Avadh Behari, J.
1. This case is a good example of delay in litigation. An application under s. 20 of the Arbitration Act, 1940, was made by the petitioners, Mehta Teja Singh & Co. (Agencies), and its three partners, on 27th November, 1973. The respondents, official liquidator of Globe Motors Ltd. (In liquidation), opposes it. Oral evidence was taken in this case. Witnesses were examined on both sides. The court has power to order that the evidence be given by affidavit. The matter ought to have been decided on affidavits. But for some reason which is not clear from the record oral evidence was adduced which has resulted in a delay of 8 years in deciding a simple application under s. 20. Apart from this, pleadings in the case are neither precise nor concise. The official liquidator has raised the plea of fraud but has given no particulars of the plea. He has alleged breach of the provisions of the Companies Act but has not specified which particular provision has been breached.
2. The petitioners, Mehta Teja & Co. (Agencies), are a partnership firm (referred to as 'the firm'). Mehta Harnam Singh and his two sons were the partners. The respondent Globe Motors Limited, was a public limited company ('company'). It fell on evil days. It sustained heavy losses. It went into liquidation. The official liquidator then appeared on the scene. Though originally the petition was made against Globe, the official liquidator contested the petition after the order of winding-up was made in May, 1977.
3. Mehta Harnam Singh was one of the 18 directors of Globe. He was also a partner of the firm, M/s. Mehta Teja Singh & Co. (Agencies). The company wanted to appoint a distributor for marketing the produce of Globe Steels, a division of Globe. The directors of Globe decided to appoint Mehta Teja Singh & Co. (Agencies) as their distributors on certain terms and conditions which were reduced to writing. On June 1, 1967, an agreement, was made between the company and the firm This was an agreement for distribution and marketing of 1/6th of the produce of Globe Steels. The firm was to promote the sale of Globe Steels. The company was to pay to the firm a fee @ 4.8% on the total proceeds of the sale of Globe Steels sold either through the distributors or directly by the company. In case the sale proceeds fell below Rs. 1, 50,00,000 in any financial year, the firm was to get Rs. 1,20,000 as the minimum fee in a financial year. This minimum fee of Rs. 1,20,000 was to be paid to the sales of each month. The firm was appointed as distributors but it was forbidden to represent itself as company's agent for any purpose 'or make any promise or representation as agent of the company'. This contract was for a period of 5 years. Though the agreement was made on 1st June, 1967, it was to come into force on June 16, 1967, and was to continue till 15th June, 1972. On behalf of the company it was executed by the governing director and chairman, Mr. B. K. Bedi. It was recited in the agreement that the board of directors of the company in their meeting held on 15th December, 1967, (sic) had authorised Mr. B. K. Bedi to execute the agreement on behalf of the company. On behalf of Mehta Teja & Co. (Agencies) its partner, Mehta Harnam Singh, signed the agreement.
4. There is an arbitration clause in the agreement. It says : 'any dispute or difference arising in regard to any of the terms contained in this agreement shall be settled in accordance with the provisions of the Indian Arbitration Act, 1940'. It is the case of the firm that it was entitled to get Rs. 10,000 per month as its fee under the agreement. The company did not pay this amount. Disputes and differences arose. The firm asked for arbitration. The company did not agree. Hence the petition.
5. The official liquidator in his amended written statement has raised a large number of objections. These objections are reflected in the following issues which were framed on the pleadings of the parties :
1. Whether the arbitration agreements relied upon by the plaintiff are void on account of undue influence and misuse of fiduciary position or non-compliance with the provisions of the Companies Act
2. Whether there is sufficient cause for refusing to make arbitration on account of circumstance of the case including the allegation of the defendant that the claim is belated ?
3. Is the main contract containing the arbitration clause without consideration and hence the arbitration clause cannot be acted upon
These issues were framed on 14th February, 1975, when the company was still functioning. After the order of winding-up, following two additional issues were framed at the instance of the official liquidator on December 5, 1978 :
5. Whether mere failure to pay the amount claimed amounts to a dispute which would attract the provisions of the Arbitration Act (Onus of proof on the defendants).
