1959 (7) TMI 28 - HC - Companies Law

Memorandum of association Special resolution and confirmation by CLB required for alteration of

Issues Involved:

1. Alteration of the Memorandum of Association to permit donations to political parties.
2. Compliance with Section 293(1)(e) of the Companies Act, 1956.
3. Public interest and general welfare considerations under Section 17 of the Companies Act, 1956.
4. Judicial precedents and legislative recommendations on company contributions to political funds.

Issue-wise Detailed Analysis:

1. Alteration of the Memorandum of Association to permit donations to political parties:

The petitioner, a private company, sought to alter its memorandum of association to allow donations to political parties' funds. This alteration was embodied in a special resolution passed in accordance with Section 189 of the Companies Act, 1956, during the annual general meeting held on January 22, 1958. The company argued that contributing to political funds was necessary and advisable for efficiently and profitably carrying on its business, as the textile industry is largely controlled and regulated by the Government.

2. Compliance with Section 293(1)(e) of the Companies Act, 1956:

Section 293(1)(e) restricts the board of directors of a public company, or a private company which is a subsidiary of a public company, from contributing to charitable and other funds not directly related to the business of the company or the welfare of its employees any amount exceeding Rs. 25,000 or 5% of its average profits during the preceding three financial years, whichever is greater, without the consent of the company in a general meeting. Contributions to political parties fall within this provision. The petitioner company had accumulated reserves and sought to make contributions exceeding the specified limit, thus requiring approval from the general meeting.

3. Public interest and general welfare considerations under Section 17 of the Companies Act, 1956:

Section 17(1) allows a company to alter its memorandum with respect to its objects to enable it to carry on its business more economically or efficiently. The court must be satisfied that the alteration is not intended to oppress any section of shareholders, defraud creditors, or defeat the purposes of the Companies Act. The court found that contributions to political parties could enable the company to place in power governments whose policies would be beneficial to the company, thus aligning with the objectives of Section 17(1). The court emphasized that general welfare or public interest considerations are for the Legislature, not the court, under Section 17.

4. Judicial precedents and legislative recommendations on company contributions to political funds:

The judgment referenced two recent cases, In re Indian Iron and Steel Co. Ltd. and Jayantilal v. Tata Iron and Steel Co., which discussed the propriety of company contributions to political parties. The Government of India's committee, presided over by Sri A.V. Viswanatha Sastry, recommended full disclosure of such contributions in the company's profit and loss account and suggested that contributions exceeding the prescribed limit should be approved by the general meeting. The court agreed with these recommendations and emphasized the importance of transparency and regular sources of funding for political parties to avoid corrupt practices.

Conclusion:

The court allowed the alteration of the memorandum of association, stating that the shareholders had considered the pros and cons and agreed to the contributions, which fell within the provisions of the Companies Act. The Registrar of Companies had no objections. The application was allowed, and the company was permitted to take its costs from its funds.

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