Deshmukh, J.
1. This is an appeal by the original petitioners, who are a private limited company, against the order of dismissal of their writ petition by the learned single judge of this court. The facts that give rise to this appeal may be briefly noted :
2. The appellant is a private limited company and its main business is selling various commodities on commission basis or commercially dealing in many articles. Respondent No. 5 is a public limited company which manufactures many chemicals amongst which are the three articles, viz., sodium hydrosulphite, caustic soda lye, chlorine and its by-products (excluding hydrochloric acid).
3. The appellant-company was appointed as sole selling agent for the three commodities manufactured by the respondent No. 5-company by a written agreement dated 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 organization 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.
4. It was also a term of the agreement that, in exceptional circumstances, sale could be undertaken directly by the respondent No. 5-company with the prior approval of the appellant-company, but even on such sale the agreed commission of 5% was payable to the appellant-company within a month of the effecting of that sale. There was a further term of sixty days credit from the date of supply by the manufacturers on the consignment basis. This being a sole selling agency agreement covered by the provisions of section 294 of the Companies Act, 1956, the approval of the general body of the shareholders was obtained which made the contract lawful and effective for a period of five years from July 1, 1961. The sole selling agency was being in this manner worked up to November, 1964, when certain developments took place.
5. It appears that by 30th May, 1964, three shareholders of respondent No. 5-company wrote a letter to the Registrar of Companies and made a grievance about the terms and conditions of the sole selling agent. According to the shareholders, the commodities for which the appellant-company was appointed sole selling agent were in great demand and in short supply in India and, according to them, the conditions existing in regard to these commodities could be described as a seller's market. The appointment of the appellant-company as sole selling agent amounted to making a gift of 5% of the revenue of the company and was against the interest of the shareholders. They complained that though the company sold equity shares in 1947, no dividends were ever declared. Even on the cumulative preference shares there were arrears amounting to several lakhs of rupees.
6. The Registrar of Companies wrote to respondent No. 5-company and called for its remarks on the letter of the shareholders. Respondent No. 5-company by its reply dated July 6, 1964, gave a detailed reply point-wise and para-wise to the letter written by the shareholders. In this reply, amongst other points, respondent No. 5-company admitted that the shareholders had made a representation that having entered into a contract of sole selling agency for a period of five years during the subsistence of the contract the company was not in a position to take any action. The other point admitted by respondent No. 5-company was that there appears to be a seller's market and it was quite possible for respondent No. 5-company to undertake the sale of its commodities themselves. It appears that this correspondence was forwarded by the Registrar 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').
7. 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 basis of the extracts received from respondent No. 5 and along with that reply they also forwarded their own audited accounts and balance-sheets. This reply bears the date 9/15-12-1964.
8. After considering this much correspondence which amounted to information collected by the Company Law Board under section 294(5)(a) of the Act, the Company Law Board issued a show-cause notice dated February 16, 1965, to the respondent No. 5-company. In this notice, three changes were proposed to be made in the sole selling agency agreement of the appellant under the powers vested in the Company Law Board under clause (c) of sub-section (5) of section 294 of the Act. The first change proposed was that the rebate payable to the appellant-company on the sale of the products sold pursuant to the agreement shall be reduced from 5% to 3.5%. The second change proposed was that the appellant-company shall not be entitled to any rebate on sales made directly by the principal company. The third proposed change was that the sole distributors shall be responsible for collection of sale proceeds and pay the same immediately on realization and in any case within 60 days from the date of despatch of goods by the principal company, whether or not such proceeds have been realised by them. In case of payment made by the sole distributors within thirty days from the date of despatch by the principal company without realizing the sale proceeds from buyers, the sole distributors shall be entitled for interest at 6% for the period up to the 60th day from the despatch. Respondent No. 5-company was directed to give its reply on or before 15th March, 1965, failing which the Company Law Board would assume that they did not wish to make any representation against the proposed variations and action on the lines indicated above and the Company Law Board would be free to act thereafter. It was also stated that if respondent No. 5-company wanted to make a personal representation in this regard the officers of the Company Law Board would be glad to meet their representatives on a suitable date after the receipt of the written representations.
9. It appears that no direct communication was ever made by the Company Law Board with the appellant-company. The show-cause notice was forwarded by respondent No. 5-company to the appellant-company and on the basis of that show-cause notice, the appellant-company made 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 the 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 leadings 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 agreement of sole selling agency with effect from the date of that order, viz., April 20, 1965.
10. By this order the Company Law Board points out that they had collected information from respondent No. 5-company under section 294(5)(a) of the Act and on perusal of the information furnished by the company and having considered the representations made by and on behalf of the company, the Company Law Board was of the opinion that the terms and conditions of appointment of the agency are prejudicial to the interest of the company and as such in pursuance of the powers conferred upon them by clause (c) of sub-section (5) of section 294 of the Act they varied the terms and conditions of the appointment of sole selling agent as indicated in the order. The first change effected was in consonance with the proposal at point (i) in the show-cause notice about the rebate payable at 5% to the petitioner-company which was reduced to 3.5%. In place of the original clause (8) of the agreement, the Company Law Board proposed the following clause :
'8. The sole distributor shall be responsible for collection of sale proceeds and pay the same immediately on realization and in any case within 60 days from the date of despatch of goods by the manufacturer, whether or not such proceeds have been realised by them. In case of payments made by the sole distributors within thirty days from the date of despatch by the manufacturer, without realizing them from the buyers, the sole distributors shall be entitled for interest at the rate of 8 per cent. per annum for the period from the date of payment to the 60th day or the date of realization from the buyer, whichever is earlier.'
11. So far as the original proposal at point (iii) in the show cause-notice was concerned, the Company Law Board directed that in the case of the existing clause 12 of the agreement, the following shall be substituted :
'12. The manufacturer shall be free to sell any of the said products direct to any dealer, consumer, Government or semi-Government institutions without reference to the sole distributors. The sole distributors shall not be entitled to any rebate, commission or any other remuneration on such direct sales.'
12. Aggrieved by this order of the Company Law Board, the present petition has been filed. In this petition, the petitioners have raised four points to challenge the order of the Company Law Board. According 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 the 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 should be quashed. The next challenge is that, whether administrative or quasi-judicial, the proceedings under section 294(5) of the Act resulted in affecting the civil rights of the appellant-company and as such it was absolutely necessary that a proper hearing is given to the appellant-company. The hearing should have been as a matter of right, and in full observance of the principles of natural justice. In the present case it is alleged that all the relevant material before the Board was not made available to the appellant-company and the appellant-company was not given any hearing in respect of the entire matter which has ultimately influenced the Company Law Board in passing the impugned order. The last challenge that is held out us that granting that the provisions of sub-section (5) of section 294 of the Act are intra vires, they only give a right to the Company Law Board to vary the terms and conditions of the contract of the sole selling agent but even after the variation the sole selling agent has to survive in reality as a sole selling agent. This was tea proposal in the show-cause notice, but while passing the final order the Company Law Board has acted beyond the show cause notice and has reduced the appellant-company to the position of an ordinary agent, after doing away with its status as a sole selling agent. This action is, therefore, bad for two reasons. The changes are beyond the show-cause notice and, therefore, on the changes which are actually effected there has been no hearing at all afforded to the appellant-company. The second attack is that power at best is to change the terms and conditions of appointment, but there is no power to reduce a sole selling agent to the position of an ordinary agent. That has actually been done by the impugned order and as such the order is far beyond the powers of the Company Law Board under section 294(5) of the Act.
