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Boulation Bro thers and Co. Ltd., (India) Delhi Vs. the New Victoria Mills Co. Ltd., - Court Judgment

LegalCrystal Citation
CourtAllahabad
Decided On
Judge
Reported in119Ind.Cas.837
AppellantBoulation Bro thers and Co. Ltd., (India) Delhi
RespondentThe New Victoria Mills Co. Ltd.,
Cases ReferredPearce v. Foster
Excerpt:
principal and agent - agency for fixed term--dismissal of agent during term, when justified--irregularity of proceedings adopted for dismissal, effect of--suit for declaration that dismissal is wrongful, maintainability of, without prayer for injunction--specific relief act (i of 1877), section 42 proviso--suit for damages when maintainable--matter and servant--agent remaining idle--principal, whether entitled to withhold remuneration--contract act (ix of 1872), section 39--agent's right to interest on commission due to him. - - ' which was considered a few years before as a premier business concern with a well-established reputation in high commercial circles. ' 6. article 119 of the memorandum of association of the defendant company provided that 'the company by extraordinary.....1. this appeal arises out of a suit brought by the plaintiff-appellant messis. boulton brothers & company (india) ltd., against the defendant the new 'victoria mills company ltd., for certain reliefs on the basis of a contract of agency entered into by the parties under which the plaintiff company were made the managing agents of the defendant comply.2. the plaintiff company came into existence early in 1921 with it's office et no. 10, alipore road delhi. although it was a separate legal entity having been incorporated in india (as its name indicates) under the indian companies act of 1913 it may be regarded as an indian branch of the english company, messrs. 'boulton brothers ltd.' which was considered a few years before as a premier business concern with a well-established reputation in.....
Judgment:

1. This appeal arises out of a suit brought by the plaintiff-appellant Messis. Boulton Brothers & Company (India) Ltd., against the defendant The New 'Victoria Mills Company Ltd., for certain reliefs on the basis of a contract of agency entered into by the parties under which the plaintiff Company were made the Managing Agents of the defendant Comply.

2. The plaintiff Company came into existence early in 1921 with it's office et No. 10, Alipore Road Delhi. Although it was a separate legal entity having been incorporated in India (as its name indicates) under the Indian Companies Act of 1913 it may be regarded as an Indian branch of the English Company, Messrs. 'Boulton Brothers Ltd.' which was considered a few years before as a premier business concern with a well-established reputation in high commercial circles. The Memorandum of Association issued by the plaintiff Company advertised as one of its objects the carrying on of 'all kinds of agency business in relation to the investment of money, the sale of property and the collection and receipt of moneys and to take part in the management, supervision or control of the business or operations of any other company, association, firm or person and to act as the managing agents, agents, secretaries or other officers of any such company, association, firm or person, and in connection therewith to appoint and remunerate any directors, accountants and other experts or agents.' W.W. Boulton and R.G.H., Boulton, the two brothers who were at that time dominating personalities in the business were its only directors. There can be no doubt that the plaintiff Company derived its importance from the name it bore, from its supposed control by the two brothers and from the connection popularly believed to exist between it and the English Company of the same name.

3. The defendant, New 'Victoria Mills Company Limited was started in October, 1920, with a capital of 5 crores of rupees. I took, over the assets and liabilities of its predecessor 'The Victoria Mills Company Limited' which ceased to exist under circumstances not material to the present case. The defendant Company carried on the business of 'Spinners weavers, manufacturers, balers and pressers of all jute...cotton, wool, hair and other fibrous materials' at Cawnpore where it had its registered office.

4. At the time the agreement of agency was executed (1st February, 1922) the Directors of the defendant Company were:

1. Mr. A. West.2. ' B. West.3. ' A. A Black.4. ' A. H. Silver.5. ' W. G. Clarke who retired in April 1922 and Mr. W. W. Boulton was appointed in his place.

5. The management of the defendant Company was vested in Messrs. A. West, B. West and A. A Black, who were in receipt of regular salaries and 5 per cent, of the profits 'after deducting depreciation but before taking anything to reserves or making any provision for income-tax super tax or similar charges.'

6. Article 119 of the Memorandum of Association of the defendant Company provided that 'the Company by extraordinary resolution may at any time determine that the business of the Company shall be carried on by Managing Agents subject to the direction and control of the Directors, and such meeting may appoint any company or firm to be the Managing Agents of the Company, Should such meeting fail to make any such appointment, then the Directors shall appoint such company or firm to be the Managing Agents of the Company as they shall in their discretion determine.' At an extraordinary general meeting of share-holders held on the 16th January, 1922, the plaintiff Company were appointed Managing Agents for a term of 20 years, and the agreement dated the 1st February, 1922 was duly executed. The plaintiff Company are thereunder entitled to 10 per cent, 'on the half-yearly profits of the Company after deducting interest on debentures, or other moneys borrowed but before placing anything to depreciation, reserve or other special accounts and before making any provision for income-tax, super-tax or other like impositions and with a guaranteed minimum of rupees fifteen thousand in every half year' besides 'an office allowance of rupees one thousand per mensem payable monthly' as remuneration for their services as Managing Agents. Such services are not, however, categorically enumerated in the agreement.

7. It is a question in the case as to whether the plaintiff Company discharged their duties as Managing Agents of the defendant Company but it is common ground that they received from the defendant Company (1) Rs. 29,430 representing their share of the commission for part of the period of agency included in the six months ending on 31st March, 1922, and (2) Rs. 60,829-8-10 for the six months ending on 30th September, 1922.

