Parties' Agreement Void under Companies Act; Petition Dismissed; Separate Accounts Order

The court held that the alleged agreement between the parties was void ab initio for not meeting the mandatory condition under section 294(2) of the Companies Act. Consequently, there was no valid sole selling agency or arbitration agreement. The petition was dismissed, and each party was to bear its own costs. The defendants were directed to maintain separate accounts for three weeks from the date of the judgment.

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Issues Involved:

1. Whether there is a concluded sole selling agency agreement between the parties.
2. Whether the agreement alleged by the plaintiffs is void ab initio for not containing the condition required under section 294 of the Companies Act.
3. Whether the appointment alleged by the plaintiffs has been approved by the defendants-company in their first general meeting.
4. Whether there is a valid and subsisting arbitration agreement between the parties.

Detailed Analysis:

Issue 1: Concluded Sole Selling Agency Agreement

The plaintiffs alleged that a concluded contract was reached on 19th October 1964, appointing them as the sole selling agents for the defendants' bolts and screws for three years. They claimed that they deposited Rs. 35,000 with the defendants, who issued a receipt and informed their customers about the plaintiffs' appointment. The plaintiffs also published advertisements and printed greeting cards, calendars, and diaries indicating their sole selling agency status, to which the defendants did not object. However, the defendants denied any concluded contract, stating that negotiations were ongoing and that the Rs. 35,000 deposit was merely part of the discussions. They contended that letters to customers only mentioned the plaintiffs as selling agents and that the advertisements were published without their consent. The defendants further denied approving any draft agreement and claimed that the plaintiffs' appointment as sole selling agents was never finalized.

Issue 2: Void ab initio Agreement under Section 294 of the Companies Act

The defendants argued that even if a sole selling agency agreement was concluded, it was void ab initio as it did not comply with section 294(2) of the Companies Act, which mandates that such appointments must be subject to approval by the company in the first general meeting. The plaintiffs contended that the condition in section 294(2) was not a condition precedent but a condition of defeasance, meaning the appointment would only cease to be valid if not approved in the general meeting. The court, however, interpreted section 294(2) as a mandatory provision, requiring the appointment to be made subject to the condition of approval. The court held that an appointment made without this condition would be invalid and void ab initio. This interpretation was supported by the Calcutta High Court's decision in Shalagram Jhajharia v. National Co. Ltd., which emphasized the mandatory nature of section 294(2).

Issue 3: Approval by the Defendants-Company in the First General Meeting

The defendants contended that the alleged appointment was not approved in the first general meeting held after the date of the agreement. They held a general meeting on 20th February 1965, where the company resolved that the proposal of appointing the plaintiffs as sole selling agents was not in the company's interest. The court found that since the appointment was not made subject to the mandatory condition of approval as required by section 294(2), it was invalid from the outset. Therefore, the question of approval in the general meeting did not arise.

Issue 4: Valid and Subsisting Arbitration Agreement

The plaintiffs sought to refer the disputes to arbitration under clause 12 of the alleged sole selling agency agreement. However, since the court held that the agreement was void ab initio due to non-compliance with section 294(2), the arbitration clause contained in the agreement also fell to the ground. Consequently, there was no valid and subsisting arbitration agreement between the parties.

Conclusion:

The court concluded that the agreement alleged by the plaintiffs was void ab initio for not containing the mandatory condition required under section 294(2) of the Companies Act. As a result, there was no valid sole selling agency agreement or arbitration agreement between the parties. The petition was dismissed, and each party was directed to bear its own costs. The defendants' undertaking to keep separate accounts was to continue for three weeks from the date of the judgment.

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