RAMESH B DESAI Vs. UNION OF INDIA

JUDGEMENT

(1.) M/s. Sayaji Mills Limited respondent no. 3 (hereinafter referred to as the company) registered under the Companies Act was incorporated in the year 1941. It is engaged in the manufacture of Starches and its derivatives, Liquid Glucose, Dextrose, Sorbitol and other by-products. Since its inception the company has been selling its products through a sole selling agent M/s. C. Doctor and Company, a private limited company in Starch business since 1914. On the amendment of the Companies Act, 1956 by the Amending Act of 1974 it is necessary to seek approval of the Central Government for appointment of sole selling agents. Respondent No. 3 applied and obtained approval of the Central Government to the appointment of M/s. C. Doctor and Company as its sole selling agents for the periods 1972- 77,1977-82 and 1982-87. M/s. C. Doctor and Company was a family concern of M/s. Sayaji Mills Limited in as much as the directors of M/s. C. Doctor and Company were closely related to the Chairman of respondent No. 3 company. In January, 1982, a family arrangement was arrived at by way of a memorandum of understanding between two sons of the family of Shri V. L Mehta, who was the then Chairman-cum-Managing Director of the company. Shri B. V. Mehta and his branch got the management of respondent No. 3 company and other assets and Shri S. V. Mehta and his branch got other companies of the family including M/s. C. Doctor and Company. M/s. C. Doctor and Company had two separate divisions namely;

(2.) The validity and legality of the impugned order will, to a large extent, depend on the nature of jurisdiction exercised and the power conferred on the Central Government/Company Law Board while granting or rejecting approval to the appointment of a sole selling agent under S. 294-AA(3) of the Act. S. 294-AA which was inserted by the Companies Amendment Act, 1974 w.e.f. 1-2-1975 gives power to the Central Government to prohibit the appointment of sole selling agents in certain cases. The powers and functions of the Central Government under this section have been delegated to the Company Law Board as provided under S. 637 of the Act by a notification dated 24-6-1975. Before examining the rival contentions urged on behalf of the parties, it will be convenient to set out the relevant provisions of the Act. Sec. 294-AA(1), (2) and (3) read thus :- 294-AA(1) Where the Central Govemment it of the opinion that the demand for goods of any category, to be specified by that Government, is substantially in excess of the production or supply of such goods and. that the services of sole selling agents will not be necessary to create a market for such goods, the Central Government may, by notification in the Official Gazette, declare that sole selling agents shall not be appointed by a company for the sale of such goods for such period as may be specified in the declaration.

(3.) On a plain reading of this section, It is clear that whereas under sub-sec. (1) of S. 294AA if the Central Government is of the opinion that the demand for goods of any category is substantially in excess of the production or supply of such goods and that the services of sole selling agents will not be necessary to create a market for such goods it can by notification in the Official Gazette prohibit appointment of sole selling agents for the sale of such goods for a period specified in the declaration. Sub-sec. (2) of S. 294AA provides that no company can appoint any individual, firm or a body corporate as a sole selling agent who or which has a substantial interest in the company without obtaining previous approval of the Central Government. Sub-sec. (3) of S. 294AA deals with appointment of a sole selling agent by a company having a paid up share capital of Rs. 50 lacs or more. There are two conditions imposed in this sub-section for appointment of a sole selling agent; (i) consent of the company accorded by a special resolution; and(ii) approval of the Central Government.