8. In December, 1922, suspicions were aroused as regards the reputation and credit of Boultons in commercial circles. In January, 1923, the Directors of the defendant Company regarded the association of plaintiff Company damaging to the interests of the former Company. On the 29th March. 1923, the Directors of the defendant Company passed a resolution dismissing the plaintiff from the managing agency created by the agreement of 1st February, 1922. This resolution was confirmed at an extraordinary general meeting of share-holders on the 7th April, 1923. The regularity of these meetings and the validity of the resolutions passed at them are questioned by the plaintiff. It is, however, admitted that the plaintiff Company ceased to act as Managing Agents from that time.

9. In December, 1923, one Mr. Treeby, a share-holder of the defendant Company, instituted a suit before the Subordinate Judge, Cawnpore, challenging the legality of the aforesaid meetings and resolutions, but that suit was eventually withdrawn after some correspondence with the legal advisers of the defendant Company.

10. The suit out of which this appeal has arisen was brought on the 30th September, 1924,for the following reliefs:

Firstly, for recovery of Rs. 31,656-7-0 being the commission earned by them, during the six months from 1st October, 1922, to 31st March, 1923, including expenses incurred by the plaintiff Company in the discharge of their duties as Managing Agents;

Secondly, for a declaration that the proceedings of the meeting of Directors held on the 29th March, 1923, were 'ultra vires, null and void,' notice of the meeting not having been given to one Mr. D'Souza who was an alternate Director for Mr. W. W. Boulton, a permanent Director absent from India;

Thirdly, for a similar declaration with regard to the proceedings of the meeting of the shareholders held on the 7th April, 1923;

Fourthly, as a result of the 2nd and 3rd reliefs, for a declaration that the dismissal of the plaintiff Company resolved on by the Directors and shareholders was not operative, leaving the plaintiff's position as Managing Agents under the agreement dated the let February, 1922, unaffected and subsisting upto the date of the suit;

Fifthly for recovery of Rs. 54,001 being the commission and office allowance for the two half years ending on 30th September, 1923 and 31st March, 1924;

Sixthly, for recovery of rupees 16 lacs as damages for wrongful dismissal before the expiry of the term of twenty years stipulated for in the agreement of 1st February, 1922, in case the 2nd, 3rd and 5th reliefs are not granted.

11. The defence, as put forward, in the written statement of the defendant, was that 'the plaintiff Company never took over nor did it ever attempt, to perform the duties required under the agreement of the 1st February, 1922' and 'the business of the defendant Company was carried on by Messrs. A. and B. West and A. A: Black, the Directors thereof as it always had been done,' that the meetings held on the 31st March, 1923, and 7th April, 1923, were duly convened and the plaintiff's dismissal decided on at those meetings was justified under the circumstances of the case.

12. The learned Subordinate Judge held against the plaintiff on all the questions raised in the case. He found that the plaintiff never acted as Managing Agents of the defendant Company, that they were regularly dismissed and for good cause by the Directors and the share-holders at their respective meetings held on the 29th March, 1923 and 7th April, 1923.

13. The appeal of the plaintiff has been pressed on almost all the grounds urged before the lower Court. The execution and validity of the agreement dated the 1st February, 1922 being admitted it would be convenient to consider the plaintiff's right to each of the reliefs claimed by it.

14. As regards the first relief, it should be noticed that the plaintiff claims commission and incidental charges for the half year ending on 31st March, 1923, i.e. just after the order of dismissal passed by the Directors on the 29th March, 1923. Two sums had been paid by the defendant Company on the same account for part of the half year ending on 31st March, 1922 and for the half year ending on the 30th September, 1922, as already mentioned. It is not suggested in the pleadings that the payments were made by the defendant Company through any fraud practised on it by its Directors who were responsible for the payments or that there was any collusion between the plaintiff Company and any of the Directors of the defendant Company. No attempt has been made to account for what would appear to be most extraordinary conduct of the Directors of the defendant Company if we assume that the plaintiff Company never acted in any manner as Managing Agents and that the agreement of 1st February, 1922, remained throughout a dead letter. On a careful consideration of the evidence adduced in the case we are led to the conclusion that the agreement was intended to be immeditately operative and that the plaintiff Company did enter on their duties as Managing Agents. It may be that after fourteen months' experience of the agency the defendant Company realised that it had made a bad bargain and in view of altered circumstances it was justified in terminating the contract of agency, a question which has to be dealt with at its proper place.

15. Articles 119 and 120 of the Memorandum of Association of the defendant Company run as follows:

119. The Company by extraordinary resolution may at any time determine that the business of Company shall be carried on by Managing Agents, subject to the direction, and control of the Directors and such meeting may appoint any company or firm to be the Managing Agents of the Company, should such meeting fail to make any such appointment then the Directors shall appoint such Company or firm to be the Managing Agents of the Company as they shall in their discretion determine.

120. The terms of the appointment of such Managing Agents shall be embodied in an agreement between the Company and that such Managing Agents and the Directors shall execute such agreement for and on behalf of the Company and carry the same into effect with full liberty nevertheless to agree to any modification thereof either before or after the execution thereof.

16. As we read the articles they provide, in effect, that once the Company by extraordinary resolution determines to have its business carried on by Managing Agents and fails to nominate the agency, the Directors are bound to appoint some 'Company or firm' as Managing Agents. A duty has been thrown on the Directors to have the agreement of agency executed and 'carry the same into effect.' Liberty has been reserved, to the Directors 'to agree to any modification' of such agreement 'either before or after the execution thereof.' These duties and powers of the Directors have an important bearing on the conduct of the Diectore and the legal consequences thereof after the agreement dated the 1st February, 1922, came into existence. The language of these articles clearly indicates that the agreement of agency when entered into is to have immediate effect and that the Directors should enforce it.