13. To such a petition are joined respondents Nos. 1 to 3 who are the members of the Company Law Board. Respondent No. 4 is the Union of India and respondent No. 5 is J. K. Chemicals Ltd., the public limited company, which appointed the appellant-company as the sole selling agent. In these proceedings respondent No. 5-company never appeared and took no part. There is appearance on behalf of respondents Nos. 1 to 4 and out of them respondent No. 2 has filed a reply on behalf of himself and respondent No. 4 which in fact purports to be on behalf of all the respondents Nos. 1 to 4.
14. 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 principles of natural justice. After taking into consideration the entire material before them, which has been annexed to the reply, and after hearing the representatives of respondent No. 5-company as well as the appellant-company, the impugned order has been passed so as to make the terms and conditions of appointment of the appellant-company 'no more prejudicial' to the interest of respondent No. 5-company.
15. This petition was heard by a learned single judge of this court, who by his order dated 10th February, 1966, dismissed the petition. It has been held that the provisions of section 294(5) of the Act are intra vires and are not violative of the principles of article 14 of the Constitution. The learned single judge has not given any opinion as to whether the proceedings under section 294(5) are administrative or quasi-judicial. He has proceeded on the assumption that they may be treated as quasi-judicial and found, in view of the case law then available in 1965 and February, 1966, when the judgment was delivered, that observance of principles of natural justice was enough before an order like the impugned order was to be passed. The learned judge found that though the Company Law Board did not enter into correspondence with the appellant-company and did not specifically deal with them by giving them a show-cause notice, the evidence on record showed that the entire material which was considered by the Board was made available to the appellant-company by respondent No. 5-company. Not only that but, according to the learned judge, the appellant-company and respondent No. 5-company were acting hand in glove. In the circumstances there was sufficient notice to the appellant-company of the entire material which was being considered by the Company Law Board. He further held that as a representative of the respondent No. 5-company had accompanied the representative of the appellant-company, a personal hearing was also given to the appellant-company besides the consideration of the written representations made by them. The learned single judge further found that the term 'vary' was given an artificial meaning by the Act in the definition clause (50) of section 2 of the Act. According to this definition 'variation' shall include abrogation; and 'vary' shall include abrogate. In view of this artificial meaning given to the expression 'variation' 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.
16. 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 beyond the scope of section 294(5) of the Act and as such the principles of natural justice have not been observed so far as the actual changes effected are concerned.
17. Having heard the learned counsel on both the sides, we are not much impressed by the argument that the provisions of section 294(5) of the Act are violative of the principles of article 14 of the Constitution. It was argued that the provisions of section 294(5) are discriminatory and permit the Company Law Board to pick and choose some of the parties who may be having sole selling agency contracts to the exclusion of others who may be similarly circumstances. So far as the sole selling agency contracts are concerned, it was stated that it was a common type of contract which many companies may be having for selling their goods. There is no provision for making the Company Law Board aware of the various contracts which many companies may be having. There is also no provision by which contracts are required to be registered somewhere nor any provisions are to be found for the appointment of the officer who will examine such contracts and bring to the notice of the Company Law Board that the terms thereof appear to be prejudicial to the interest of the company. The expression 'prejudicial' used in the section is also vague and does not convey any specific meaning. On the fact of it, therefore, an element of artificiality is prevalent in all these provisions and there does not seem to be any classification which can be justified on a rational ground. There are also no in-built safeguards or guiding principles which are required to be observed by the Company Law Board before a decision is taken. According to Shri Bhat, this being prima facie a quasi-judicial enquiry as it affects the contractual rights of the sole selling agent, the section indicates no settled norms which ought to be observed by the Company Law Board before it makes up its mind to pass a certain order. He points out that under the earlier part of section 294, a sole selling agent can be appointed by the company, but unless the appointment is approved in the first general body meeting held after the date on which the appointment is made, the appointment ceases to be valid. This is the effect of the provisions of sub-sections (2) and (2A) of section 294 of the Act. It is, therefore, obvious that a solemn commercial contract has been entered into by the two willing parties which has been ratified by the general body of the shareholders.
18. 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.
19. Shri Bhat argued that where the Act does not prescribe the guidelines, to clothe an administrative or executive authority with vast discretionary powers which can be misused, the Supreme Court has struck down the provisions of the Act. He relies, for instance, on the judgment of the Supreme Court in the case of State of West Bengal v. Anwar Ali. In that case the State Government was given the right under section 5(1) of the West Bengal Special Courts Act (X of 1950) to transfer any particular case relating to any offence alleged to have been committed by any accused to a special court for being tried. According to the procedure of that Act, in cases where the State Government was of the opinion that it was necessary in the interest of speedy trial so to do, it could transfer any case under any offence to the special court. The provisions of section 5(1) have been struck down as ultra vires and offending the provisions of article 14 of the Constitution. If the provisions of the West Bengal Special Courts Act are taken into account and the approach of the Supreme Court is considered in that behalf, we think that this judgment would be of no assistance to the present appellant-company. In that case the only broad guideline to the State Government was to pick and choose any case relating to any offence and alleged to have been committed by any accused on the sole test of speedy justice. Speedier trial could be, in the circumstances, reason and motive for the legislation, but could not amount either to a classification of offences or cases. The necessity of speedier trial was considered too vague, uncertain and elusive criterion to form the basis of a valid and reasonable classification. The Act chose to bestow upon the State Government unrestrained power to select any case or offence for trial before a special tribunal and thereby withdraw the normal protection an accused has under the ordinary procedural law. This was considered highly discriminatory and it was further pointed out that not only a law but even a rule fell within the purview of the challenge under article 14 of the Constitution. We are not in a position to draw any analogy with the provisions considered by the Supreme Court and the provisions which are before us for our consideration. The challenge in that case succeeded because the Supreme Court held that there was no classification in the real sense of the term as it was not based on any characteristics which were peculiar to persons or to cases which were to be subjected to the special procedure prescribed by the Act.
20. In a later judgment in Ram Krishna Dalmia v. Justice S. R. Tendolkar, their Lordships had occasion to examine all case law not 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 differential 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 differential 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 be said to have formed a class of his own. They further point out that when the challenge under article 14 is to be considered the court has to start with the presumption in favour of the constitutionality of an enactment and the burden is upon the person who attacks it to show that there has been a transgression of the constitutional principles. It has to be assumed that the legislature understands and appreciates the needs of its people correctly, that the laws are directed to problems made manifest by experience and that its discriminations are based on adequate grounds. It would also be legitimate to assume that the legislature is free to recognise degrees of harm and confine its restrictions to those cases where the need is deemed to be the clearest. For sustaining the presumption of constitutionality the court may take into account matters of common knowledge, matters of common report, the history of the times and may assume every state of facts which can be conceived existing at the time of legislation and that while good faith and knowledge of the existing conditions on the part of a legislature are to be presumed, if there is nothing on the face of the law or the surrounding circumstances brought to the notice of the court on which the classification may reasonably be regarded as based, the presumption of constitutionality cannot be carried to the extent of always holding that there must be some undisclosed and unknown reasons for subjecting certain individuals or corporation to hostile or discriminating legislation. The Supreme Court has also pointed out the various classifications which can be easily conceived of on the basis of these principles, but it does not appear to be necessary to go into the details of that discussion.
