1968 (10) TMI 80 - HC - Companies Law

Memorandum of association Special resolution and confirmation by CLB required for alteration of, Political Contributions Prohibitions And Restrictions Regarding

Issues Involved:
1. Confirmation of alterations in the memorandum of association of the company.
2. Objections raised by the Registrar of Companies regarding the proposed alterations.

Detailed Analysis:

1. Confirmation of Alterations in the Memorandum of Association

The petitioner-company, M/s Straw Products Limited, sought confirmation of alterations in its memorandum of association under section 17 of the Indian Companies Act, 1956. The company, registered in 1938, proposed to amend clause 3(10)(viii) of its memorandum to include "political" and "national and political" contributions. Additionally, the company proposed to renumber existing sub-clause (10) as sub-clause (18) and insert new sub-clauses (10) to (17) covering various business activities.

2. Objections Raised by the Registrar of Companies

The Registrar of Companies opposed the proposed alterations on several grounds, arguing that:
- The proposed alterations were neither necessary nor required to enable the company's business to be carried on more economically or more efficiently.
- The alterations were inconsistent with the existing business of the company and would not leave the existing business substantially as it was before.
- The name "Straw Products Limited" would be misleading if the company were permitted to carry on the proposed new business.
- The company's financial position did not support the additional business activities.
- The proposed alterations were in conflict with proposed legislation in Parliament banning contributions to political parties by companies.

Issue-wise Detailed Analysis:

Issue 1: Confirmation of Alterations in the Memorandum of Association

The court examined whether the proposed alterations fell within the purview of section 17(1)(a) and (d) of the Companies Act, 1956, which allows alterations to enable the company to carry on its business more economically or more efficiently, or to carry on some business which may conveniently or advantageously be combined with the existing business.

- Clause 3(10)(viii) Amendment: The court noted that section 293(1)(e) of the Companies Act permits contributions to charitable and other funds, including political funds, provided they do not exceed certain financial limits. The court found that the proposed amendment was not contrary to law and could be justified under section 17(1)(a) as contributing to political funds could help the company carry on its business more efficiently. The court confirmed the special resolution dated July 21, 1966, allowing the amendment.

- Insertion of New Sub-clauses (10) to (17): The court considered various judicial precedents to determine the scope and ambit of sections 17(1)(a) and (d). The court concluded that the language of section 17(1)(d) permits alterations to enable the company to carry on a business entirely different from the existing business, provided it can be conveniently or advantageously combined with the existing business and is not destructive or inconsistent with it. The court evaluated the submissions made by the company, which argued that the proposed new activities could be economically and efficiently combined with the existing business.

Issue 2: Objections Raised by the Registrar of Companies

The Registrar's objections were thoroughly discussed and addressed:

- Relevance and Justification: The court found that the proposed new business activities were not inconsistent with the existing business and could be conveniently combined with it. The company provided detailed explanations on how each proposed activity would integrate with the existing business, leveraging existing resources and infrastructure.

- Financial Position: The court noted that the company's financial position was sound, with net assets significantly exceeding liabilities. The court also highlighted that no shareholders or creditors had objected to the proposed alterations, indicating general approval from those directly affected.

- Legislation on Political Contributions: The court dismissed the objection regarding the proposed legislation banning political contributions, stating that no such bill had been presented and it was speculative to reject the resolution based on potential future legislation.

Conclusion

The court allowed the petition and confirmed the alterations proposed by the company in the special resolutions dated July 21, 1966, and December 6, 1967, subject to the modifications proposed in the memorandum dated September 12, 1968. The company was ordered to bear the costs of the Registrar, with the hearing fee assessed at Rs. 500.

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