17. On the 6th January, 1922 a notice was issued calling an extraordinary general meeting of the share-holder for the 16th January, 1922, for considering the resolution 'that as on and from the 1st day of February, 1922, the business of the Company be carried on by Managing Agents subject to the direction and control of the Directors, and that Messrs. Boultion Brothers & Company (India) Ltd., a Company duly incorporated under the Indian Companies Act and having its registered office at No. 10, Alipore Road, Delhi, be and they are hereby appointed to be the first Managing Agents of the Company with effect as on and from the said 1st day of February, 1922, and upon the terms set forth in the draft agreement submitted to this meeting.' The exact terms of the resolution actually passed are not known as a copy of it has not been produced, at least it is not part of the printed record but it was probably passed in terms of the notice which makes it clear that the, plaintiff Company were to act as Managing Agents 'with effect from the 1st February, 1922.' This was followed by a letter addressed by the defendant Company to the plaintiff Company enclosing a draft of the agreement and intimating that the latter had been appointed Managing Agents 'from the 1st February, 1922.' The agreement was executed in due course. It purports to be in pursuance of Article 119 of the Memorandum of Association of the defendant Company and provides:

(1) The Company hereby appoints the Managing Agents to be the Managing Agent of the Company as on and from the 1st day of February one thousand nine hundred and twenty-two upon the terms and conditions hereinafter expressed and the Managing Agents hereby accept the said appointment.

(2) The Managing Agents shall be the first Managing Agents of the Company and they and their successors in business whether under the same or any other style shall continue and be the Managing Agenle of the Company (unless they shall voluntarily resign that office) for the period of 20 years certain from the said first day of February one thousand nine hundred and twenty-two and thereafter until they shall be removed therefrom by an extraordinary resolution of the Company passed at an extraordinary general meeting specially convened for that purpose, and of which not less than twelve calendar months' notice shall be given, and at which persons holding or representing by proxy or power-of-attorney not less than the of the issued ordinary capital of the Company for the time being shall be present.

(3) Until otherwise mutually arranged the remuneration of the Managing Agents shall be firstly a commission at the rate of 10 per cent on the half yearly profits of the Company after deducting interest on debentures, or other money borrowed, but before placing anything to depreciation reserve or other special accounts, and before making any provision for income-tax, super-tax or other like impositions and with a guaranteed minimum of Rs. 15,000 in every half year, the said commission shall be payable half yearly immediately after the audit of the Companies' accounts for the half year has been completed, and, secondly, an office allowance of Rs. 1,000 per mensem payable monthly to be increased at the discretion of the Directors if and whenever the Directors shall consider any such increase justified.

(4) la considerations of the said remuneration the Managing Agents shall provide a suitable office and office establishment for the Company but at the expense of the Company and the Managing Agents shall be entitled to charge and be paid for office rent and the cost of office establishment and for all actual postages, telegrams-stationery and the like expenses, and the Company shall pay all salaries and commission, if any, payable to all persons employed solely in the Company's business and shall also bear and pay such proportion of the salaries and commission, if any, of any expert or other person employed by the Managing Agents, partly in connection with the business of the Company and partly in connection with other business as the Directors may from time to time determine,

(5) The Managing Agents may also in addition to their duties as Managing Agents of the Company perform any other duties and work for the Company which the Directors may decide and shall receive such reasonable and proper remuneration for such work as shall be from time to time agreed upon between the said Managing Agents and the Directors, such remuneration being in addition to the remuneration as aforesaid.

(6) The Managing Agents shall have power to make, draw, endorse, sign, accept, negotiate and give all cheques, Bills of Lading, drafts, orders, Bills of Exchange, Government of India and other promissory notes and other negotiable instruments required in the business of the Company, and may also sign and give all receipts, releases and other discharges for money payable to the Company and for the claims and demands of the Company and to exercise such of the powers of the Directors as may from time to time be delegated to them.

That the agency is to take effect from the 1st February, 1922, is laid down in clear terms in the first clause.

18. We have laid stress on the agreement taking effect from its date because it has been argued before us that in so far as specific powers were not delegated to the Managing Agents the agreement should be deemed to have remained in abeyance. Reference is made to a sentence occurring in the proceedings of a meeting of Directors held on the 16th January, 1922, recording the resolution passed at the extraordinary general meeting of share-holders by which plaintiffs were appointed Managing Agents. That sentence runs thus:

An informal discussion took place regarding the delegation of powers to the Managing Agents and the matter was deferred to a later date.

19. We are unable to accede to the contention that the effect of this action of the Directors was to shelve the whole arrangement, in spite of the provisions of Articles 119 and 120, the resolution passed at the extraordinary general meeting, and the agreement. The dutiec to be performed by the Managing Agents were well understood in a general way by the parties to the agreement, which, therefore, makes no attempt to enumerate them categorically but refers to them in Clause 5. The business was carried on by Messrs. A. West, B. West and A.A. Black and it is admitted that their duties were not at any time defined. The subsequent conduct of the parties which is hereafter discussed altogether refutes this suggestion.

20. The terms of the agreement are indeed very favourable to the Managing Agents and one is struck by the remarkable readiness with which the defendant Company accepted them The explanation is furnished by Mr. Silver one of the Directors who piloted this transaction on behalf of the defendant. He says:

Two main advantages were held out, firstly the worldwide influence of the Boultons to find new markets for the mill product. Mr. Boulton claimed that through one of his connected Companies they had special facilities for trading with Roumania. I knew it to be a market which bought that class of goods largely. I asked him how he was going to get the goods in as India did not supply that market. He said that he had special credit arrangements there. He further said that he had arranged to buy further 15 lacs worth of ordinary shares of the defendant Company and this added to their present holding or the holdings of friends controlled by them of 26 lacs meant that they would then be controlling a total of 41 lacs or more than half of the total ordinary capital of the defendant Company.