6. Whether the disputes raised do not fall within the arbitration clause (Onus of proof on the defendants).
6. Though the issues are six, the questions for decision are only three. The first and foremost is the question of limitation which is the subject matter of issue No. 2. The second question is about the validity of the contract dated 1st June, 1967. This is the subject- matter of issues Nos. 1 and 3. The third question will be about the scope of the arbitration clause. This is the subject of issues Nos. 5 and 6.
7. Limitation :
The official liquidator says that the present application is barred by limitation. He relies on art. 137 of the Limitation Act, 1963. There is no dispute that art. 137 applies to all applications under the Arbitration Act. The period of limitation is three years. The time from which the period begins to run is 'when the right to apply accrues'. Now it is said that the application under s. 20 of the Arbitration Act ought to have been made within three years from 16th June, 1967. It is submitted that as the petition was filed on 27th November, 1973, it is barred by time.
8. In my opinion this contention is unsound. Limitation will not run from the date of the agreement. It will run from the time when 'the right to apply' accrues. The main question is : When did the' right to apply' accrue to the firm The firm's case is that the right to apply accrued to it when the company rejected its claim to fees. Counsel relies on the letter of 19th June, 1973(Ex. P/19), wherein the company repudiated the firm's claim for payment of Rs. 6,00,000.
9. In this connection it is important to refer to certain correspondence between the parties. On 24th October, 1970, the firm wrote to the company that they were willing to receive Rs. 2,15,000 due on account of their commission up to March 31, 1969, in Installments in accordance with the scheme of arrangement sanctioned by the High Court. The company at this time was in a financial crisis. Under a scheme propounded by one Mr. Mundra this court had allowed money to be paid to the creditors in installments. By its letter of October 24, 1970. (Ex.D/3 or Ex.p/6) the firm expressed its willingness to receive its commission in installments in terms of scheme sanctioned by the High Court. On this very letter the company noted on 6th November, 1970, 'register the option'. However, on 4th February, 1971, the company wrote to the firm that they are in respect of the firm's letter dated 24th October, 1970. But they said 'we do not find in our records the amount mentioned by you as due to you. Accordingly, we are unable to take further action on your aforesaid letter. If you have any details kindly let us have the same' (Ex. P-10) On 29th April, 1971, the company wrote to the firm that it had wrongfully taken from the company Rs. 32,750 'purporting to be sole selling agency commission without rendering any services or properly performing your obligation and without the sanction and approval of the said agency commission from the general body of the company'. The firm was asked to refund Rs. 32,750 to the company. After this letter the directors in their 12th annual report dated 22nd February, 1972, reported that 'the company made payment of selling agency commission in Globe Steels Division and on sale of vehicles, exide batteries, etc., to various directors or their friends and relations or firms or companies in which they were interested under agreements executed by them. In the opinion of the directors, no service was rendered by such persons and appropriate steps are being taken to claim back the amounts'.
10. From these proceedings it would appear that the firm's claim was repudiated for the first time on 29th April, 1971 (Ex. P-15), and this stand was reiterated in the 12th annual report dated 22nd February, 1972 (Ex.DW 1-6). This stand was again repeated in the letter dated June 19, 1973 (Ex.P. 19). This is the result of the entire correspondence on this subject.'The right to apply', thereforee, did not accrue before 29th April, 1971. If 29th April, 1971, is taken as the starting point of limitation, then the firm is well within time, because it filed the petition on 27th November, 1973. It is true that the contract was for a period of 5 years. But as the contract was repudiated on 29th April, 1971, on grounds substantially those which have been taken in defense before me, I think the period of limitation started running from this date. The reason is that the disputes arose on that day and 'the right to apply' to the court for the appointment of an arbitrator accrued to the firm from this starting point.