21. The position under the Constitution may have to be examined in the light of these broad principles so far as the classification is concerned. However, this is one part of the challenge. The second point is how the legislation will indicate the limits of the power vested in certain authorities and how will it indicate the policy of the Act as also the propriety of classification. In that behalf it appears to be now well understood that the policy of the law could be indicated in the provisions themselves and it would not be advisable to accept a particular kind of wording of the provisions and if from the provisions themselves 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 agencies '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.
22. 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, 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 constitutionality of that Act, as the expression used 'substantial' was vague and undefined, the Supreme Court while upholding the legality and constitutionality of the Act pointed out that the word 'substantial' by itself provides no yard tick for concluding that so far as a particular individual was concerned, the background and the circumstances under which the Act was passed indicate with reasonable certainly the class of persons intended to the subjected to the drastic procedure contemplated by the Act. In that context, it was further pointed out that the expression 'substantial' means big, considerable. They also considered the arguments that there was a possibility of the Government discriminating between individual and individual by using or in fact misusing the provisions of that Act. This argument was met by pointing out that when there was a ground to render the law invalid or void, if an individual case of that type is brought to the notice of the court it would be a case of challenge to the executive action and not to the constitutionality of law. It was observed that there was a presumption that law would be enforced honestly and not 'with an evil eye and an unequal hand.'
23. In the same manner in the case of Jyoti Pershad v. Administrator for the Union Territory of Delhi, it has been clearly laid down that so long as the legislature indicated in the operative provisions of the statute with certainty the policy and purpose of the enactment, the mere fact that a discretion was skeletal, or the fact that the discretion is left to those entrusted with administering the law, affords no basis either for the contention that there has been an excessive delegation of legislative vested is to amount to an abdication of its functions, or that the discretion vested is uncanalised and unguided as to amount to a carte blanche to discriminate.
24. In the light of these principles if the provisions of section 294(5) are examined, we find that it is difficult to sustain the challenge under article 14 of the Constitution of India. The provisions of sub-section (5) of section 294 of the Act are obviously conceived of to eradicate one of the evils well-known to the legislature. The principle on which this provisions has been enacted can be well imagined. There may be certain products manufactured by the companies which are in such great demand and which are 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 sold 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 prejudicial to the interests of the company and which do not. It may be noted that section 294 deals only with the sole selling agents and not with ordinary agents and dealers or sub-dealers that may be appointed from time to time and whose terms and conditions could also be varied from time to time. The sole selling agent is recognised as a necessary institution but the terms and conditions on which advantage of that organisation could be taken must not be prejudicial to the interests of the company. Here is therefore the first distinguishable feature which becomes apparent of the face of the record, viz., that the class of companies which are conceived of are those companies who have sold selling agents and whose terms and conditions of appointment are prejudicial to the interests of the company. This appears to us as a well defined class and should be understood as a classification to the exclusion of other companies, who do not either sole selling agents at all or whose terms of appointment are not prejudicial to the interests of the company. There is, therefore, a well recognised classification to be reckoned under section 294(5).
25. Then again we find that the guidelines are to be found within the provisions of clause (c) of sub-section (5) of section 294 of the Act. It is not every contract that is open for variation by the company Law Board, but unless a contract is found to be prejudicial, the Company Law Board does not seem to have any right or authority to interfere with the agreements of sole selling agents. A finding to be arrived at by the Company Law Board that a certain contract of a sole selling agent is prejudicial to the interests of the company is the very foundation of the jurisdiction of the Company Law Board. Whether a particular agreement of a sole selling agent could be described as prejudicial or not prejudicial would always depend upon the facts and circumstances of the case and various attending circumstances. The expression seems to be difficult to define but it is quite capable of being understood as providing a rational guideline for taking a decision on the facts and circumstances of the case. A selling agency and its utility as well as necessity are matters well-known to the commercial world and the implications thereof could be easily deciphered by experienced persons. The question does not pose either complicated investigation or a position of any complex type. The simplest case that could be conceived of is where a commodity is in so short supply that before it is manufactured and comes out of the factory there are orders standing from buyers and the company finds if 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.
26. 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 contract becoming 'prejudicial', it is still capable of providing a rational guideline for the exercise of the power by the Company Law Board. Even after reading the provisions of clause (d) of sub-section (5) of section 294 which speaks of regulation of the appointment of the sole selling agent according to the terms and conditions varied by the Company Law Board, we are of the view that the section inherently indicates that the company which needs a sole selling agent can appoint him only on terms which are not prejudicial to the interests of the company. If the terms and conditions are so varied as to make then no more prejudicial, not only the interest of the company is served but a sole selling agent who had procured rather hard terms in his favour is brought down to terms and conditions which would be reasonable in the circumstances of the case. We are, therefore satisfied that the provisions of section 294(5)(c) are not open to challenge under article 14 of the Constitution. Agreeing with the learned single judge we reject this part of the argument of Shri Bhat.
27. The next point that falls for consideration is whether the impugned order passed by the Company Law Board is passed in a jurisdiction which is administrative or quasi judicial. Shri Bhat argued that the jurisdiction exercised by the Company Law Board under sub-section (5), clause (c) of section 294, is purely quasi-judicial in its character. The relevant provisions of section 294 which fall for out consideration are as follows :
'294(5)(a) Where a company has a sole selling agent (by whatever name called) for an area and it appears at the Central Government that there is good reason so to do, the Central Government may require the company to furnish to it such information regarding the terms and conditions of the appointment of the sole selling agent as it considers necessary for the purpose of determining whether or not such terms and conditions are prejudicial to the interest of the company;
(b) if the company refuses or neglects to furnish any such information, the Central Government may appoint a suitable person to investigate and report on the terms and conditions of appointment of the sole selling agent;
(c) if after perusal of the information furnished by the company or, as the case may be, the report submitted by the person appointed under cause (b), the Central Government is of the 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.'
28. 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 prejudicial to the interest of the company. If the company refuses or neglect to furnish any such information, the Company Law Board is authorised to appoint a person to investigate and report on the terms and conditions of appointment of the sole selling agent. This is provided by clause (b) of sub-section (5) of section 294. When the information so became available either in the form of information supplied by the company or in the form of a report by the person appointed, the Company Law Board is called upon to peruse that information and form its opinion that the terms and conditions of the appointment of the sole selling agent are prejudicial to the interests of the company. After such an opinion has been formed which on the face of it appears to be subjective formation of opinion, the Company Law Board has to proceed to pass an order and make such variations in the terms and conditions which would in its opinion make them no longer prejudicial to the interests of the company. These are the powers vested in the Company Law Board under clause (c) of the same sub-section, and the effect of the variation and further relationship between the company and the sole selling agent has been incorporated in clause (d). Under this clause (d), as from the date specified by the Company Law Board in the order, the appointment of the sole selling agent shall be regulated by the terms and conditions as varied by the Company Law Board. It goes without saying that the provisions of sub-section (5) of section 294 are attracted only when there is a sole selling agent and not otherwise. Apart from the real meaning and content of a sole selling agent, the parties seem to agree here that there is a sole selling agent and, therefore, the Company law Board has exercised its jurisdiction to vary the terms and conditions of appointment. After the variation is so made from the date indicated, the appointment is to continue and is to be regulated by the amended terms as per the order of the Company Law Board.