21. Whether the representation which is here attributed to Mr. Boulton was really made by him and whether it was true or otherwise we do not pause to consider. They did subsequently purchase shares of defendant Company to the value of 15 lacs, only to pass them on the Halwasias. No case of fraud or misrepresentation vitiating the agreement was made either in pleadings or arguments. That the Directors believed in almost unlimited powers of Boultons and were dazzled by the great reputation which Boultons were believed to enjoy in the commercial world in those days is not disputed by the respondent whose learned Counsel himself relied on the evidence of Tree by to the effect that Boultons had a reputation of being great financiers' and had 'grand connections' in Europe. How far this belief was created by Boultons themselves and how far the Directors verified the information through other sources are immaterial. The disillusionment of the defendant Company occurred about a year later when it was realised by the Directors, specially Mr. Silver, that their relations with the plaintiff Company were not to their advantage. But in the beginning of 1922 the Directors of the defendant Company, in common with many other business men, attached exaggerated value to the association of the name of Boultons with their Company as Managing Agents. W.W. Boulton was elected a Director of the defendant Company with effect from 1st October, 1921, and wag appointed to act as 'London Director when in England. It was with an expression of regret that his resignation was accepted on 16th January, 1922. He was re-elected on 22nd March, 1922. The Boulton Brothers. & Company Ltd., (India) were founders and Managing Agents of a number of Companies most of which had a short existence and had to go in liquidation in 1923 or thereabout. The Alliance Bank of Simla came to grief partly, at any rate, through the business activities of Boultons. There is, no doubt, however, that Boultons had a great and wide reputation as financiers and for their resourcefulness in promoting the interests of Companies. This belief accounts for the liberal terms on which the Managing agency of the defendant Company was given to the plaintiff Company and continued for a period of fourteen months.

* * * * * *

22. It was not long before the disillusionment came and the Directors realised that the defendant Company had, to pay too much in the shape of commission to the plaintiff Company for no substantial gain to themselves, This occurred when they lost faith in the magic of Boultons' name, and in their supposed influence in the commercial world. The first eye-opener was the failure of Halwasias, the selling agents appointed by the plaintiff Company. We have little doubt that the choice of plaintiffs feli on Halwasias not because they were expected to revolutionise the sale of acaumulated production in the godowns of the defendant Company, but the selection was prompted by the readiness of Halwasias to take over the 15 lacs worth of shares of the defendant Company which the plaintiffs had undertaken to buy and did buy. The failure of Halwasias as selling agents may be partly attributed to the unfavourable conditions of the market in those days but it does not appear that there was any reason for the plaintiffs to think that their nominee would be an improvement on the former selling agents in any respect.

23. The disappointing results of the change in selling agency for which the plaintiff Company were responsible might not have brought matters to a head but by December, 1922 the downfall or exposure of 'Boultons in England was so far known in commercial circles in India that Mr. Silver began to consider the desirability of removing the Managing Agents in the latter part of December, 1922.' This idea materialised on the 29th March, 1923. In the meantime the Boultons became so discredited that a number of companies with which they had been associated either went in liquidation or otherwise came to grief. Mr. Silver seems to have taken prompt and commendable steps to dissociate the defendant Company from the managingfcreated mutual agency which undoubtedly subsisted and which was regarded as positively harmful. Exhibit 57, page 301, Ex. 21, page 305, Ex. 22, page. 307 and Ex. 74 page 309 afford interesting reading and illuminate the situation as it was in the beginning of January, 1923, when Mr. R.G.H. Boulton was desirous of coming to Cawnpore to discuss certain matters concerning the affairs of the defendant Company and Mr. Silver, who was 'not prepared to accept his suzerainty,' suggested contrivances to Mr. Black to have the discussion in the presence of Mr. Silver as he did not apparently consider Mr. Black equal to the task of holding his own against Mr. Boulton. At the meeting of the Directors held on the 29th June, 1923, the question of terminating the agency of the plaintiff Company was openly mooted in the presence of Mr. R.G.H. Boulton. The minutes of those proceedings contain the following:

24. Mr. R.G.H. Boulton suggested the appointment of Mr. C.P. Treeby to a position on the staff of the Company to supervise on behalf of the Managing Agents the accounts and books of the Company. The Chairman pointed out that the Company's present staff is adequate for the present and that they would not be prepared to approve of any expenditure in such connection. He further asked Mr. Boulton whether he thought it would be in the interests of the Company that the connection of the Managing Agents with the Company should thus be made more apparent; the Chairman went on to say that in the best interests of the Company its affairs had been conducted for the past year by the Directors themselves, and all operations had been in the name of the Company itself. Mr. Boulton admitted that under the present conditions the association of the name of Boulton Bros, with the affairs of the New Victoria Mills Company could not be advantageous to the Company, although he hoped that at some future date he would be in a position to show that their name might be useful to the Company. The Chairman said that when such a time arrives the Board would very gladly reconsider the position and Mr. Boulton accordingly dropped his proposition.'

25. Eventually, the Managing Agents were dismissed on the 29th March, 1923, at a meeting of Directors. The proceedings of that day in which Mr. Silver took a leading part further emphasise the fact that the Managing Agents were considered then to be a really functioning body. They may here be quoted with advantage. They run thus:

The minutes of the last meeting having been approved the Chairman Mr. Silver said he desired to make it clear that in proposing certain actions to be taken with regard to the Managing Agents he was doing so in his capacity as an elected Director of Company and not as ex officio representative of the Managing Agents, on the board. He explained that certain large and influential share holders had urged upon him the necessity in the best interests of the Company of forthwith removing from office the present Managing Agents Boulton Bros & Co. (India) Ltd. After full discussion of the position and careful consideration the board unanimously passed the following resolutions:

(1) Resolved that it is expedient in the interests of the Company that Messrs. Boulton Brothers & Company (India) Ltd., be removed from the office of the Managing Agents of the Company and that they be not permitted hereafter to act as such agents.

