The Vanguard Fire & General Insurance Co, Ltd, 11/12, Second Line Beach, Madras-1 v. Annamalai & Co , Ltd , 13/14, Second Line Beach, Madras-1
1960-12-02
P.V.RAJAMANNAR, VEERASWAMI
body1960
DigiLaw.ai
This appeal arises out of a suit, C.S. No. 279 of 1953, instituted in this Court by the respondent, Annamalai &38; Co., Ltd , against the appellant, the Vanguard Fire &38; General Insurance Co., Ltd. After the issues were framed, the suit was transferred to the file of the City Civil Court at Madras, where it was numbered as O.S No. 1315 of 1955. The plaintiff is a private limited company registered under the Indian Companies Act and was represented by the Managing Director, S. RM. C.T A. Annamalai Chettiar. The defendant is a public limited company, registered under the Indian Companies Act and carrying on insurance business at Madras. On 24th September, 1941, an agreement was entered into between the plaintiff and the defendant. The material clauses of this agreement are the following:- "1. That in consideration of the Agreement with the said Company hereinafter contained, the said Annamalai &38; Co., Ltd., do hereby promise and agree to act as principal organisers of the said company on the following terms and conditions. "2. That the said principal organisers will faithfully and to the best of their ability perform the duties for the purpose of carrying on to the best advantage the business of the said company at the remuneration and upon the terms and subject to the conditions hereinafter mentioned and described. "3. That the said Annamalai &38; Co., Ltd., shall be the principal organisers for a period of 25 years from the date hereof or until they shall resign by giving six months’ notice to the said company in writing and during the said term shall be in charge of organising the entire business of the said company and they shall use their best endeavours to promote the interests of the said company and shall not divulge or make known any of the secrets or affairs of the said company. "4. The said principal organisers shall not be held liable for any loss or damage that may result to the said company from the acts or deeds of the Chief Agents or Agents for any other persons appointed by the said principal organisers or by the Chief Agents. "5. There shall be paid to the said principal organisers by way of remuneration five per cent.
"5. There shall be paid to the said principal organisers by way of remuneration five per cent. of the total premia collected by the said company in respect of all its insurance business and 6¼ per cent, of the net profits, earned by the company every year. ****** 7. The principal organisers shall be entitled to be paid all charges, expenses and allowances incurred by them for journeys undertaken by them for the business or in the interests of the said company. 8. The said company shall indemnify the said principal organisers against all costs, losses, damages and expenses, to which they may be put in the discharge of their duties as principal organisers. 9. This appointment of the principal organisers is irrevocable for a period of 25 years." Further, clause (10) provided that, in the event of the defendant-company being wound up with the object of transferring the business to any other company, the defendant-company shall make it one of the terms and stipulation in the agreement of transfer that the transferee-company shall appoint the plaintiffs as the principal organisers of their company for the residue of the term of 25 years as may be outstanding at that time on the same terms and conditions as to remuneration, emoluments and otherwise as are contained in the agreement between the plaintiffs and the defendants. On 1st June, 1950, the Insurance (Amendment) Act (XLVII of 1950) came into force. That Act inserted a new section, namely, section 31-A, after section 31 of the original Act. Sub-section (1) of that section inter alia Provided: "Notwithstanding anything to the contrary contained in the Indian Companies Act, 1913, or in the articles of association of the insurer, of a company, or in any contract or agreement, no insurer shall after the expiry of one year from the commencement of the Insurance Amendment Act, 1950, ...... be directed or managed by, or employ as manager or officer or in any capacity, any person whose remuneration or any part thereof takes the form of commission or bonus in respect of the general insurance business of the insurer." On 21st September, 1950, the defendant-company addressed a letter (Exhibit A-16) to the plaintiffs, informing them that their agreement with the defendant-company had become inoperative from 1st September, 1950, on account of the restrictions imposed by the latest Insurance (Amendment) Act.
