1952 (3) TMI 17 - HC - Companies Law

Appeals court rules in favor of managing agents on office allowance but denies damages claim

The appellate court held that the resolution suspending the managing agents was invalid as it did not comply with the Companies Act. The managing agents ... Compensation for loss of office Issues Involved:1. Validity of the resolution dated 6th October 1946 suspending the managing agents.2. Entitlement of the managing agents to the office allowance after the resolution.3. Claim for damages due to premature termination of the managing agency agreement.Issue-wise Detailed Analysis:1. Validity of the Resolution Dated 6th October 1946 Suspending the Managing Agents:The resolution passed by the board of directors on 6th October 1946, suspending the managing agents, was contested. The learned Judge held that the resolution was ultra vires and invalid, as it did not comply with Section 87-B (f) of the Indian Companies Act, which mandates that the removal of a managing agent must be approved by a resolution at a general meeting of the company. This finding was not challenged by the respondents' counsel.2. Entitlement of the Managing Agents to the Office Allowance After the Resolution:The managing agents claimed an office allowance based on Clause 3(a) of the managing agency agreement. The learned Judge initially disallowed the claim, reasoning that the office allowance was not in the nature of a minimum remuneration and that the managing agents were prevented from being in charge of the company. However, the appellate court disagreed, stating that the managing agents were entitled to the office allowance as the resolution of 6th October 1946 was invalid. The court noted that the managing agents continued to have the records of the company and were wrongfully prevented from managing the company. Therefore, the managing agents were entitled to the office allowance for the period up to the date of winding up, 6th December 1949.3. Claim for Damages Due to Premature Termination of the Managing Agency Agreement:The managing agents claimed Rs. 25,000 as damages for the premature termination of the managing agency agreement, based on Clause 8 and Clause 9 of the agreement, which provided for indemnification for loss or damage suffered due to the company's failure or default. The court referred to several English decisions to determine the entitlement to damages for premature termination of agency agreements. However, the court concluded that the principle established in these cases did not apply to the managing agents in this case. The court held that the managing agents could not compel the company to continue business for 20 years or claim office allowance for the full period if the company ceased to carry on business. Therefore, the third item of the claim for damages was entirely disallowed.Conclusion:The appellate court allowed the managing agents' claim for the office allowance for the period up to the date of winding up, 6th December 1949, but disallowed the claim for damages for the premature termination of the managing agency agreement. The managing agents were entitled to a sum of Rs. 49,400-5-0 as office allowance and Rs. 1,705-9-6 as the amount advanced, totaling Rs. 51,105-14-6. The respondents' appeal was allowed with costs, and the managing agents' appeal was allowed in part with proportionate costs.