29. Large number of cases were cited before us on either side to convince us that this would be either quasi-judicial or administrative function of the Company Law Board. The learned single judge has not decided this question but has proceeded on the assumption that the inquiry may be assumed to be quasi-judicial. He, however, felt and in view of the case law then available rightly, whether 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. 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 power is expected to be exercised. That in a welfare State like India which is regulated and controlled by the rule of law it is inevitable that the jurisdiction of the administrative bodies is increasing at a repaid rate. However, if it is expected that the rule of law should not lose its vitality, the authorities and bodies which are being created, whether administrative or quasi-judicial, should all discharge their functions in a fair and just manner. Mr. Bhat for the appellant-company particularly emphasises the observations of the Supreme Court referred to above in Kraipak's case that in recent years the concept of quasi-judicial power has been under-going a radical change. What was considered as an administrative power some years back is now being considered as a quasi-judicial power.
30. With these premises Mr. Bhat called upon us to decide whether the powers exercised under section 294(5) are administrative or quasi-judicial particularly in view of a new point which he raised before us, and which we have permitted him to urge. The argument is that if the Company Law Board was discharging quasi-judicial function in passing the impugned order, it was bound to give reasons for the passing of that order. In other words, the order of a quasi-judicial body must be a speaking order. A person aggrieved by that order must know why the quasi-judicial authority has passed that order so that if he wants to resort to a further remedy either byway of the appellate jurisdiction of the Supreme Court under article 136 of the Constitution or the supervisory jurisdiction of the High Court and the Supreme Court under articles 226 and 227 and 32, respectively, he may do so. Unless he knows why the order has gone against him it would be difficult for him to convince the High Court or the Supreme Court about the correctness and legality of his own case.
31. We will at once point out that when an attempt was made to raise certain grounds conducive to the development of this point, it was opposed by Mr. Joshi on behalf of the respondents. After hearing the counsel on both the sides, we are rejecting that objection. Mr. Joshi's objection on behalf of respondents Nos. 1 to 4 is that the petition pleads that the impugned order is quasi-judicial in its nature. There is no pleading that the order is bad because it does not incorporate reasons therein. This is aground which should 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.
32. Mr. Bhat placed strong reliance upon the judgment of the Supreme Court in Travancore Rayons Ltd. v. Union of India. 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 order of the initial authority that passes it. For instance, in the case of Travancore Rayons Ltd. the Central Government had the right of revision under section 36, which provided an aggrieved party the right to move the Central Government by way of a revision application. After the final order of the Tribunal in a case of this type, the party aggrieved is still entitled to invoke the supervisory jurisdiction of the High Court under article 227 or the appellate jurisdiction of the Supreme Court under article 136. In this context in para. 9 of its report, the Supreme Court observed that the court held in a number of decisions cited in the para. that the decisions of Tribunals in India are subject to the supervisory powers of the high Court under article 227 of the Constitution and the appellate powers of the Supreme Court under article 136. The High Court and the Supreme Court would be placed under a great disadvantage if no reasons are given and the revision is dismissed by the use of the single word 'rejected' or 'dismissed'. It is further observed that in the view of the Supreme Court majority judgment in Madhya Pradesh Industries Ltd.'s case has been overruled by the Supreme Court in Bhagat Raja v. Union of India. In paragraph 10 of the report it is observed that in later decisions of the Supreme Court it was held that where the Central Government exercising power in revision gives no reasons, the order will be regarded as void. For this conclusion reliance is placed on State Of Madhya Pradesh v. Seth Narsinghdas Jankidas Mehta (C.A. No. 681 of 1966 dated 29-4-1969), State of Gujarat v. Patel Raghav Natha and Prag Das Umar Vaishya v. Union of India (C.A. No. 657 of 1967 dated 17-8-1967). Mr. Bhat brought to our notice that the last mentioned case has been reported in [1967] Mah. L.J. 981.
33. We need not probe this point any further. The reason will become apparent in the further part of our judgment. However, since Mr. Bhat wanted to argue that the absence of a speaking order is fatal in a quasi-judicial proceedings he brought to our notice the above judgments. Before such an argument was to be made there was an obstacle in his way that this was not specifically pleaded in the petition. We find that there is good authority not only in the cases falling under the Civil Procedure 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, 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 that it was purely a question of law and no new or additional facts were required to be pleaded. The report of the Supreme Court to which we have referred is not an authority on the point but since we get from the earlier history of the litigation given by the High Court a position where the appellate Bench of the Punjab and Haryana Court allowed a pure question of law, which is a similar question raised before us, we have referred to this judgment. In another case of D. F. O. South Kheri v. Ram Sanchi Singh, the facts are slightly different but the general approach can be considered relevant for permitting a law point being raised for the first time in appeal. An objection which was mentioned in the petition and which was not traversed specifically was alleged as the basis of a point of law at the appellate stage and in the circumstances the Supreme Court says that it would be permissible to allow a party to raise such a point of law.
34. The facts before us clearly show that the order in question is being pointed out in the petitions a quasi-judicial order. If that is a point of dispute, the further argument relating to the necessity of incorporating reasons in the order now affords a point of law from the subsequent judgments of the Supreme Court. These judgments were not available to the parties at the time when the petition was presented or when it was argued before the learned single judge. We do not think that the raising of this point should be prevented on the technical plea that want of reasons has not been specifically pleaded in the petition.
35. Before we again go to some of the cases on which reliance is placed for pointing out that the proceedings under section 294(5) are quasi-judicial proceedings it would be appropriate to point out the broad distinction between quasi-judicial order and an administrative order. In Radeshyam Kharev. State of Madhya Pradesh, the Supreme Court observed that there seem to be three requisites in order that the act of a body may be said to be quasi-judicial act, viz., that the body of persons, (1) must have legal authority, (2) to determine questions affecting the rights of parties, and (3) must have the duty to act judicially. It is the third condition which really distinguishes an administrative order from one which is quasi-judicial. Even for an administrative order the body of persons must be invested with powers and sometimes an administrative order can have much more for 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. The his 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 subsection (5) of section 294 are examined to find out what they really contain.
36. Dealing with the provisions of clause (a) it would be at once pointed out that the Company Law Board begins to act for the purpose of collecting information regarding the terms and conditions of appointment of a sole selling agent provided there is good reason to do so. In a given case the Company Law Board may be apprised, as for instance in our case, of a certain set of facts which may be described as prejudicial to the interest of the company so far as the terms and conditions of appointment of a sole selling agent are concerned. The provisions of clause (a) clearly show that the terms and conditions incorporated in the contract of agency as also such other incidental matters which may be necessary for the purpose of determining the prejudicial character of the agreement is concerned, are to be collected from the company itself. The reasons seem to be obvious. No limited company would transact any business including appointment of sole selling agent unless there is a well-maintained record of it. Sole Selling agent's appointment is required to be ratified by the general resolution of the shareholders in the first general body meeting after the appointment is made. That being so the text of the resolution ratifying the argument and the results which follow from the actual working of that agreement would be all matters of record and could be easily obtained from the office of the company. In case there is refusal or neglect by the company, suitable person could be appointed to investigate and report. He would do the same thing viz., search the records of the company and get the factual information which would normally partly consist of the terms and conditions of appointment and partly of a statistical date indicating the gains and losses of the working of that agreement. This is the material which is made the basis of the opinion about the company by the Company Law Board. In clause (c) which immediately follows, it is laid down that on perusal of that information the Company law Board has to form an opinion. The language used is that the Company Law Board 'is of the opinion that ....' The opinion that is conceived of is whether the terms and conditions of the appointment of a sole selling agent are prejudicial to the interest of the company. At this stage before the decision is taken, undoubtedly 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.