(2) Resolved that the share-holders be asked to empower the Directors to appoint Messrs. Allen Brothers & Company (India) Ltd, as Managing Agents of the Company on terms to be agreed upon by the Directors and confirmed by the share-holders in due course.

(3) Further resolved that the notices be issued forthwith to share-holders convening an extraordinary general meeting for the 7th day of April. The notice convening this meeting produced before the Directors is approved.

The notice is hereto appended.

26. The above brings out fully (1) the fact that Mr. Silver was an officio representative of the Managing Agents which capacity, he warned, should not be confused with, the one in which he professed to act, viz. as 'an elected Director' and (2) the fact that the managing agency of the plaintiff Company was admitted to be existing till that day and they were 'not permitted hereafter to act as such Agents' who are described as 'present Managing Agents.' It is unfortunately too late for Mr. Silver to maiatain that the plaintiff company did not at all function as Managing Agents and for the defendant Company to plead that they did not enter on their duties so as to entitle them to receive the commission which the terms of the agreement dated 1st February, 1922, entitle them to. It is true the services rendered by the plaintiff Company were not of a substantial character but the responsibility for the defendant Company not having had full value for the amount of commission to which they continued to be liable lies with their Directors who allowed things to drift too long. They ought to have' insisted on the Managing Agents putting forth their best endeavours, prescribed their duties, and if they failed to show signs of activity the Agency should have been terminated long before the 29th March, 1923. But so long as the agency subsisted the defendant Company remained under their contractual obligation to pay the commission in terms of the agreement which created mutual rights and obligations of a continuing nature. Section 39, Indian Contract Act, provides that, 'When a party to a contract has refused to perform, or disabled himself from performing, his promise in its entirety, the promisee may put an end to the contract, unless he has signified, by words or conduct, his acquiescence in its continuance.'

27. In the case before us there was acquiescence in the continuance of the Managing Agency up to 29th March, 1923. inspite of all the shortcomings of the plaintiff Company in the discharge of their duties under the agreement. The defendant Company desire to act towards the plaintiff Company like a master who allowed his servant to remain idle for the whole month and objects at the end of the month to paying his (the servant's) salary on the ground that he did little or no work during the whole month.

28. The learned Counsel for the defendant-respondent had to fall back upon a line of argument which brought face to face with the defence as put forward in the written statement of the defendant Company. It was contended that the outward management of the affairs of the defendant Company was exactly as it was before the agreement, that there was concealment from the defendant Company, i.e., from the share-holders, of its officers having been appointed to work for remuneration in managing its affairs, that these officers were in receipt of salaries from the Company and that in so far as the Directors tolerated this stats of things their action was ultra vires. A number of authorities including English cases were cited in support of the proposition that where there is conflict between duty and interest the servant or agent must disclose any understanding likely to result in gain to him, arrived at between the servant or agent and a third person who enters into a contract with the master or principal, otherwise such a secret bargain being a fraud on the master or principal will entitle him to rescind the contract with such third person. In this connection reference was made to Section 91-A and 91-0, Indian Companies Act, Transvaal Lands Co. v. New Belgium (Transvaal) Land and Development Co. (1914) 2 Ch. 488 at p. 494 : 84 L.J. Ch. 94 : 112 L.T. 965 : 21 Manson. 364 : 59 S.J. 27 : 31 T.L.R. 1, Panama and South Pacific Telegraph Co. v India Rubber Gutta Percha & Telegraph Works Co. (1875) 10 Ch. A. 515 at pp. 525 & 528 : 45 L.J. Ch. 121 : 32 L.T. 517 : 23 W.R. 583, Shipway v. Broadwood (1899) 1 Q.B.D. 369 : 68 L.J. Q.B. 360 : 80 L.T. 11 : 15 T.L.R. 145 and Hukman v. Kent or Romney Marsh Sheep Breeders Association (1915) 1 Q.B.D. 881 (sic). The general proposition of law contended for is unexceptionable but, involving as it does important questions of fact, a case like this is not open to the defendant Company, at this stage, and it is inconsistent with the pleas laid in the written statement on which the trial of the case proceeded. Reference may be made to para. 31 of the defendant's written statement in which it is alleged that the plaintiff Company never performed the functions of the Managing Agents and that Messrs. A. and B. West and A. A. Black never worked for the plaintiff Company nor received any remuneration. It has been found that they worked as sub-agents and received remuneration to the knowledge of the defendant Company. They are no parties to this suit and have not been even examined as witnesses. It would be unfair to them to give effect to such a plea, (if otherwise open to the defendant Company) which cannot prevail without attributing to them concealment and fraud said to have been practised by them at the time when the agreement of 1st February, 1922, was entered into between the parties to this case and during the time it subsisted and without assuming that the defendant Company was unaware of the arrangement which existed between the plaintiff, Company and the three Directors of the defendant's Company. If such a case had been originally set up plaintiff could have controverted it by proving circumstances which take the case out of the purview of the rule and which negative concealment and fraud. There is an important circumstance not now disputed that the plaintiff Company did receive commission from the defendant Company for part of the half year ending on 31st March, 1922, and for the half year ending on the 30th September, 1922. Unless it was for work done by the plaintiff Company through the sub-agency of the three Directors of the defendant Company, it is not conceivable and it has not been explained why such payments were made. It has been shown that the three Directors professed to work for the plaintiff Company openly and in the office of the defendant Company. There is no suggestion that the sub-agency was in contemplation at the time the agreement of 1st February, 1922, was negotiated and completed. The power-of-attorney authorising the three Directors to work for the plaintiff came into existence later though the interval is not very long The defendant Company might well have defended the action on the line attempted by its learned Counsel before this Court and might have presented a formidable case but for reasons of their own they deliberately refrained from alleging fraud and collusion against their Directors. Though Mr. Silver was personally free from the taint of fraud he could not have in that case felt as easy as he did in the witness-box. He represented the plaintiff Company on the board of the defendant Company The commission was paid to the plaintiff Company on two occasions to his certain knowledge. Be that as it may, we are clearly of opinion that this belated case should not be entertained and that the defence succeeds or fails according as we find that the plaintiff Company failed to enter on its duties or did function though not very satisfactorily and the defendant Company would have been justified in terminating the contract of agency much earlier than they did, Our view is that the evidence established the latter case and that the plaintiff Company are in consequence entitled to the first relief. The amount of money to which they are entitled will be found in the concluding part of the judgment.

