The Vanguard Fire and General Insurance Co., Ltd., 11/12, Second Line Beach, Madras-1 vs Annamalai and Co., Ltd. and others

Rajamannar, C.J.—This appeal arises out of a suit, C.S. No. 279 of 1953, instituted in this Court by the respondent, Annamalai and Co.,

Ltd-, against the appellant, the Vangaurd Fire and General Insurance Co., Ltd., After the issues were framed, the suit was transferred to the file of

the City Civil Court, 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 its Managing Director, S.RM. CT. A. Annamalai Chettiar. The defendant is a public limited

company, registered under the Indian Companies Act, and carrying an 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:

That in consideration of the agreement with the said company hereinafter contained, the said Annamalai and Co., Ltd, do hereby promise and

agree to act as principal organisers of the said company on the following terms and conditions.

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.

That the said Annamalai and 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 land 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.

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 or any other persons appointed by the said principal organisers or by the Chief Agents,

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 61/4 per cent of the net profits, earned by the company every year

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.

The said company shall indemnify the said principal organisers against all costs, losses, damages and expenses, to which they may be put to in

the discharge of their duties as principal organisers.

This appointment of the principal organisers is irrevocable for a period of 25 years.

Further, Cl. 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 (Act XLVII of 1950) came into force. That Act inserted a new section, namely, S.

31-A after S. 31 of the original Act. Sub-S. 1 of that section inter alia provided:

Notwithstanding any thing 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

lakes 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, Ex. 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 1st January 1950, and, on such rendition of accounts, to pay to them by way of remuneration five per cent of the total premia

collected and 61/4 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 agreement 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 superseded and void on the coming into 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 Ex. A-1 and from 1st September 1950 upto the date of

the suit, viz.-, 1st September 1953. on the basis of 61/4 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 S. 31-A of the Insurance Act prohibited only that portion of the plaintiff''s 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. The learned Judge overruled this objection, holding that S. 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 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-S. (1) of S. 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. Narasimhachariar, 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. Cl 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 interests of the appellant-

company; and Cl. 7 provides that they shall be entitled to be paid all charges and other expenses incurred by them for such journeys. Cl. 8

expressly refers to the respondents'' immunity from liability for actions done in discharge of their duties. Cl. 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, Vol. I, at p. 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, 3rd Edn., Vol. 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 is a question of fact; but in general, the relationship imports the

existence of power in the employer not only to direct what work the servant is to do. but also the manner in which the work is to be done.

He further contended that, in any event, the employment must be ejusdem generis with that of a manager or an officer, though the woods ""in any

capacity"" are general and wide.

We accept the contention of Mr. Narasimhachariar. Though it is not clear what exactly is connoted 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. Emmeos 17 L.J.C.P.307, 309

Medical advisers may be employed at a salary to be ready in case of illness; members of theoretical 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 tender 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 S. 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 Edn. 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;

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 (S. 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, S. 31-A

should be so construed as to strike down an agreement like the suit agreement. But, as we have already mentioned, we 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 S. 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 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 Waite v. Jones 131 E. R. 1270, 1272, in which Tindal C.J. observed:

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 Cro. Elis. 199, 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 2s., 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 unenforceable because of S. 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 consideration 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 Kumaramangalam 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

S. 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.