No company can appoint any individual, firm or body corporate

(a) Where the Central Government is of opinion that the demand for.a specified category of goods is in excess of the production and supply of such goads and that the services of sole selling agents will not be necessary, it may declare by notification that sole selling agents shall not be appointed by any company for such goods for a specified period [Sub-section (1)].
(b) No company can appoint any individual, firm or body corporate, who or which has substantial interest in the company, as sole selling agent of that company unless such appointment has been previously approved by the Central Government [Sub-section (2)].
A doubt may be expressed as to whether the approval of the Central Government under Sub-section (2) will be necessary for the continuance of the sole selling agents even if the provisions of the said section to such appointment were not applicable at the time of appointment of the sole selling agent?
In the aforesaid connection, the Deptt. of Company Affairs has clarified that in case the provisions of Section 294-AA (2) of the Act are not attracted to the appointment of sole selling agents at the time of entering of agreement with them, it will not be obligatory on the companies to comply with the said provisions for the continuance of the said appointments for the remaining. duration of their current tenure but not during any extension thereof even if the provisions of sub-section (2) of Sec. 294-AA become applicable due to the selling agents acquiring substantial interest [Circular No.1 /1 /78-CL- V, of dt. 7.3.1978].
(c) No company having a paid-up share capital of Rs. 50 lakhs or more can
appoint a sole selling agent except:
(i) by passing a special resolution to that effect; and
(ii) by the approval of the Central Government [Sub-section (3)].
According to a clarification given by the Deptt. of Company Affairs, where, after the appointment of a sole selling agent has been made, the company's paid-up capital is increased to Rs. 50 lakhs or more, the company need not comply with the provisions of Sub-section (3) [Circular No. 11/17, dt.3.11.77].
In the aforesaid provisions, the expression 'appointment' includes 'reappointment' and the expression substantial interest [as used in (b) above}:
(i) in relation to an individual, means the beneficial interest held by such individual or any of his relatives, whether singly or taken together, in the shares of the company, the aggregate amount paid up on which exceeds Rs. 5 lakhs or 5 per cent of the paid-up share capital of the company, whichever is lesser;
(ii) in relation to a firm, means the beneficial interest held by one or more partners of the firm or any relative of such partner, whether singly or taken together, in the shares of the company, the aggregate amount paid up on which exceeds Rs. 5lakhs or S per cent of the paid-up share capital of the company whichever is less;
(iii) in relation to a body corporate, means the beneficial interest held by such body corporate or one or more of its Directors or any relative of such Director,
whether singly or taken together, in the shares of the company, the aggregate. amount paid up on which exceeds Rs. Slakhs or S per cent of the paid-up share capital of the company, whichever is less.