29. The plaintiff's case for reliefs Nos. 2 to 6 may be disposed of together. They have reference to the proceedings of two meetings: (1) of the Directors held on 29th March, 1923, and (2) of the share-holders held on the 7th April, 1923, at which resolutions were passed terminating the managing agency of the plaintiff Company and their consequent removal. The broad question is whether the plaintiff's Company were effectively removed from their office. The determination of it depends in a great measure on the further question whether the defendant Company were entitled to terminate the agreement dated the 1st February, 1923, before the expiry of twenty years stipulated for therein. In our opinion, they were so entitled. It has already been stated earlier in this judgment that the great incentive for the defendant Company, to obtain the services of the plaintiff Company as Managing Agents was the world-wide reputation which Boultons had at that time deservedly or otherwise and that the defendant Company considered the association of the name of Boultons with their own as a great commercial lasses likely to enhance their prestige in commercial circles and had great expectations regarding the sale of their production in foreign markets and in India through the influence of Boultons. These expectations had been partly at any rate, created or encouraged by the Boultons a fact which might well have been relied on by the defendant Company if a case of fraud or misrepresentation had been pleaded by them.

30. A glance at the balance-sheet of the plaintiff Company shows that it lived on the reputation of Boultons but without any real capital. the subscribed capital of 42 lacs, 40 lacs represented its good-will and shares of that value were held by Boulton Brothers and the remaining 2 lacs was held by the Alliance Bank of Simla as security and does not seem to represent any real value, (See Treeby, pages 15-16 Book Hand D'Souza, pages 26-27). The plaintiff's own witnesses Treeby and D'Souza tell us that the 'grand reputation' 'of Boultons had so far suffered that by March, 1923, 'their name carried absolutely no weight.' Mr. Silver strongly felt and for very good reasons that harm was being caused to the defendants by their connection with the plaintiff Company who had besides utterly failed to do anything constructive for the defendant Company. He made efforts towards the end of December 1922 to elicit information from the plaintiff's Company regarding their balance-sheet but the latter persistently withheld it. We have now seen it and the reason for its concealment is obvious. At the meeting of Directors held on the 29th January, 1923, Mr. E.G.H., Boulton could not help admitting that the name of Boultons was odious in financial circles and that 'under the present conditions the association of the name of Boulton Brothers with the affairs of the New Victoria Mills Company could not be advantageous to, the Company although he hoped that at some future date he would be in a position to show that their name might be useful to the Company.'

31. The plaintiff's own witness Treeby gives a list of companies which the Boultons floated and which went in liquidation in 1922 or thereabout. He considered the credit of Boulton Brothers was very bad in February 1922 and would not 'as a share-holder of Victoria Mills agree to give the managing agency to them.' In this state of things the defendant Company was clearly within its rights to terminate the agreement of 1st February, 1922, regardless of the term of twenty years entered therein in consideration of the advantages then forthcoming but which were quite out of question in March 1923. A great deal of case-law was cited in course of the arguments but we content ourselves by referring to the dictum of Lord Bsher, M.R. in Pearce v. Foster (1886) 17 Q.B.D. 536 : 55 L.J.Q.B. 306 : 54 L.T. 664 : 34 W.R. 602 : 51 J.P. 213 that 'the relation of master and servant implies necessarily that the servant shall be in a position to perform his duty duly and faithfully.... What circumstance will put a servant into the position of not being able to perform, in a due manner...it is impossible to enumerate. Innumerable circumstances have actually occurred which fall within that proposition, and innumerable other circumstances which never have yet occurred, will occur, which also will fall within the proposition.'

32. Lindley, L.J. who delivered a separate judgment in the same case indicated that though a servant may have been employed for a fixed number of years he can be dismissed during the term if his connection, with the employer raises a reasonable apprehension of inquiry to his reputation. We think that moral delinquency in the servant is not the only justification. 'Whatever may be the cause which so alters the position of the servant as to render his retention harmful to the master would justify his removal within the term agreed on under different circumstances. For obvious reasons a contract of service of this kind cannot be specifically enforced See Section 21(b) Specific Relief Act. As regards damages Section 205, Indian Contract Act, provides that 'where there is an express or implied contract that the agency should be continued for any period of time, we principal must make compensation to the agent, or the agent to the principal, as the case may be, for any previous revocation or renunciation of the agency without sufficient cause.'

