1963 (7) TMI 34 - HC - Companies Law

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

Summary

Issues:
Confirmation of alteration in the memorandum of association under section 17 of the Companies Act for manufacturing industrial and power alcohol. Registrar of Companies' objection regarding the combination of new business with the existing business. Whether the proposed alteration falls within the scope of section 17. Whether the proposed new business can be conveniently and advantageously combined with the existing business. Consideration of hypothetical future schemes. Justification for Registrar's objections. The wording of the amendments in the special resolution. Approval of the amendment with modifications.

Analysis:
The judgment involves a petition by a company under section 17 of the Companies Act seeking confirmation of an alteration in its memorandum of association to allow the manufacturing of industrial and power alcohol. The alteration aims to enhance the company's business efficiency and enable the commencement of a new business that can be combined with the existing one. The Registrar of Companies opposes the petition, contending that the new business does not align with the existing business of manufacturing artificial silk cloth, thus questioning the convenience and advantage of the proposed alteration.

The company justifies the alteration by explaining its plan to set up a plant for acetate yarn production, requiring industrial alcohol as a raw material. The company intends to utilize the alcohol for yarn production, which will subsequently be used in manufacturing artificial silk cloth. Despite the current absence of yarn production, the company's active pursuit of the acetate yarn project supports the argument that the proposed alteration is a strategic move towards enhancing business efficiency and economic viability.

The judgment highlights the need for a broad perspective in assessing the convenience and advantage of combining the new business with the existing one. Referring to legal precedents, the judgment emphasizes that additional business activities need not directly relate to the existing business as long as they do not conflict with it. The unanimous approval of the alteration by shareholders further strengthens the argument for its confirmation, as shareholders are deemed best suited to evaluate the business implications.

Acknowledging the unnecessarily wide wording of the proposed alteration, the judgment approves the amendment with modifications to exclude references to specific alcoholic beverages. The approval is contingent upon the company commencing acetate yarn production within two years. Failure to do so may prompt a review by the Registrar of Companies. Ultimately, the judgment allows the petition, confirming the alteration in the memorandum of association with specified modifications to align with the company's intended business activities.