On 20th August, 1953, nearly three years after the receipt of this letter, the plaintiffs, through their advocates, called upon the defendant-company to render an account of the total premia collected by them in respect of their insurance business and of the net profits earned by them from 1stJanuary, 1950, and, on such rendition of accounts, to pay to them by way of remuneration 5 per cent, of the total premia collected and 6¼ per cent, of the net profits earned by them from 1st January, 1950. In the notice, it was alleged that the contention of the defendant-company that the agree ment between the parties had become inoperative from 1st September, 1950, was unsustainable. The defendant-company, refused to comply with the plaintiff’s demand, and the suit, out of which this appeal arises, was filed on 1st September, 1953, for reliefs in terms of the demands made by the plaintiffs in their notice dated 20th August, 1953. The defendant-Company, in their written statement, pleaded that the plaintiffs had done no work for the defendants during the period for which they were seeking to claim remuneration, that the agreement between the parties became suspended and void on the coming in force of the Insurance (Amendment) Act, 1950, and that, consequently, the plaintiffs were not entitled to any remuneration for the period from and after 1st September, 1950 and prayed that the suit might be dismissed. The learned Sixth Assistant Judge of the City Civil Court passed the following decree in favour of the plaintiffs: "An account be taken from 1st January, 1950 upto 1st September, 1950, as per the terms of Exhibit A-1 and from 1st September, 1950, upto the date of suit, viz., 1st September, 1953, on the basis of 6¼ per cent, of the net profits earned by the defendant insurance-company every year, for which purpose a Commissioner shall be appointed." The learned Judge held that section 31-A of the Insurance Act prohibited only that portion of the plaintiffs’ remuneration which took the form of commission, but that the rest of the remuneration which took the form of a share in the net profits of the defendant-company was left intact and unaffected by that provision. A contention was raised on behalf of the defendants that, as a part of the consideration had become void, the entire contract ceased to be enforceable.
A contention was raised on behalf of the defendants that, as a part of the consideration had become void, the entire contract ceased to be enforceable. The learned Judge overruled this objection, holding that section 31-A only restricted payment by way of remuneration to an officer or any person employed by the insurer, but it could not be said that a portion of the consideration had become void. The learned Judge also overruled the plea of the defendant-company that the plaintiffs had not done any service to them during the period for which remuneration was claimed in the suit The defendants have filed the appeal from the decree passed against them. The plaintiffs, however, have not filed a cross-appeal or a memorandum of cross-objections, in so far as their claim had been disallowed. The first question which arises in this appeal is whether the respondents fall within the mischief of sub-section (1) of section 31-A of the Insurance Act. They would, if they can be held to be employed as manager or officer or in any capacity by the appellants. Mr.R. Narasimhachari, learned counsel for the appellants, contended that, having regard to the terms of the contract between the parties, the respondents must be deemed to be in the employ of the appellants as principal organisers. The term "employ” is wide enough to cover a person whose duties are such as are mentioned in the agreement. It is not necessary that a person should be on the regular staff of a company before it can be said that he is employed by the company. He need not be a servant of the company in the popular sense. The respondents have to perform all the duties necessary for the purpose of carrying on the business of the appellant-company to the best advantage. They are in charge of organising the entire business of the company. They are under an obligation to use their best endeavours to promote the interests of the company. Clause (4) of the agreement contemplates the respondents choosing the chief agents or other agents. They are expected to undertake journeys for the business or in the inherests of the appellant-company; and clause (7) provides that they shall be entitled to be paid all charges and other expenses incurred by them for such journeys.
Clause (4) of the agreement contemplates the respondents choosing the chief agents or other agents. They are expected to undertake journeys for the business or in the inherests of the appellant-company; and clause (7) provides that they shall be entitled to be paid all charges and other expenses incurred by them for such journeys. Clause (8) expressly refers to the respondent’s immunity from liability for actions done in discharge of their duties. Clause (9) refers to the “appointment of the principal organisers” for a period of 25 years. Even if the respondents were to be treated as independent contractors, they would, nevertheless, be employed by the appellant-company. So his argument ran. He referred us to Bouvier’s Law Dictionary, Volume 1, at page 1011, in support of his argument that even an independent contractor could be a person employed. On the other hand, Mr. Mohan Kumaramangalam for the respondents contended that the respondents could not be said to be in the employ of the appellant-company, because the appellant-company did not exercise power of control over their actions and they could not direct the respondents to do any work in a particular way. He relied on the following passage in Halsbury’s Laws of England, Third Edition, Volue 25, Page 498: “To distinguish between an independent contractor and a servant, the test is whether or not the employer retains the power, not only of directing what work is to be done, but also of controlling the manner of doing the work.” This passage must be read with the opening passage relating to the topic “ Master and Servant” at page 447, which runs thus: “Whether or not, in any given case, the relationship of master and servant exists in a question of fact ; but, in general, the relationship imports the existence of power in the employer not any to direct what work the servant is to do, bat also the manner in which the work is to be done.” He further contended that, in any event, the employment must be rejusdem generis with that of a manager or an officer, though the words ‘in any capacity’ are general and wide. We accept the contention of Mr. Narasimhachariar.