33. It seems to us that the Indian Statute Law on the subject is very elastic and damages for termination of agency before expiry of the agreed term cannot be recovered as a matter of course. It is only where such termination is without 'sufficient causee that damages can be recovered. The circumstances of each case will determine the question whether there was sufficient cause. It will largely depend upon the nature of the business to which the agency relates, the personal qualifications which existed when the contract was entered into, the altered conditions which since came into existence and their probable effect on the interests of the employer. No hard and fast rule can be laid down for any Class of cases. We feel no difficulty in arriving at the conclusion that in the circumstances which happened the defendant Company was amply justified in severing their connection with the plaintiff Company who are not entitled to any damages on that account.

34. It has been contended that the resolutions passed at the meetings of Directors and share-holders respectively on the 29th March, 1923 and 7th April, 1923 removing the plaintiff Company from the office of Managing Agents were ultra vires in consequence of the aforesaid meeting being irregular. The irregularity complained of is that no notice of the meeting of the Directors was given to Mr. D'Souza who was an alternate Director for Mr. W.W. Boulton and as such entitled to sit and vote at the meetings. Article 138 Of the Memorandum of Association of the defendant Company does provide that 'a Director who is absent from India may appoint any member of the Company or any other person to be an alternate Director during his absence from India and such appointment shall have effect and such appointee while he holds office shall be entitled to notice of meetings of the Directors and to attend and vote thereat accordingly;...any appointment and removal under this article shall be effected by an instrument in writing under the hand of the appointor.'

35. Article 139 provides 'that an alternate Director shall in the absence of a direction to the contrary in the instrument appointing him be entitled to receive notice of and to vote at general meetings of the Company on behalf of his appointor....'

34. It is common ground that Mr. W.W. Boulton, who was a Director of the defendant Company, was in England in February, 1923,and thereafter. His brother Mr. R.G.H. Boulton used to represent him as an alternate Director for him at the meetings of the defendant Company. He left India some time in February 1923. Mr. D'Souza is said to have been appointed an alternate Director by a letter dated 19th February, 1923, addressed by Mr. W.W. Boulton to the 'Chairman, New Victoria Mills Company Ltd., Cawnpore. India,' but forwarded by the plaintiff Company to whom it had been apparently sent in the first instance. Its maternal portion is as follows:

In the absence of Mr. R.Q.H. Boulton, my present alternate on the Board, I desire that Mr. C.M. D'Souza be appointed my alternate in his place and shall be glad to have your confirmation in due course.

35. This letter was acknowledged on 21st February, 1923, by Mr. A.A. Black for the defendant Company who intimated to the plaintiff Company that its covering letter with that of Mr. W.W. Boulton would be placed before the Board of Directors at their next meeting which happened to be one held on the 29th March, 1923, when it resolved that the plaintiff Company be removed from office. The material part of the resolution runs thus:

(1) Resolved that it is expedient in the interest of the Company that Messrs. Boulton Brothers and Company (India) Ltd., be removed from the office of the Managing Agents of the Company and that they be not permitted hereafter to act as such agents.

(3) Further resolved that the notices be issued forthwith to share-holders convening this meeting produced before the Directors is approved.

36. It is noteworthy that the meeting was attended by Messrs. A.H., Silver (Chairman) B. West, A West, and A.A. Black. The plaintiff Company acted as Managing Agents through the three persons last named who were thus parties to the decision that the plaintiff Company 'be not permitted hereafter to act as Agents.' It is not disputed that the plaintiff Company in fact ceased to act as Managing Agents.

37. At the same meeting the letter of Mr. W.W. Boulton intimating his desire that Mr. D'Souza be appointed as alternate Director was considered and the following resolution was passed:

Resolved that the appointment be confirmed but it is to be noted that should Mr. W.W. Boulton not return to India by the 1st April, 1923, or obtain special leave of absence, his appointment as Director will be vacated under Article 106(d) of the Company's Articles of Association.

38. Article 106(d) referred to provides that the office of Director shall ipso facto be vacated if (inter alia) he be absent from the meetings of the Directors during a period of three months without special leave of absence from the Directors. We would point out in passing that this rule applies only to cases where the Director in question did not attend in person or through his alternate and could not apply to Mr. W.W. Boulton who was represented at previous meetings by Mr. R.G.H. Boulton. The Directors, however, took a different view and declared at their meeting of the 6th April, 1923, that Mr. W.W. Boulton ceased to be a Director.

39. The general meeting of the share-holders came off on the 7th April, 1923, and the removal of the plaintiff Company was confirmed.

40. By his letter of protest dated 10th April, 1923, Mr. D'Souza pointed out that the removal of Mr. W.W. Boulton from his office as Director was not justified, that he (Mr. D'Souza) was entitled to receive notices convening the meeting held subsequent to the date of the letter of Mr. W.W. Boulton appointing rum an alternate Director and claimed to be entitled to receive notices in future sin his capacity as alternate Director. The legal adviser of the defendant Company traversed these allegations by his letter dated the 13th April, 1923.