37. 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 be inferred from the implied provisions as also from the nature of the power, the nature of the body of persons who are invested with it and consequences that must follow from the exercise thereof, etc. In other words, if there is an imperative need to act judicially, from the necessary implication and from the provisions and the attending circumstances, the functions to be performed would have to be held quasi-judicial. In a case falling under section 294(5) the information, as we pointed out earlier, is of a very limited type and no particular kind of investigation or inquiry with evidence, etc., seems to be necessary. Immediately thereafter - but in view of the principles which the courts have developed - after hearing the party affected, an opinion is permitted to be formed. In a process of this type conceived of by clause (c) under consideration, it is difficult to read that there is either express or implied provision for acting judicially. No elaborate investigation is called for nor seems to be necessary. However, the Board must hear those who are going to be affected and that hearing would be in the observance of the principles of natural justice. We may here point out that the principles of natural justice are not codified law but are well-recognised rules which are developed by the courts from time to time. The Supreme Court has pointed out in A. K. Kraipak's case that the concept of natural justice has undergone a great deal of change in recent years. In the past it was thought that it included just two rules, viz., (1) no one shall be a judge in his own case (nemo debt esse judex propria cause), and (2) no decision shall be given against a party without affording him a reasonable hearing (audit alteram partem). Very soon, thereafter, a third rule was envisaged and that is that quasi-judicial enquiries must be held in good faith, without bias and not a arbitrarily or unreasonably. But, in the course of years, many more subsidiary rules came to be added to the rules of natural justice. It was thought till recently that unless the authority concerned was required by the law under which it functioned to act judicially there was no room for the application of the rules of natural justice. The validity of that limitation is now questioned. If the purpose of the rules of natural justice is to prevent miscarriage of justice one fails to see why those rules should be made in applicable to administrative enquiries also.
38. 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.
39. Shri Joshi for the respondents relied upon two judgments of the Supreme Court in the case of Barium Chemicals Ltd. v. Company Law Board and Rohtas Industries Ltd. v. S. D. Agarwal. In both these cases the provisions of the company law which was under consideration was section 237 of the Act. We do not think that either of the cases can be usefully considered for the interpretation of section 294(5) of the Act for the simple reason that there is one distinct feature in the section under consideration which was absent in section 237. Section 237 of the Act deals with the investigation of the company's affairs in certain cases. The final result of the investigation, whatever that be, does not seem to bind any one nor does in affect the rights of any party. If at all any action is contemplated, civil, or criminal, as a result of the investigation conducted under section 237, the matter has to be taken to a court of law. However, section 294(5) of the Act directly affects the civil rights of a sole selling agent like the appellant-company and we do not think, therefore, that the conclusions of the Supreme Court that the orders under section 237 of the Act are administrative in character can have any relevance while discussing the provisions of section 294(5).
40. Shri Bhat, on the contrary, relies on the judgment of the Supreme Court in Rampur Distillery and Chemical Co. Ltd. v. Union of India. That was a judgment under section 326 if the Act relating to the approval of the Central Government to the appointment, etc., of the managing agents under certain circumstances. These provisions were construed by the Supreme Court and their Lordships held that the enquiry under that section is quasi-judicial. The reasons seem to be obvious. A plain look at the provisions of section 326 will show that the Central Government is called upon to accord its approval to the appointment or reappointment of the managing agent only if the conditions mentioned in clauses (a), (b) and (c), of sub-section (2) of section 326 existed. Out of these clauses, particularly clause (b) of sub-section (2) requires the Central Government to form its opinion as to whether the managing agent proposed is a fit and proper person to be appointed or reappointed and that the conditions which are proposed are fair and reasonable. It is clear that the suitability 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(5). As we find that neither section 326 nor section 237 of the Act was comparable to the provisions of section 294(5), we must decide the question raised before us by looking at the section, its implication and the real import of the provision in the light of the broad principles which are well established.
41. In the circumstances, as we have already pointed out, the provisions of clause (c) require a decision being taken on facts which are directly collected from the company and in the light of such other circumstances as may be brought to the notice of the Board by the parties who are going to be affected by the decision which is to be taken. We do not think, therefore, that there is neither express not implied provision in the Act not do any attending circumstances exist which indicate the necessity to act judicially before the opinion contemplated is to be formed. We would, therefore, hold that the impugned order which the Company Law Board passed under section 294(5)(c) is administrative in its character and not quasi-judicial.
42. In the circumstances, as we have already pointed out, the provisions of clause (c) require a decision being taken on facts which are directly collected from the company and in the light of such other circumstances as may be brought to the notice of the Board by the parties who are going to be affected by the decision which is to be taken. We do not think, therefore, that there is neither express not implied provision in the Act not do any attending circumstances exist which indicate the necessity to act judicially before the opinion contemplated is to be formed. We would, therefore, hold that the impugned order which the Company Law Board passed under section 294(5)(c) is administrative in its character and not quasi-judicial.
43. In view of this conclusion, it would be necessary for us to examine whether the Company Law Board has observed the rules of natural justice and whether it has acted beyond its powers under section 294. So far as the principles of natural justice are concerned, the Supreme Court pointed out in A. K. Kraipak's case that they are not a set of embodied rules and what particular rule of natural justice should apply to a given case must depend to a great extent upon the facts and circumstances of that case, the framework of the law under which the enquiry is held, and the constitution of the tribunal or body of persons appointed for that purpose. Whenever a complaint is made before a court that some principle of natural justice had been contravened, the court has to decide whether the observance of that rule was necessary for a just decision on the facts of that case.
44. The grievance which has been made out by Shri Bhat in respect of the observance of the principles of natural justice is that the Company Law Board has neither granted him all the material on which they have acted not have they heard him as a matter of right. The learned trial judge has come to the conclusion that the appellant-company somehow appears to have obtained all the material on which the Company Law Board acted. The learned judge does admit that a part of the material, which was in fact important portion of the material, was not made available by the Company 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.
45. 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-company, but the full text of that letter was never made available to the appellant-company by respondent No. 5. They sent only some extracts and on the strength of those extracts the appellant-company sent a reply to the Company Law Board annexing along with it its audited balance-sheet and accounts. Undoubtedly that was a letter under section 294(5)(a) and even the extract sent to the appellant by the respondent No. 5-company made the appellant-company aware that the Company Law Board was making enquiry into the matter under section 294(5). What is being argued and held proved is that the appellant-company being the sole selling agent must have know from the reference to section 294(5) that the enquiry is undoubtedly for the purpose of examining the terms and conditions of the sole selling agent and to decide whether they are in fact prejudicial to the interest of the company. There is no doubt that is some substance in this argument.