11. The official liquidator says that the right to apply to the court arose to the firm at the end of every month because under the agreement dated 1st June, 1967, the minimum fee of Rs. 10,000 was payable in equal monthly Installments if the target of Rs. 1,50,00,000 was not reached in any financial year. I do not agree. There is a capital distinction between the limitation for the claim and the limitation for filing the application under s. 20 of the Arbitration Act. Here we are concerned with the limitation for filing the application. To that article 137 of the Limitation Act applies. I, thereforee, hold that 'the right to apply' to the court for the appointment of the arbitrator accrued when the company repudiated the claim of the firm. (See Union of India v. Vijay Construction Co., : 19(1981)DLT49 ).
12. Validity of contract :
In the forefront of his argument counsel for the official liquidator submitted that the agreement dated 1st June, 1967 (Ex. D/2), is void and, thereforee, the arbitration clause is also void. Relying on Heyman v. Darwins Ltd.  AC 356, counsel submitted that if the agreement is void the arbitration clause would perish with the agreement. thereforee, the central question in the case is whether the agreement between the firm and the company is a binding contract as is the case of the firm or it is void as is the case of the official liquidator. This contract is said to be vitiated by undue influence, misuse of fiduciary position, non-compliance with the provisions of the Companies Act and want of consideration.
13. The official liquidator says that the agreement dated 1st June, 1967, required the approval of the general body of shareholder, and since it was never approved by them it is not binding on the company. We have to see what actually happened when the contract was made. A duly constituted board of directors met on 15th June, 1967. They passed a resolution. They acted collectively and collegiately. They resolved that the firm, Mehta Teja Singh & Co. (Agencies), be appointed as distributors for 1/6th of the produce of Globes Steels. This appointment was approved for a period of 5 years commencing from 16th June, 1967. The firm was to get commission @ 4.8% on the sales subject to a minimum of Rs. 1,20,000 in one financial year. On these terms the governing director was authorised to execute the agreement on behalf of the company. Mehta Harnam Singh was present at this meeting but he neither took part in the discussion nor voted on this resolution. In the minutes of the meeting it is clearly recorded that Mehta Harnam Singh, director of the company, being an interested party in this contract neither took part in the discussion nor voted on the resolution. This is in accord with s. 297 of the Companies Act, 1956 (the Act). The Act requires directors of all companies, public or private, to disclose to the board of directors any interest, direct or indirect, which they might have in a contract or proposed contract with the company and that this minimum requirement cannot be abrogated by the articles. The director has to declare has to declare the nature of his interest at a meeting of the board of directors. In this case Mehta Harnam Singh had direct interest in the contract because he was a partner of the firm with which the company was entering into contract. The minutes of the meeting record this disclosure. Such disclosure put the other directors on notice to scrutinise the terms of the contract, knowing the interest of one of their body. (Imperial Mercantile Credit Association v. Coleman  LR 6 HL 189; Southall v. British Mutual Life Assurance Society  6 Ch A 614; Adamson's case (Paraguassu Steam Tramway Co., In re)  LR Eq. 670; Costa Rica Railway Co. Ltd. v. Forwood  1 Ch 746.
14. Sub-section (5) of s. 297 is important. The consent of the board of directors has to be accorded by a resolution passed in a meeting of the board and not otherwise (s. 297(4)). Sub-s. says :
'If consent is not accorded to any contract under this section, anything done in pursuance of the contract, shall be voidable at the option of the board.'
15. thereforee, if the provisions of s. 297 are not followed, the contract is voidable at the option of the Board. Not void Non-disclosure does not render the contract void or a nullity. It renders the contract voidable at the instance of the company and makes the director accountable for any secret profit which he has made. But in this case the provisions of s. 297 have been strictly complied with. The official liquidator cannot, thereforee, complain of undue influence or misuse of fiduciary position. Nor can be complain of the non- compliance with the provisions of the Act. It is true that the directors occupy a fiduciary position in relation to the company. They must act bona fide. They must act for the benefit of the company. This duty of good faith which fiduciary relationship imposes is virtually identical with those imposed on trustee. In this sense directors are trustee. If one of them takes a contract and does not disclose his interest, he will be committing breach of trust. But if he disclose his interest and does not vote on the resolution and does not take part in the discussions it cannot be said that he has acted improperly or is guilty of undue influence or fraud.