41. On these facts several technical objections have been taken on behalf of the plaintiff to the regularity of the proceedings which purported to terminate the managing agency of the plaintiff Company. We think that these objections, even if technically well founded, are only of academic interest in view of our finding already arrived at, viz., that the defendant Company were justified in putting an end to the agreement and did in point of fact remove the plaintiff Company from their position as Managing Agents. The plaintiff Company would not have been entitled to any damages if no irregularity had occurred. They have not suffered any loss due solely to the irregularities complained of. It is not pretended that if Mr. D'Souza had been duly present the resolutions would not have been passed by majority, and his dissentient vote would have been of any consequence. The dismissal, if otherwise justified, cannot be characterised as wrongful because the means adopted to bring about that perfectly legitimate end were not warranted by the rules of procedure applicable to the case unless it is shown that the non-observance of those rules itself resulted in harm to the party dismissed. This being our view, we are relieved of the necessity of discussing the case-law placed before us by the learned Counsel on both sides, We would, however, briefly indicate our opinion on the various points raised in arguments in this connection. We are disposed to agree with the plaintiff's learned Counsel that D'Souza's appointment as alternate Director took effect from the date of the letter appointing him, viz., 19th February, 1923, that he was entitled to receive notice of the meetings held on the 29th March, 1923, 6th April, 1923, and 7th April, 1923. But the plaintiff Company have merely prayed for the declaratory relief 'that the plaintiff Company are and continue to be the Managing Agents of the defendant Company on terms and conditions embodied in the agreement, dated the 1st February, 1922.' They do not in fact 'continue to be the Managing Agents' having admittedly been prevented from acting as such. If it be declared that they are entitled to act as such, the relief will be futile inasmuch as they do not claim the further and consequential relief of injunction that the defendant Company be restrained from interfering with the discharge of their duties as Managing Agents. We think the proviso to Section 42 of the Specific Relief Act is applicable to the case and no declaration can be granted to the plaintiff Company assuming the irregularities in question make the resolutions in question ultra vires.

42. Another impediment to the plaintiffs being awarded this relief is that the subsequent conduct of the defendant Company as a corporate body is not in doubt. They have carried out the dismissal of the plaintiff Company in practice and have defended this action strenuously maintaining such dismissal.

43. The result of the findings arrived at by us is that the plaintiff Company are not entitled to reliefs Nos. 2 to 6. They are entitled to the first relief in part. They have claimed thereunder the sum of Rs, 34,666-7-0 details of which are given in para, 26 of the plaint. A sum of Rs. 15,000 is claimed as the minimum amount of commission for the half year ending 31st March, 1923. in terms of the agreement dated the 1 st February, 1922. To this they are entitled on the view of the case we have taken.

44. They claim a sum of Rs. 14,000 as office allowance stipulated for in the agreement at the rate of Rs. 1,000 p.m. We are of opinion that they are not entitled to any part of it. They did not establish an office for the defendant Company. It is difficult to understand the almost extravagant remuneration which the agreement allows to the plaintiff for merely maintaining an office for the defendant Company who are to pay for the establishment over and above the Rs. 1,000 a month to the plaintiff. Company for vague and undefined supervision. The plaintiff Company did not establish such an office. They were not paid the allowance for part of the 1st or for the 2nd half, year. The allowance was payable every month. It was not till the 23rd December, 1922, that the plaintiff thought of claiming it by their letter of that date. The Directors were greatly surprised at this demand and recorded a minute on the 5th January, 1923, in these words:

The (?) expressed its surprise at the receipt of a letter, dated 23rd December, 1922, from Messrs. Boulton Brothers & Company (India) Ltd. claiming a sum of rupees one thousand per month as office allowance as Managing Agents and asking for a cheque for the amount accrued to date. This matter was fully discussed with Mr. W.W. Boulton, when the agreement was being considered and it was then verbally arranged that although the clause would not be deleted from the agreement it would not have effect so long as the Company's operations continued to be conducted by the existing management and also so long as the existing offices of the Company proved adequate for the business of the Company.

45. On receipt of this reply the plaintiff Company promised by their letter dated 26th January, 1926, to refer to Mr. W.W. Boulton on the subject and to write to the defendant Company on hearing from him. The demand was not renewed, and we do not know whether Mr. W.W. Boulton was written to and whether he confirmed the. allegation of the Directors of the defendant Company. The silence oh the part of the plaintiff till the institution of the suit points to abandonment of their claim or what comes to the same thing to a tacit admission of what the Directors had asserted. It has been argued before us that the plaintiff Company did maintain an office at 10 Alipur Road, Delhi which served as a virtual compliance with the agreement to establish an office. We have no hesitation in rejecting this contention. The Delhi office was the registered office of the plaintiff Company who paid for its maintenance and establishment. It could not be an office for the transaction of the business of the defendant Company who would have been called upon to bear the expenses incidental to it if it had been one in terms of the agreement. The plaintiff's claim under this head must, therefore, fail.

46. The plaintiff also claimed a sum of Rs. 2,79-7-0 entered in the books of the defendant Company to the credit of the plaintiff in respect of certain subsidiary charges. The learned Counsel for the respondent conceded in course of his argument that the plaintiff Company are entitled to receive this sum. The learned Subordinate Judge disallowed this amount on the ground that the plaintiff Company were overpaid in the shape of commission to which they were not entitled. We are unable to accept this reasoning. Moreover we have held that the plaintiff Company were under the circumstances rightly paid. This sum must be awarded to the plaintiff Company.

47. The plaintiff Company have claimed interest at the rate of 6 per. cent per annum on the sums due to them. Although the manner in which they acted in relation to the agreement of the 1st February, 1923, was unfair they cannot be denied reasonable interest by way of damages on sums which the Directors of the defendant Company did not pay but ought to have paid as a necessary corollary of their conduct in accepting such services as the plaintiff Company chose to render under the agreement. There was no justification for detaining the sum of Rs. 2,719-7-0 admittedly due to the plaintiff apart from commission. We hold, therefore, that the plaintiff Company should be awarded interest at the low rate claimed by them.

48. The result of our findings is that this appeal is allowed in part and a decree is passed in favour of the plaintiff for a sum of Rs. 17,719-7-0 (15,000+2,719-7-0) with interest at the rate of 6 per cent, per annum from 1st April, 1923, to date of realisation. The decree of the lower Court is upheld as regards the rest of the plaintiff's claim. Parties shall receive and pay costs of both Courts in proportion to their success and failure.


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