1960 (9) TMI 29 - HC - Companies Law

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

Summary

Issues Involved:

1. Confirmation of alterations in the objects clauses of the memorandum of association.
2. Compliance with the Reserve Bank of India's directives.
3. Implementation of the sanctioned scheme of arrangement.
4. Potential banking activities in disguise.
5. Applicability of Section 49C of the Banking Companies Act, 1949.

Issue-Wise Detailed Analysis:

1. Confirmation of Alterations in the Objects Clauses:

The appellant company sought confirmation of alterations in its memorandum of association to convert from a banking to a non-banking company. The company had already passed resolutions and held meetings to alter its name and object clauses. Despite the Registrar of Joint Stock Companies' opposition, the court initially confirmed the alterations, including deleting and modifying several sub-clauses and changing the company's name. The alterations were duly registered, but the Central Government later required further changes to fully eschew banking activities.

2. Compliance with the Reserve Bank of India's Directives:

The Reserve Bank of India (RBI) directed the company to cease banking activities, alter its memorandum, and change its name. The company complied by passing resolutions and seeking court confirmation. However, the Central Government suggested further modifications to avoid any semblance of banking activities. The company passed additional resolutions to comply, but the Registrar opposed the application, fearing disguised banking activities.

3. Implementation of the Sanctioned Scheme of Arrangement:

The Registrar argued that the company failed to implement a court-sanctioned scheme of arrangement with its creditors, suggesting that the attempt to convert to a non-banking company was to avoid this scheme. Despite this, the court noted that the company had already been stripped of its banking character by a previous order, making it difficult to continue banking activities. The court emphasized that creditors and shareholders had agreed to the alterations, and proper procedures had been followed.

4. Potential Banking Activities in Disguise:

The court addressed concerns that the company might engage in banking activities under the guise of a non-banking company. The court clarified that essential characteristics of banking include accepting deposits repayable on demand and withdrawable by cheque. The company's proposed activities, such as lending money, did not constitute banking as defined by the Banking Companies Act. The court referenced legal definitions and precedents to support this distinction.

5. Applicability of Section 49C of the Banking Companies Act, 1949:

Mr. Sen argued that Section 49C, introduced by an amendment, required RBI certification for altering a banking company's memorandum. The court held that this section, affecting substantive rights, was not intended to apply retrospectively to pending proceedings. The application for confirmation had been filed before the amendment, and the court concluded that Section 49C did not bar the current application.

Conclusion:

The court allowed the appeal, setting aside the previous judgment and order, and confirmed the alterations in the company's memorandum. The petitioner company was awarded taxed costs for both the trial and appeal.