16. The plea of fraud has been raised. But it is the vaguest of pleas. No particulars have been give. The board could have avoided the contract because it is voidable at the option of the board. But they gave the contract with full knowledge of the material facts and free from undue influence. There is no fraud in the transaction. The directors were acting bona fide. They did not contravene their fiduciary duty when they awarded contract to one of themselves because there was perfect disclosure on the part of Mehta Harnam Singh. Mehta acted in a personal capacity as parter. He had another capacity as a director of the company. thereforee, disclosure was essential. This is why he disclosed his interest. The directors are in a fiduciary position. They must exercise their powers for the benefit of the company, as I have said. Nothing has been shown in this case to convince me that the contract made with the firm was not for the benefit of the company or was in any way prejudicial to its interest.
17. Nor am I impressed with the argument that the contract was without consideration. Consideration is stated in the contract itself. It was a service contract A contract of employment to boost sales. The firm was to push up sales of the company. There was a target point. It was Rs. 1,50,00,000. If the sales reached the target the firm was to get a fee of 4.8% of the total proceeds of the sale. Otherwise it was to get a minimum sum of Rs. 1,20,000 per year for the services rendered by it. The promotion of sales of Globe Steels was the service in consideration of which the company agreed to pay the fee and the minimum fee.
18. The official liquidator says that the firm had agreed to invest a sum of Rs. 5,00,000 in the company and no such amount was invested and, thereforee, the contract is without consideration. In paragraph 6 of the petition the firm states that it poured this money in the company as it needed financial assistance. Satinder Kohli, chief accountant of the company, produced by the official liquidator, has categorically admitted that Rs. 5,00,000 were injected in the company by the firm at the time the contract was entered into. So I dismiss the plea that the agreement was without consideration.
19. The official liquidator then raised another point. He said that the agreement dated 1st June, 1967, was to be approved by the shareholders at the general meeting, and as this was not done, the company is not bound by the agreement. I have read the agreement. I have not found any such condition. It is not the term of the agreement that it shall come into force only if the approval of the shareholder has been accorded. The official liquidator referred me to the proceedings of the 11th general meeting of the shareholder of the shareholder of the company held on 6th August, 1968. A resolution to obtain the consent of the company under ss. 314 and 294 '(if applicable)' of the Act in relation to the contract dated June 1, 1967, was proposed at the said meeting. It was resolved that a committee consisting of certain persons be constituted to negotiate with the firm and to submit their recommendations for the adoption of the shareholder in the next annual general meeting, or extraordinary meeting of the shareholders of the company. Founding himself on this, the official liquidator says that though the matter was put to the general meeting of the shareholders they never passed the resolution adopting the contract or affirming it. In support of the submission he invited my attention to the 13th annual report where the directors in their reports observed that the agreement was 'fraudulent and to the detriment of the company and not having been approved by the shareholders has not been given effect to. No services were rendered by any of these entities for the sale of the products of Globe Steels. The present management considers these agreements fradulent, collusive and void and has, thereforee, made no provision in these accounts for any liability for any commission. In November, 1973, Messrs. Mehta Teja Singh & Co. (Agencies) have filed a suit in the Delhi High Court requiring the company to file the said agreement under the Arbitration Act The company is strongly resisting the suit.'
20. The real question for decision is : Did the agreement dated 1st June, 1967, require the approval of the shareholder The agreement had the approval of the board of directors. Was it necessary for the shareholders to give their approval before the agreement could have effect This is the question. The answer to this question is simple. Neither the article not the provisions of the Act require the matter to be put to the shareholders for approval. The spheres of the directors and the general body of the shareholders are quite separate and distinct. In exercising their powers the directors do not act as agents for the majority or even all of the members, and so the members cannot by a resolution passed by a majority or even unanimously supersede the directors powers, or, instruct them how they shall exercise their powers. This sovereignty of the directors within the limits of the powers conferred on them by the articles of the company was clearly expressed by Greer L.J. in the following words.