46. However, the reply given by the appellant-company would show that they did not seem to be aware of the allegations of the shareholders that there was a seller's market in respect of all the three commodities for which the appellant-company was appointed a sole selling agent. They make a general representation about such contracts and the terms being reasonable as usual in the chemical trade. The subsequent stage arises when a show-cause notice is issued by the Company Law Board and respondent No. 5-company is called upon to make its written representation. So far as the record goes the show-cause notice has been made available to the appellant-company by respondent No. 5-company, but the reply of respondent No. 5-company is not made available to the appellant-company. The representation of the appellant-company, if read independently, creates an impression that the appellant-company was never made aware of the fact that the allegation of existing seller's market was being made nor do they seem to be aware of another allegation that they had not put up any sales seem to be aware of another allegation that they had not put up any sales organisation at all as required by the original terms and conditions of the agreement. Obviously, therefore, we do not find a detailed reply in respect of the sales organisation nor do we find any reference at all to the question of seller's market. Even a reference to the sales organisation is indirect with a view to point out that the rate of commission was 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 reference which give the impression that the company is sitting on the fence and neither wants to give up its selling agency not does it want to take up an attitude which could be attacked subsequently in a share-holders' meeting.
47. 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 whether it was 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-distribution the sole distributors are not entitled to any rebate. They asked for a clarification of the matter. It may be noted that in the original clause (12) of the sole distributorship, the sole distributors were entitled to the commission even on certain sales made directly in exceptional circumstances by the manufacturers. When the show-cause notice was issued and the change was proposed in that behalf, the wording of the show-cause notice is as follows.
'M/s. Nanavati and Company shall not be entitled to any rebate on sales made directly by the principal company.'
48. We must not forget that the show-cause notice was not an independent document but it had direct relation to the terms and conditions in the original agreement which were sought to be varied under the powers vested in the Company Law Board under section 294(5). There was one case of sales directly to be made by the manufactures contemplated by clause (12) of the original agreement and even in respect of that sale the appellant-company was entitled to its 5% rebate. Read in that context the proposal of the Company Law Board, prima facie, shows that in respect of those sales effected under clause (12) the appellant will not be entitled to its rebate. However, while giving the explanation respondent No. 5-company seems to enlarge the basis of the proposal and makes a query whether the proposed amendment is to be understood as a free right of sale to sub-distributors also with no liability to pay rebate to the appellant-company, the sole selling agent. This approach suggested in the reply of respondent No. 5-company has ultimately been accepted by the Company Law Board while passing the final order. The appellant-company, prima facie, is not aware of this suggestion of respondent No. 5-company which is directly against the interest of the appellant-company and also against the avowed terms of its agreement. While furnishing information to the Company Law Board, respondent No. 5-company in its earlier reply has pointed out that the appellant-company has already earned a rebate of Rs. 13 lakhs over a period of 3 to 4 years. It has also suggested there that if this rebate was not payable to the appellant-company between the periods 1959-60 to 1965 there would have been to that extent an improvement in the financial position of the company.
49. 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 places 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 either letter of the shareholder making a grievance against the sole selling agent and the rebate paid to them. Some dated 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 its representations before 15th March, 1965, we find that the appellant-company gives a reply on 12th March, 1965, whereas respondent No. 5 gives a reply on 13th March, 1965. From this conduct of the two parties, viz., the appellant-company and respondent No. 5-company, of giving replies near about the same date, an inference is sought to be drawn that they must have consulted each other to the full and thereafter these replies must have been given. When the appellant-company pleaded that in spite of the appellant's letter to the Company Law Board they never acknowledged any letter nor communicated any reply, the attitude in the affidavit-in-reply in that the appellant had no locus standi and there was no need to hear it at all.
50. This has been the frame of mind of the Company Law Board right from the beginning and continues to be so even during this litigation. However, the appellant-company volunteered to send replies from time to time as it received certain communications from the respondent No. 5-company. Those communications were not full extracts of the material received from the Company Law Board nor the communications including the replies given by respondent No. 5-company. The explanations and representation of the appellant-company are always confined to the points which appear in the communications received by the company whether they are extracts or full texts. So far as the show-cause notice is concerned, there is a full text available but for the rest only extracts of the earlier letter and not even an extract of the relevant portion of the shareholders' complaint to the Registrar of Companies, which was also available to the Company Law Board.
51. Shri Bhat argued, and with considerable emphasis, that it is not possible on the face of the record to infer that the appellant has been fully made aware of the material that was placed before the Company Law Board. Undoubtedly, the allegation of the market being the seller's market for the commodities for which the agency was created and the absence of any sales organisation worth the name by the appellant-company, were two of most important facts which could influence the decision of the Company Law Board. On both these issues the appellant has not furnished reply as he was prima facie not made aware of these allegations from the documents that were made available to him. The next piece of circumstance 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 shareholder and the explanation of the company must have been discussed.
52. It is only on the basis of such inferences which are required to be drawn, a finding is sustained that every point against the appellant-company was made known to it, and the appellant-company was in fact heard on all the points. In a case of this type, even though the order is administrative, Mr. Joshi for the respondents conceded that the principles of natural justice ought to have been observed and in view of the later development of case law, they must be observed. These principles not being a fixed body of rules, then facts and circumstances of each case must be analysed for finding out whether there has been requisite compliance with these rules. In any case where adequate hearing is to be given to a party before a decision is to be taken against it, it seems to be necessary that the party is informed as to what is proposed to be done so as to affect its rights. The party must be told why this was proposed to be done and on what material the action was contemplated. Thereafter, as a matter of right the party must be heard and this hearing may consist of a mere written representation or personal hearing as the facts and circumstances of the case may require. For the further application of the rules of natural justice, the authority must consider the entire material that has reached it and it must honesty decide on the merits without references to the expediency or policy. If that is done it can be said that natural justice has been done. In a case under section 294 a sole selling agent in the position of the appellant-company is entitled to know not only the nature of the changes proposed but also the reasons therefor together with the material on which the authority desires to act.
53. In the present case the basic question that arises for consideration is as to who should be heard when action is contemplated under section 294(5). The Company Law Board seems to think, and as was stated during the course of arguments before us by Mr. Joshi, on advice, that it is only the company which should be heard and not the sole selling agent. if it is a basic principle of natural justice that a party whose rights are going to be affected must be heard, it is impossible for us to conceive that respondent No. 5-company is a company whose rights are going to be affected adversely by the action called for. If at all relief was to be given against terms which were considered 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 that 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 is an affidavit of a body whose legal contention as well as the frame of mind always was that the appellant-company need not have been heard at all. Against this background and on the basis of vague affidavits could it be inferred that full and free discussion must have taken place on all material points. Could it be inferred that the appellant-company was made fully aware of the allegations of the shareholders and the half-way explanation of respondent No. 5-company, and was also given enough opportunity to represent its case in writing as well as orally against those allegations.
54. Even when the final order is passed the language in which it is drafted is typical of the attitude of the Company Law Board, in that they did not recognise the appellant-company at all as any body concerned with this matter. In the second para. of the order the Company Law Board states that it collected information from the company regarding the terms and conditions of the appointment of the sole selling agent and then says as follows :
'And whereas after perusal of the information furnished by the company and after considering the representations made by and on behalf of the company, the Company Law Board is of the opinion that the terms and conditions of appointment of the agent are prejudicial to the interest of the company.'
55. Thereafter, follows the operative part of the order which introduces the changes in the terms and conditions of the appointment of the sole selling agent. The pleading, however, in this litigation is that though ex facie the orders refer to the information furnished by the respondent No. 5-company and the hearing granted to the company, viz., respondent No. 5-company, as a matter of fact they have heard both the appellant-company as well as respondent No. 5-company. In fact reliance is placed upon the admission of the appellant-company in the petition that the representative of the appellant-company was give a hearing.
