1971 (6) TMI 42 - HC - Companies Law

Requirements with respect to memorandum, Alternate Director Appointed and Term of Office of, Notice for Meeting, Winding up Application for, Winding-up of foreign companies

Issues Involved:
1. Jurisdiction of the Court
2. Ceasing of Business by the Company
3. Ultra Vires Acts and Substratum of the Company
4. Validity of Directors' Appointment
5. Alteration of Object Clauses
6. Allegations of Bad Faith and Ulterior Motives
7. Offers to Purchase Shares from Minority Shareholders

Detailed Analysis:

1. Jurisdiction of the Court:
The company argued that as it is a foreign company registered in the United Kingdom, the High Court of Bombay has no jurisdiction. However, under Section 2(7) of the Companies Act, 1956, a "body corporate" includes a company incorporated outside India. The company qualifies as an "unregistered company" under Section 582, and under Section 584, it can be wound up as it has ceased to carry on business in India. The court rejected the contention of lack of jurisdiction.

2. Ceasing of Business by the Company:
From 1910 to 1942, the company carried on its business of prospecting for, refining, producing, and dealing in petroleum and other mineral oils. Post-1942, due to war and destruction of its properties, the company ceased its primary business and only engaged in litigation for compensation until 1965. From 1965 to 1967, the company carried on badli business and from 1967 to 1970, it invested in shares of other companies. The court had to determine whether these activities were intra vires or ultra vires.

3. Ultra Vires Acts and Substratum of the Company:
The court examined the objects clause in the memorandum of association and concluded that the main and dominant object was the petroleum business. The badli business and investments in other companies were ultra vires and not within the objects clause. The company had ceased to carry on its main business and had engaged in ultra vires activities, indicating that its substratum was gone.

4. Validity of Directors' Appointment:
The appointment of directors on 5th April 1966 was challenged as they did not hold the required qualification shares within two months of their appointment. They continued to function without valid re-election. The court found that the directors were invalidly elected and their acts, except for calling general meetings, were invalid. This affected the validity of the resolution altering the memorandum on 8th December 1970.

5. Alteration of Object Clauses:
During the pendency of the petition, the company altered its object clauses to include a variety of businesses and introduced an independent construction clause. The court was not convinced of the bona fides of the new business activities. The alteration was also challenged in a pending suit, and the court decided that the petition should not be summarily dismissed without further inquiry.

6. Allegations of Bad Faith and Ulterior Motives:
The petitioners alleged that the directors used company funds for personal gain and engaged in ultra vires activities for self-aggrandizement. The court noted that an act within the scope of the memorandum is not ultra vires due to directors' ulterior motives. However, since the business activities were ultra vires, the question of ulterior motives would be examined at the final hearing.

7. Offers to Purchase Shares from Minority Shareholders:
During the hearing, offers and counter-offers were made to purchase shares from minority shareholders. The court was not impressed by the majority shareholders' offers to buy out the minority, as the petitioners were entitled to seek winding up due to the ultra vires activities and invalid appointment of directors.

Conclusion:
The court admitted the petition for winding up the company, finding prima facie that the company had ceased to carry on its main business, engaged in ultra vires activities, and was managed by invalidly appointed directors. The petition was set for further inquiry and hearing on 2nd August 1971. The company was ordered to pay the petitioners' costs up to the stage of admission, and the petition was to be advertised in specified publications.

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