1962 (5) TMI 18 - HC - Companies Law

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

Issues Involved:
1. Validity of the resolution altering clause 3(T) of the memorandum under section 5 of the Companies Act, 1948.
2. Requirement of notice to holders of debenture stock.
3. Validity of the resolution under section 23 of the Companies Act, 1948.
4. Defectiveness of the circular issued.

Issue-wise Detailed Analysis:

1. Validity of the Resolution under Section 5:
The first issue addressed whether the resolution altering clause 3(T) of the memorandum falls within the ambit of section 5 of the Companies Act, 1948. The court examined whether the resolution to promote a default beneficiary to the status of a primary beneficiary could be considered as "restricting or abandoning any of the objects specified in the memorandum." The court concluded that this alteration did not fit within the meaning of section 5(e) because it involved promoting a default beneficiary rather than restricting or abandoning an existing object. The court illustrated this point by comparing it to a hypothetical scenario involving hospitals, concluding that the resolution did not comply with section 5.

2. Requirement of Notice to Debenture Stockholders:
The second issue was whether notice of the meeting should have been given to the holders of the company's debenture stock. The court analyzed the statutory provisions and historical legislative context, concluding that the term "debenture" in section 5(5) includes "debenture stock." It was determined that notice should have been given to the holders of the debenture stock, not just the trustees of the trust deed. The court referenced earlier statutes, including the Companies (Memorandum of Association) Act, 1890, and the Companies (Consolidation) Act, 1908, which unequivocally required notice to debenture stockholders. The omission of the words "or debenture stock" in later acts was seen as a drafting alteration, not a substantive change. Consequently, the court found that the special resolution failed to comply with section 5 due to the lack of notice to debenture stockholders.

3. Validity of the Resolution under Section 23:
The third issue was whether the resolution could be saved by section 23 of the Act. The court examined whether the alteration of clause 3(T) represented the alteration of a condition that could lawfully have been contained in the company's articles instead of its memorandum. The court found that the provision in question was introduced by the words "The objects for which the company is established are," making it an object of the company. Under section 2 of the Act, such objects must be included in the memorandum. The court rejected the argument that the word "objects" only connotes functions exercised while the company is a going concern, stating that the company is precluded from contending that functions expressed in its memorandum as objects are not indeed objects. The court also noted that if the resolution was not for altering the objects, then the deferred shareholders were not entitled to receive notice, rendering the resolution invalid on that ground as well.

4. Defectiveness of the Circular:
Although the fourth issue regarding the defectiveness of the circular did not arise due to the court's conclusions on sections 5 and 23, the court still expressed its views. The court considered whether the National Trust could take the point on a defective circular, even though it was not affected by it. The court opined that, apart from exceptional circumstances, the holders of one class of shares could not invalidate a resolution based on insufficient information in a circular to another class of shares, none of whom had effectively complained. The court briefly addressed the principal objections to the circular and concluded that, had the resolutions been valid under sections 5 or 23, they would not have been invalidated by the defects in the circular.

Conclusion:
The court refused to confirm the resolutions under sections 5 and 23 of the Companies Act, 1948, due to the failure to comply with the statutory requirements regarding the alteration of objects and the notice to debenture stockholders.

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