56. These are all the circumstances on record so far as the facts are concerned. From the proximity of time when the replies are given and from the fact that the representative of the appellant-company was present at the personal hearing, we are not in a position to conclude that the appellant and respondent No. 5-company were acting in close collaboration or hand in glove. It may be that the appellant-company is introduced by respondent No. 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 of 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 not to support them whole-heartedly. In on 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 there was collaboration between the two and that the entire material which was available to the Company Law Board was also made available to the appellant-company for making a representation. If that is so, then undoubtedly, there has been a failure of the observance of the principles of natural justice because sufficient and adequate opportunity has not been made available to the appellant-company to present its case. We have also not means to verify what precisely took place at the oral hearing as the pleading do not disclose specifically the points that could have been raised and discussed. We do not have the advantage of being able to examine the notes of the hearing that took place as none of them has been produced along with the affidavit of respondents Nos. 1 to 3. We find in the case of Bhagat Ram Patanga v. State of Punjab, the Full Bench of five judges of the High Court of Punjab and Haryana had the advantage of examining the entire file of the Government which dealt with the subject and the examination of which satisfied the learned judges that natural justice appeared to have been done. In the absence of similar material before us, judging from the pleadings and the material available to us we are inclined to hold that the main points that must have weighed against the appellant were not specifically brought ti the notice of the appellant-company so as to enable the appellant-company to make a representation. That would amount to not giving a proper hearing or sufficient opportunity for making a representation.
57. Shri Bhat, counsel for the appellant-company, tried to argue that the hearing that was given to the appellant-company could not be described as proper and adequate hearing for another reason. He said that the Company Law Board all along held the view that the appellant-company has no locus standi and it need not have been heard. The hearing that is contemplated as part of the rules of justice must be a hearing as of right and with consciousness, and the authority is bound to consider seriously all that the party is representing. Since the hearing given does not appear to be in that spirit, we should hold that there was no adequate and proper hearing at all. Since we find that the Company Law Board has in fact heard the appellant-company and they have said so in their affidavit-in-reply, we do not attach much important 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.
58. 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' shall include abrogation, and 'vary' shall include abrogate.
59. What was argued and what is argued before us is that the new terms and conditions changed the character of the agent. Whereas under the original contract, the appellant-company was a sole selling agent in the real sense of the term, it is now reduced to the position of just an agent, that the principal being given all the liberty to dispose of the goods in any manner whatsoever directly to consumers, dealers, Government and semi-Government institutions. It has been found that since variation means abrogation that was within the power of the Company Law Board, the order does not suffer from any infirmity.
60. It is now being pointedly argued that even assuming that a right to vary would be a right to abrogate, viz., to repeal or cancel or terminate the contract, the provisions of clause (c) do not authorise the Company Law Board in any manner to change the character of the appointment of a sole selling agent into an ordinary agent which many manufacturers appoint. Before we actually consider the validity of this argument, it may be necessary to indicate what precisely is meant by the sole selling agent as is conceived of by section 294. Since Shri Joshi for the respondent raised an argument in that behalf, we will first determine the real nature of the appointment of the appellant-company before we consider the effect of the impugned order upon that appointment. The term 'sole selling agent' has not been defined by the Act. Text book commentaries on company law merely say that the expression is well-known in the commercial world. According to Shri Bhat, the present agreement of the sole selling agent divests the manufacturers of their right to sell their own goods and vests that right exclusively in the appellant-company. The area of the operation of this agreements is the entire territory of the Union of India. In other words, the manufacturers have no right to sell their own goods except through the agency of the appellant-company. As against this Shri Joshi's argument is that the word 'sole' means one of only one, in the sense that if at all respondent No. 5-company wants to have an agent it will have only one agent, viz., the appellant-company. No other agent will be appointment in the territory of India and so long as that as not being done, the appellant-company continues to be the sole selling agent, 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 affect the right 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.
61. When we go to the terms of appointment, we find that clause (1) of the agreement says that the manufactures 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 customers in the territory of the Republic of India at prices to be fixed from time to time by the manufacturers. The manufacturers will take into consideration the price of similar products in the market for fixing a reasonable price for sale. Under clause (4) the manufacturers are obliged from time to time supply to the sole distributors their products on consignment basis for distribution to the various customers to whom sales are effected under this agreement. The bills to be made by the appellant-company will be as the sole distributors of the manufacturers. The sole distributors in terms is obliged under clause (5) to supply each month a statement of the sales effected and also copies of bills issued. Clauses (6) to (10) which deal with rebate, manner of despatch of goods, credit for 60 days, etc., need not detain us at all. Under clause (11) neither the sole distributor nor any of their directors nor any other company, firm or concern in which any of the directors or the sole distributors are partners or directors, shall during the continuance of the agreement deal in products similar to those covered by this agreement, but manufactured by any other manufacturer. However, an exception is made that, if similar products are permitted to be imported on import licence or on licences which are already held by the appellant-company or its directors, they are not prevented from effecting sales of commodities which may be similar. Clause (12), which is important, says that during the continuance of the agreement the manufacturer shall refer all enquiries for the products covered by this agreement to the sole distributors and the manufacturer shall not, except in exceptional circumstances, sell or supply such products directly to any person or concern in the territory of the Republic of India without the approval of the sole distributors. Even then in all such cases for the sales under exceptional circumstances, the manufacturer shall pay to the sole distributors within a month of such sale his agreed commission of 5% of the sale price of such products. Under clause (14) the sole distributors have to set up sales organisation to the satisfaction of the manufacturers for the promotion of the sales. Under clause (15A) one more case has been conceived of where the manufacturers have the right to sell their own products. Under that clause if at any time the sole distributors 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.
62. We have summarised all the relevant clause 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 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 three months are not sold by the sole distributors. If, however, the stocks are being exhausted month after month there will be no occasion for the manufacturers to resort clause (15A) and effect sales themselves. When an exceptional occasion arises for effecting sales under clause (12), the distributor will be appraised of it and his approval obtained. He still gets his commission in respect of those sales. Under clause (25) where the stock in excess of three months is permitted to be sold by the company without any commission or rebate to the appellant-company, it merely speaks of the inability to perform the contract as expected and, therefore, restores, all the original rights to sell, to the manufacturers. Reading the clauses as a whole we are of the view that this is a contract of a sole selling agent where the right to sell has been parted with by respondent No. 5-company in favour of the appellant-company in accordance with the terms and conditions agreed to in the contract. This is not a case where the appellant-company is only just an agent and is to be called sole selling agent because there is no other agent.
63. Having construed the terms and conditions of the contract, we also find that there is enough authority to hold that an agreement of sole selling agency in the real sense of the term as understood in the commercial world is only that contract where the agent alone has a right to sell the goods. Shri Joshi referred us to Bowstead on Agency, 1968 edition, page 197. The sole selling agents that are discussed there relate to the sale of real property and the discussion does not relate to the sole selling agents regarding the sale of merchandise by way of trade and commerce. Even if a sole selling agent is appointed for selling real property, the onerous right to sell of the principal is always there and cases are conceived of by the commentary where on the terms and conditions the agent will have to be paid his commission though the sale is effected during the period of his agency through another agent.