21. 'A company is an entity distinct alike from its shareholders and its directors. Some of its powers may, according to its articles, be exercised by directors, certain other powers may be reserved for the shareholders in general meeting. If powers of management are vested in the directors, they alone can exercise these powers. The only way in which the general body of the shareholders can control the exercise of the powers vested by the articles in the directors is by altering the articles, or if opportunity arises under the articles, by refusing, to re-elect the directors of whose actions they disapprove. They cannot themselves usurp the powers which by the articles are vested in the directors any more than the directors can usurp the powers vested by the articles in the general body of shareholder.' (John Shaw & Sons (Salford) Ltd. v. Shaw  2 KB 113.; Pennington's Company Law, fourth edition, p. 523-524).
22. As in a federal government there is a division of powers between the Centre and the States, so in a company the spheres of the directors and the shareholders are separate and distinct. One cannot override the other. The shareholders cannot overrule the decision of the directors. All that the shareholders can do is to amend articles or refuse to reelect directors and replace them by others more to their liking. The company's powers are divided between the directors and the shareholders. The general meeting retains ultimate control, but, only through its powers to amend the articles (so as to take away, for the future, certain powers from the directors) and to remove the directors and to substitute others more to its taste. Until it takes one or other of these steps the directors can, if they are so advised, disregard the wishes and instructions of the members in all matters not specially reserved (either by the Act or the articles) to a general meeting. Prof. Gower has shown that the old idea that the general meeting alone is the company's primary organ no longer holds the field. There are practical difficulties in the way of effectively exercising the supervision by the general body owing to the directors' control over the proxy-voting machinery. He says :
'The old idea that the general meeting alone is the company's primary organ and the directors merely the company's agents or servants, at all times subservient to the general meeting, seems no longer to be the laws as it is certainly not the fact.' (Gower's Principles of Modern Company Law, 4th edn., p. 152).
23. The result of the discussion appears to be that the directors have ceased to be mere agents of the company. The doctrine of 'sovereignty of the directors' within the limits of the powers specifically reserved to them, as Prof. Pennington has phrased it, represents the modern view. Apply these principles here. Now it has not been shown that there is any article of the company which requires this contract to be approved by the shareholders at the annual general meeting. Nor is there any statutory provision requiring this to be done. So my conclusion is that the directors were given the powers to manage the affairs of the company and they were perfectly competent to make this contract with the firm as this matter was one which related to the actual management of the company and was in the allotted field of the directors. The assent of the shareholders was not at all required. The contract is, thereforee, binding on the company.
24. There is another way of looking at this question. The life of the contract was five years. The contract was operative from June 16, 1967, and continued till June 15, 1972. If the transaction embodied in the contract was to be repudiated it ought to have been done during the currency of the contract. The company, in a voidable contract, can decide whether to affirm or avoid the contract. But a contract cannot be rescinded after it has come to an end. You can not slay the slain. The right as to avoidance of the contract is lost on the expiry of five years. The contract was avoided on 19th June, 1973, vide Ex. P- 19. This was obviously beyond the expiry of 5 years. Such a rescission has no effect in law (Hely-Hutchison v. Brayhead Ltd.  3 All ER 98. So I hold that the contract is valid and enforceable. The petitioners are entitled to demand arbitration because the contract contains an arbitration clause.
25. The official liquidator says that the firm is not entitled to any remuneration because it rendered no services. This defense related to the merits of the claim. This relates to the performance of the contract and not its formation. It is for the arbitrator to decide whether the firm is entitled to the money it claims. Whether the claim will succeed or fail before the arbitrator is not the question. All that has to be seen is whether there is a dispute and whether the dispute is covered by the terms of the arbitration clause. If the court comes to the conclusion that it is covered by the clause the matter must go to arbitration.
