) No the appointment is not in order since approval of the Central Govt. as

P. 2. The Board of Directors of a multi-product company, namely "PQR Limited", having a paid-up capital of Rs. 251akhs appointed "XYZLimited" as sole selling agents for all its products in India without prior approval of the company in general meeting and without any condition that the appointment is subject to the approval of the company in general meeting. "XYZ Limited", its Directors and their relatives are not
holding any shares in "PQR Limited". DisGUSS whether the appointment of "XYZ
Limited" as sole selling agent is valid. State with reason whether your answer will be different if (a) XYZ Limited are appointed as sole selling agents only for the State of Maharashtra, or for whole of India; and (b) for only some of the products manufactured
by "PQR Limited" or for the entire range of products. [C.A. (Final) Nov., 1989J

.9lns. Sole selling agent cannot be appointed except subject to the condition that the appointment shall cease to be valid if it is not approved by the company in the first general meeting held after the date of appointment [Sec. 294 (2)].
The insertion of the aforesaid clause is mandatory. Failure to do so shall render the appointment of sole selling agent void ab initio and it will continue to remain so even if it is approved by the company subsequently [Clarification issued by the Deptt. of Company Affairs; Also held in Avantee Mfg. Corpn. Vs. Right Bolts Pvt. Ltd.[1967] 37 Compo Cas.].
Thus, appointment of EZ_Ltd. is void ab initio.
It shall be immaterial as to whether the appointment is for the State of Maharashtra
or for the whole of India.
Similarly, the position will remain the same as described above in case XYZ Ltd. is appointed as sole selling agent for only some of the products manufactured by PQR or for the entire range of its products.
P.3. The Board of Directors of X Ltd. having a paid-up share capital of Rs. 40 lakhs appointed Y Ltd. as sole selling agent for a period of five years with effect from 1 st April, 1995 andlhe said appointment was approved by the company in the next Annual General Meeting held on 30th September, 1995. The Directors of YLtd. were holding fully paid-up shares offace value of Rs. 31akhs in XLtd. Answerthe following explaining the relevant provisions of the Companies Act:
(i) Is the appointment of the sole selling agent in order? (ii) Will your answer be different if both are private companies or if the Directors
of Y Ltd. acquired the aforesaid shares in X Ltd., on 1 st September, 1995?

.9lns. (i) No; the appointment is not in order since approval of the Central Govt. as
per Sec. 294-AA(2) has not been obtained.
(ii) Again approval of the Central Govt. shall be necessary even if both the
companies are private companies, Sec. 294-AA applies to private com
panies also.
Howe"er, if Y Ltd., has acquired shares in X Ltd., on 1st Sept. 1995, the provisions of Sec. 294-AA shall not apply.
P.4. J, having substantial interest in XYZLtd. is appointed as a Sole Selling Agent by the Board of Directors of the company for a period of 5 years. The company's paid-up share capital is Rs. 49 (Forty nine) crores. The Board of Directors-did not place the