66. In regard to commercial contract of sole selling agency for the sale of merchandise, we find that there are two judgments of the Calcutta High Court which have taken a similar view which we are inclined to take about the real nature and content of the sole selling agency. The two judgments really relate to the same suit where interlocutory injunction asked for by the plaintiff was refused by the learned single judge but was granted in a Letter Patent Appeal by 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. 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 commodity is provided as sole agency of a person or a company. It is in my opinion sole selling agency of that company.'
67. We do not find any elaborate discussion by the learned single judge on that subject, but when matter was carried in appeal by the plaintiff, the report appears in the same case, Shalagram Jhajharia v. National Co. Ltd. One of the questions raised was that the sole selling agent does not appear to be an agent but appears to be a buyer of goods. Even assuming that that was so, the view taken is that that would not determine the nature of the sole selling agreement. In case where the sole selling agent was in fact a purchaser of goods, a view was taken by the King's Bench that a sole selling agent still remains a sole selling agent and the real nature and content of his agreement must be found out from the construction of the contract. The learned judges of the Division Bench referred to W. T. Lamb and Sons v. Goring Brick Co. Ltd. This was a case where the sole selling agent in fact was a purchaser of the goods by the company but on an overall consideration of all the clauses of the contract it has been held that the manufacturers have parted with the right to sell in favour of the plaintiff-company. Relying upon that judgment the contract before the Calcutta High Court between the National Co. of Calcutta and the B.M.T. Commodity Corporation of New York in the United States of America was construed and it was held that within the territory of U.S.A. its possessions, Canada and Mexico, for the sale of jute backing cloth and burlap over a width of 100 inches manufactured by the National Co., the rights of selling were operated in favour of the plaintiff. The various terms and conditions of the contract are taken into account and on a proper construction it is held that this amounts to parting with the right of selling which ordinarily and primarily lies in the manufacturer. It, therefore, appears to us that not only on the construction of the terms and conditions of the contract before us but even on good authority, it is safe to hold that respondent No. 5-company had parted with its right of selling the three articles under contract in favour of the appellant-company.
68. We would now consider the effect of the impugned order on the sole selling agency contract. Clause (12) of the original contract speaks of an exceptional case of sale where the manufacturers could directly sell the goods but with prior approval of the appellant-company and on payment of the agreed rebate 5%. That clause (12) is now substituted by the present clause (12) which is as follows :
'12. The manufacturer shall be free to sell any of the said products direct to any dealer, consumer, Government and semi-Government institution without reference to the sole distributors. The sole distributors shall not be entitled to any rebate, commission or any other remuneration on such direct sales.'
69. On the face of it 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 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 :
'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.'
70. 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 section 294(5) as also it is beyond the scope of the show-cause notice itself. If such a variation was really intended, the parties to be affected thereby should have been given notice of it. This could be one more phase of the non-observance of the rules of natural justice where a change is brought about without notice to the party affected thereby.
71. Considering the first question of acting beyond the powers under section 294(5) we find that there seems to be considerable force in the argument. The word 'vary' or 'variation' as defined by clause (50) of section 2 of the Act shall include abrogation. 'Abrogate', as we find by reference to the Oxford English Dictionary, means : 'Abrogate (1) to repeal, (a law, or established usage), to annul, to abolish authoritatively or formally, to cancel. (2) To do away with put an end to.' The Law Lexicon by Mukherjee and Singh, 1971 edition, gives the same meaning of the word 'abrogation' as the act of annulling or the repeal of a law. In Corpus Juris Secundum we find that the word 'abrogate' has been defined as follows :
'Abrogate. To abolish by the authority of the maker; to annual by an authoritative Act; to repeal. The word has been distinguished from 'amend'. Phrase - 'Tax shall be abrogated, increased or diminished'.'
'Abrogation. The act of abrogating; the annulment or repeal of a law by authority of the legislative power; it expresses the idea of completely doing away with.'
72. Even though we have quoted the above meaning of the word 'abrogation', we are not called upon in this litigation to decide whether the authority acting under sub-section (5) of section 294 has a right to annul, or to do away with, or abolish, the appointment of a sole selling agent altogether. We are only called upon to decide whether the present agreement is a mere variation, in the sense the amended terms and conditions are laying down the character of the sole selling agent or doing something else. The amended clause (12), as is clear, conceives of a completely free hand to the manufacturers to sell their goods as they liked. the original contract requires the sole selling agent to refer every order to the manufacturers and only on confirmation by the manufacturers make sale. That being so, if the present clause (12) gives full opportunity to the manufacturers to dispose of goods either directly to the consumer or to the dealer or Government 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 my 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 not the 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 company, but what is to be retained is a sole selling agency. That will be apparent from the provisions of clause (d) of section 294(5) which says that from the date of the varied order the appointment of the sole selling agent shall be regulated with the terms and conditions varied by the Company Law Board. In terms, therefore, the sole selling agent has to remain a sole selling agent and there seems to be no objection to vary certain terms of the contract but his relationship with the company has to be regulated by the terms amended by the Company Law Board. A reference to sub-section (6) of section 294 of the Act will also further illustrate the same position. Under sub-clause (a) of sub-section (6) where a company has more selling agents that one (by whatever name called) in any area or areas and it appears to the Company Law Board that there is good reason so to do, they are entitled to call for information about the terms and conditions of appointment of various agents for the purpose of determining whether any of those selling agents should be declared as sole selling agent for that area. Clause (b) is similar to clause (b) of sub-section (5). Clause (c) of section 6 authorises the Central Government to read the information supplied by the company having regard to the terms and conditions of appointment of any of selling agents and to other relevant features, and to declare that a particular selling agent be the sole agent of the company. The position, therefore is that under sub-section (5) a sole selling agent whose terms and conditions of appointment are prejudicial to the interest of the company, authority is given to change, amend or vary the terms and conditions in such a manner as to retain the sole selling agent with the terms and conditions in such a manner as to retain the sole selling agent with the terms and conditions which are no longer prejudicial to the interest of the company. In another case where there is in fact a sole selling agent but he is not so designated, but an appearance is put up that there are many agents of the company, power is again given to the Central Government to investigate into their position and declare a particular agent as a sole selling agent. The scheme, therefore, seems to be that where the sole selling agent is considered necessary for a company, the terms and conditions must be such as are not prejudicial to the company; otherwise those terms and conditions are liable to be interfered with 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.
73. 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).
74. 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 party, who is being affected thereby. Consequently, no discussion was possible in the personal hearing on this subject. There is, therefore, another breach of the observance of the principles of natural justice in this case by taking action which was never brought to the notice of the party affected and without an opportunity to make representation and without giving hearing to that party on that subject. At this stage we might also make it clear that clause (12) appears to be an independent and severable clause and if we had not found any other defect in the order, it would have been possible to merely cancel or quash this clause, without interfering with the rest of the order passed by the Company Law Board. However, as we find that there are other grounds on which the order is defective we are inclined to quash it as a whole.
75. In the view we take, the appeal succeeds and is allowed. The impugned order dated 20th April, 1965, as amended by the order dated 13th May, 1965, is quashed. The appellant-company will be entitled to its costs throughout from respondents Nos. 1 to 4. The costs in the trial court to be Rs. 250 as already quantified and the costs in this court be fixed by the taxing master. No order as to costs in respect of respondent No. 5-company throughout.
76. Liberty to the appellant's attorneys to withdraw the amount already deposited towards respondents' costs.
77. Appeal allowed.