26. The official liquidator says that the contract dated June 1, 1967, was a contract of sole selling agency and to such a contract, s. 294 of the Act applies. Section 294 says that the appointment of the sole selling agents requires the approval of the company in a general meeting. But the question is : Was this a contract of sole selling agency In my opinion, the answer is 'no'. The contract was a service contract. The firm is described as distributors. It was forbidden to use the term 'agent'. It was 'not to represent itself to be the company's agent for any purpose or assume, create or incur any obligation or make any promise of representation as agent of the company'. In view of this emphatic declaration it is impossible to hold that the firm was the agent or sole selling agent, as the official liquidator contends. The firm's obligation was 'to provide for the company the service of its selling organisation, whose duties shall be promote in every reasonable manner to the satisfaction of the company the sale of the products of Globe Steels'. The contract provides that 'in consideration of the services' the company was to pay to the firm a fee at the rate of 4.8% or a minimum fee of Rs. 1, 200,000 if the target of sales is not achieved. This is the purport of the contract. I cannot see how it can be said to be a sole selling agency. More so in view of the fact that only 1/6th of the products of Globe Steels was given to the firm. The remaining 1/6th was given to another person, namely, Urvinder Singh Kohli, as is recited in the agreement itself. For a sole selling agent it is necessary to define the area of the agency. No such area has been defined in this agreement. I cannot, thereforee, hold that the contract in question was a contract of sole selling agency as has been contended by the official liquidator.
27. The official liquidator then referred me to s. 314 of the Act. This section, in my opinion, has no application. That section says that a director shall not hold office or place of profit in the company. It is not shown how Mehta Harnam Singh was disqualified from entering into a contract on behalf of the firm of which he has a partner.
28. Scope of Arbitration Clause :
This brings me to the third question. The question is ! What is the dispute and whether it is covered by the arbitration clause It is said that mere failure to pay the amount claimed does not amount to a dispute I agree. But this is not a case of mere failure to pay. It is a case where the transaction has been repudiated. The contract was sought to be rescinded. I have held that a contract cannot be rescinded after it has run its course. The question is not one of failure to pay the amount. The question is whether any amount is due to the firm. It has been strongly argued that the firm is not entitled to any amount from the company. The arbitrator will decide this question. I fine there is real and substantial dispute between the parties which ought to be referred to arbitration. The question whether any services were rendered by the firm and whether they are entitled to any remuneration in consideration of the services are matters which are within the province of the arbitrator.
29. I was referred to s. 20(4) of the Arbitration Act and Abdul Kadir Shamsuddin Bubere v. Madav Prabhakar Oak, : 3SCR702 . In my opinion, no sufficient cause has been shown why the order of reference to the arbitrator should not be made. The plea of fraud lacks all particulars. It deserved no notice. One it is shown that there is not sufficient cause why the agreement be not filed, the court has not discretion in the matter. (Jiwanlal Raj Narain Khanna v. Radhey Lal, : AIR1968Delhi90 ).
30. This dispute falls within the arbitration clause. The arbitration clause says : 'any dispute or difference arising in regard to any of the terms contained in this agreement shall be settled in accordance with the provisions of the Indian Arbitration Act, 1940.' The dispute between the parties is one which falls within the ambit of this clause. In my opinion, the clause is wide enough to comprehend it. The official liquidator says that there is no dispute in regard to 'terms' contained in the agreement. He laid a great deal of stress on the expression 'terms' used in the clause. In my opinion, this is not the meaning of the word 'terms'. It means articles of agreement, bargain or transaction. It means any dispute or difference arising out of the contract, terms whereof are set forth in the document, shall be settled by arbitration. I, thereforee, hold that there is a dispute and the dispute is referable to arbitration.
31. For these reasons I order the agreement to be filed and refer the matter to arbitration. I appoint Mr. M. S. Joshi, a retired judge of this court, to act as the sole arbitrator in this case and to give his award on the dispute between the parties. I fix his fee at Rs. 4,000 to be paid in equal shares by the petitioners and official liquidator. Ultimately, it will be in the arbitrator's discretion to decide the question of costs.
32. The parties are directed to appear before the arbitrator on 9th January, 1982 at 11 a.m. at his residence.
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