1963 (5) TMI 31 - HC - Companies Law

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

Summary

Issues Involved:
1. Confirmation of special resolution under Section 17 of the Companies Act, 1956.
2. Legality of the cold storage business under the existing memorandum of association.
3. Scope of powers of the court under Section 17 of the Companies Act, 1956.

Issue-wise Detailed Analysis:

1. Confirmation of special resolution under Section 17 of the Companies Act, 1956:
The Ambala Electric Supply Company Limited ("Company") petitioned under Section 17 of the Companies Act, 1956, seeking confirmation of a special resolution passed on October 10, 1962, to amend its memorandum of association. The resolution was advertised in the Tribune, Ambala, and a notice was issued to the Registrar of Companies. The Registrar opposed the petition, but there was no other opposition.

2. Legality of the cold storage business under the existing memorandum of association:
The Company, incorporated in 1931, initially engaged in the generation and distribution of electricity. Post-1956, it sourced bulk power from the Bhakra Nangal Hydro Electric Grid, ceasing its generation activities but continuing distribution. To utilize its surplus infrastructure, the Company started a cold storage business on April 1, 1956, following a resolution passed on November 30, 1955. The Registrar of Companies was notified, and no objections were raised at that time. The Company's balance sheets from 1957 to 1962 reflected profitable operations in the cold storage business. The Company sought to expand its activities by adding new objects to its memorandum, including cold storage, farming, engineering projects, hire-purchase financing, cardboard manufacturing, and rice-husking.

The Registrar argued that the Company's primary business of electricity generation had ceased, thus its substratum no longer existed. However, the court noted that the cold storage business had been profitable since 1957, thereby constituting an existing business. The Registrar's attempt to restrict the Company's objects to sub-clauses (1) and (2) of its memorandum was rejected, as the memorandum's multifarious objects were designed to prevent any specified object from being read as ancillary to another.

3. Scope of powers of the court under Section 17 of the Companies Act, 1956:
The court examined precedents such as Stephens v. Mysore Reefs (Kangundy) Mining Company Limited and Cotman v. Brougham to understand the scope of altering a company's objects. It was established that the statement of a company's objects serves to protect subscribers and those dealing with the company, ensuring clarity on the extent of the company's powers. The court also referenced Bhutoria Brothers (Private) Ltd., which clarified that under Section 17(1)(d), the addition of new business must be one that can be conveniently or advantageously combined with the existing business under current circumstances. The proposed new businesses were not found to be inconsistent with or destructive of the Company's existing business.

The court concluded that the opposition by the Registrar of Companies was unfounded. The special resolution passed on October 10, 1962, was confirmed, allowing the Company to amend its memorandum of association to include the new objects.

Conclusion:
The petition was allowed, confirming the special resolution to amend the memorandum of association. There was no order as to costs.