1971 (8) TMI 151 - HC - Companies Law

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

Issues Involved:
1. Whether the new businesses sought to be authorized under the amended objects clause can be "conveniently and advantageously combined with the business of the company under existing circumstances" as per Section 17(1)(d) of the Companies Act, 1956.

Detailed Analysis:

Issue 1: Whether the new businesses sought to be authorized under the amended objects clause can be "conveniently and advantageously combined with the business of the company under existing circumstances" as per Section 17(1)(d) of the Companies Act, 1956.

The judgment revolves around the petitioning-company's special resolution dated April 30, 1971, which aimed to add two new items to the objects clause of its memorandum of association. The company, registered as a public limited company on March 20, 1956, with a strong financial standing, sought to diversify its activities. The proposed amendments included:

1. Empowering the company to make donations or subscriptions for scientific research.
2. Enabling the company to fit up and furnish any property as a guest house, hotel, restaurant, etc., and to engage in the business of hoteliers.

The Registrar of Companies, Punjab, objected to the second proposed amendment, arguing that the business of hotel, restaurant, cafe, etc., is not connected with the company's existing business of manufacturing and selling cables. The Registrar stated that the proposed alteration does not fall under any of the clauses (a), (b), or (d) of subsection (1) of Section 17 of the Companies Act, 1956.

The court examined the company's financial position, noting that it is already dealing in buying and selling lands and property, which is one of its existing businesses. The court referred to the balance-sheets and profit and loss accounts of the company, which showed that the company has been treating land as one of its stock-in-trade and has earned significant income from the sale of land.

The principles for confirming a special resolution amending the objects clause under Section 17(1)(d) of the Act were summarized as follows:

1. A company is normally free to alter its objects clause, and the court should not interfere with the unanimous decision of the shareholders unless there are restrictions contained in Section 17.
2. The proposed new business need not be ancillary or similar to the existing business; it can be entirely new and a departure from the old businesses.
3. The new business should not be so inconsistent or incongruous with the existing businesses as to be destructive thereof.
4. The company should be in a sound financial position to embark upon and carry on the new businesses.
5. The expected and intended advantage of the proposed new businesses to the shareholders must be considered.
6. The decision should be based on the facts and circumstances of each case, keeping in view that it is essentially a business proposition.

The court found that the company's financial position is sound, and the rights and interests of the members and creditors of the company are not likely to be prejudicially affected by the alteration. The proposed new business can be conveniently and advantageously combined with the existing businesses of the company.

The court allowed the application and confirmed the special resolution passed in the 14th annual general meeting of the company on April 30, 1971.

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