We accept the contention of Mr. Narasimhachariar. Though it is not clear what exactly is conoted by the expression “principal organisers”, it is clear from the terms of the agreement between the parties that the respondents are under an obligation to discharge certain duties and that the appellants are under the corresponding obligation to pay them remuneration. A contract to employ does not necessarily mean to find actual employment. It does not imply that the person employed has to follow a daily routine of work. Even a person who is retained to do any kind of service when occasion for such service arises would be a person employed . As Parke, B., points out in Elderton v. Emmens1, at page 309: “Medical advisers may be employed at a salary to be ready in case of illness; members of theatrical establishments in case their labours should be needed; household servants in performance of their duty when their masters wish; in these and other similar cases, the requirement of actual service is distinct from the employment by the party employing.” We know that almost every company has a legal adviser. He would certainly be a person employed by the company, though he may not be the company’s servant; likewise, a doctor who is employed to look after the health of the company’s servants. There are, again, persons who are called “Financial Advisers” whose duty is to render advice on occasions when such advice is sought. Nevertheless, they are retained by payment of fixed remuneration per month. It may be that, for several months, they might be never consulted. The test is whether they would be obliged to give their advice, when sought. Though we agree with Mr. Mohan Kumaramangalam that “ in any capacity” should be construed ejusdem generis along with “a manager or an officer”, we do not agree with him that the capacity in which the respondents were employed is not in a capacity similar to that of an officer of the company. We therefore hold that the respondents fall within the scope of the prohibition contained in section 31-A (1) of the Insurance Act.
We therefore hold that the respondents fall within the scope of the prohibition contained in section 31-A (1) of the Insurance Act. We do not think it necessary to decide the question by resorting to an application of the well-known rule of construction of statutes, which is thus stated in Maxwell’s Interpretation of Statutes, 10th Edition, page 19: “To arrive at the real meaning, it is always necessary to get an exact conception of the aim, scope, and object of the whole Act; to consider, according to Lord Coke: 1. What was the law before the Act was passed; 2. What was the mischief or defect for which the law had not provided; 3. What remedy Parliament has appointed; and 4. The reason of the remedy.” Learned counsel referred to the Statement of Objects and Reasons published in connection with the introduction of the Insurance (Amendment) Act, 1950, to show that the object of the new provision (section 31-A) was to prohibit the payment of remuneration in the shape of commission in respect of the insurance business except to chief agents, principal agents and certain other agents. There is a great deal of force in the contention of Mr. Narasimhachariar that, having regard to the previous state of law, the mischief sought to be prevented and the remedy contemplated, section 31-A should be so construed as to strike down an agreement like the suit agreement. But, as we have already mentioned, wo do not rest our decision on this ground. The next question is whether the agreement can be enforced, though a part of the consideration of the agreement has become illegal, that is to say, prohibited by statute. Mr. Narasimhachariar contended that the entire agreement became void when a part of the consideration became unlawful. He founded his argument on section 24 of the Indian Contract Act, which says: “If any part of a single consideration for one or more objects, or any one or any part of any one of several considerations for a single object, is unlawful, the agreement is void. Illustration.-"A. promises to superintend, on behalf of B., a legal manufacture of indigo, and an illegal traffic in other articles. B. promises to pay to A. a salary of 10,000 rupees a year.
Illustration.-"A. promises to superintend, on behalf of B., a legal manufacture of indigo, and an illegal traffic in other articles. B. promises to pay to A. a salary of 10,000 rupees a year. The agreement is void, the object of A’s promise and the consideration for B’s promise being in part unlawful.“ He cited to us the case of Waito v. Jones2, in which Tindal, C.J., observed at page 1272: ”It may be conceded that, if either part of the consideration be illegal, the whole falls to the ground ; for a party cannot enforce a contract where the consideration is illegal, either in the whole or part ; Featherston v. Hutchinson“, is a direct authority on that point. There, a promise by defendant to pay a sheriff the debt of his prisoner, in consideration of the prisoner’s being set at large, and paying the defendant as., was held void as to the whole.” Mr. Mohan Kumaramangalam was unable to support the view taken by the Court below. The learned City Civil Judge apparently thought that, though a part of the consideration has become unforceable because of section 31-A, there was the remaining part of the consideration which could be enforced. The fallacy in the reasoning is this. It may be that the respondents are willing to accept the balance of the considration as sufficient remuneration for their services. But, suppose they are not satisfied with that only; can they be compelled by the appellants to perform their duties on payment of only a part of the remuneration agreed upon? Mr. Mohan Kumaramangalm could not say that the appellants would be entitled to do so. We hold that the entire contract has become incapable of being enforced, because part of the consideration has been rendered unlawful by section 31-A of the Insurance Act. In view of our above conclusions, it is not necessary to deal with the question of fact whether the respondents did not perform their duties during the period for which the suit claim has been made. In the result, we allow the appeal, set aside the decree passed by the Court below, and dismiss the suit with costs throughout. R.M. ------ Appeal allowed.