1962 (6) TMI 42 - HC - Companies Law

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

Issues Involved:
1. Confirmation of special resolution for additions and alterations to the company's objects.
2. Compliance with procedural requirements under the Companies (Court) Rules, 1959.
3. Legality and necessity of proposed sub-clause (r(i)) regarding contributions to charitable or other funds.
4. Legality and necessity of proposed sub-clause (r(ii)) regarding acquisition and dealing in shares and securities.
5. Validity of the special resolution passed without notice to a shareholder.

Detailed Analysis:

1. Confirmation of Special Resolution:
This application sought an order confirming the additions and alterations to the company's objects as proposed in the special resolution passed on December 26, 1958. The resolution aimed to insert two new sub-clauses in the company's memorandum of association:
- Sub-clause (r(i)): To contribute and/or subscribe to any charitable or other funds not directly relating to the business of the company or the welfare of its employees.
- Sub-clause (r(ii)): To subscribe for, purchase, acquire, hold, sell, dispose of, and deal in shares, stocks, debentures, or securities of any company or authority.

2. Compliance with Procedural Requirements:
The respondent raised procedural objections, arguing that the application did not comply with the old original side rules of the court, particularly rules 19 to 30. However, the court found that the Companies (Court) Rules, 1959, which came into operation on October 1, 1959, were applicable. The court was satisfied that the requirements of rules 22 and 38 of the Companies (Court) Rules, 1959, had been complied with, as evidenced by the supporting affidavit and certified copy of the special resolution.

3. Legality and Necessity of Proposed Sub-clause (r(i)):
The court examined whether the proposed sub-clause (r(i)) fell within the scope of section 17(1)(a) of the Companies Act, 1956, which allows alterations to enable the company to carry on its business more economically or efficiently. The court noted that contributions to charitable and other funds could ensure smooth working conditions and avoid the expensive and troublesome procedures of obtaining shareholder ratification for each contribution. The court referenced previous judgments, including Indian Iron & Steel Co. Ltd. and Jayantilal v. Tata Iron & Steel Co., which supported the legality of such contributions for both public and private companies. The objections to sub-clause (r(i)) were overruled, but the court imposed conditions limiting the contributions to Rs. 15,000 or 5% of the company's average net profit over the preceding three financial years, whichever is greater, and requiring detailed disclosure in the company's balance sheet and profit and loss accounts.

4. Legality and Necessity of Proposed Sub-clause (r(ii)):
The court considered the necessity of sub-clause (r(ii)) for the company to conveniently and advantageously carry on its business, particularly in acquiring new tea gardens through the purchase of controlling shares. The court referenced Palmer's Company Precedents, which indicated that clear words in the memorandum are necessary to enable a company to take shares in another company. The court found that the existing sub-clauses (i) and (r) of clause 3 did not provide specific powers for such acquisitions. The court overruled the respondent's contention that the proposed sub-clause (r(ii)) was unnecessary and confirmed its inclusion in the memorandum.

5. Validity of the Special Resolution Passed Without Notice to a Shareholder:
The respondent contended that he did not receive notice of the meeting where the special resolution was passed. However, the court noted that the notice was sent to the respondent's address under a certificate of posting, and under section 53(2)(b)(i) of the Companies Act, service is deemed effective 48 hours after posting. Additionally, section 172(3) provides that accidental omission to give notice or non-receipt of notice does not invalidate the proceedings at the meeting. Therefore, this contention was deemed unsubstantial.

Conclusion:
The court confirmed the inclusion of sub-clause (r(ii)) in the company's memorandum and approved sub-clause (r(i)) with specific conditions regarding the limit and disclosure of contributions. Each party was ordered to bear its own costs of the application.

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