD.) Issues Involved:
1. Maintainability of the suit under Section 294(2A) of the Companies Act, 1956.
2. Validity of the appointment of the plaintiff as the sole selling agent.
3. Force majeure clause as a defense.
4. Quantum of damages and counter-claims.

Detailed Analysis:

1. Maintainability of the Suit under Section 294(2A) of the Companies Act, 1956:
The plaintiff argued that Section 294(1) and (2A) of the Companies Act, when read together, do not bar the maintainability of the suit. The court noted that Section 294(1) prohibits the appointment of a sole selling agent for more than five years without the company's general meeting's approval. Section 294(2A) states that if the general meeting disapproves the appointment, it ceases to be valid from the date of the meeting. The court observed that the defendant did not dispute the de facto transaction of business with the foreign buyers through the plaintiff. However, the appointment was not placed before the company's general meeting, making it void ab initio. The court concluded that the agreement was void from the beginning, thus barring any claims based on it.

2. Validity of the Appointment of the Plaintiff as the Sole Selling Agent:
The court examined the plaintiff's claim of being appointed as the sole selling agent and found that the appointment was not placed before the general meeting held on September 9, 1968. The court noted that the agreement did not mention that it was subject to the approval of the general meeting, as required by Section 294(2A). Therefore, the appointment was void ab initio. The court also discussed the principle that courts will not enforce an illegal agreement, but exceptions exist, such as when the parties are not in pari delicto (not equally at fault). The court highlighted Sections 64 and 65 of the Indian Contract Act, which deal with the consequences of rescinding a voidable contract and the obligation to restore benefits received under a void agreement.

3. Force Majeure Clause as a Defense:
The defendant argued that it could not fulfill its obligations due to circumstances beyond its control and relied on the force majeure clause in the agreement. The court noted that the defendant consistently claimed that reasons beyond its control prevented it from performing the contract. The court found that the force majeure clause was a complete answer to the suit claim, as the plaintiff admitted that the same situation continued even after the extended deadlines. However, the court criticized the learned single judge for accepting the defendant's claim without sufficient consideration of the principles of law and evidence.

4. Quantum of Damages and Counter-Claims:
The learned single judge found that the plaintiff was entitled to damages of Rs. 30,403.82 for the unexecuted portion of the goods and Rs. 2,915.32 as commission for the shipment already made, totaling Rs. 33,319.14. The judge also addressed the defendant's counter-claim, stating that the plaintiff must tender an account for 2,589 sterling pounds but was not liable to pay any damages. The court noted that damages for breach of contract and compensation under Sections 64 and 65 of the Contract Act create different obligations and require different evidence. Therefore, the court decided to remand the case for a fresh hearing, reframing the issues and allowing the parties to adduce additional evidence if necessary.

Conclusion:
The appeal was allowed, the impugned judgment was set aside, and the case was remitted to the trial court for rehearing in accordance with the law, after reframing the issues in light of the court's observations. There was no order as to costs, and the court fee paid on the memorandum of appeal was to be refunded in accordance with the law.