1972 (5) TMI 47 - HC - Companies Law

Memorandum of association Special resolution and confirmation by CLB required for alteration of, Powers of Court to rectify register of members

Summary

Issues:
1. Confirmation of alteration of the memorandum of association by special resolution.
2. Validity of the opposition to the alteration by a former director.
3. Application for staying Company Petition No. 7 of 1972.
4. Interpretation of section 17(1)(a) and (d) of the Companies Act regarding alteration of the memorandum of association.

Analysis:
1. The petitioner-company sought confirmation of the alteration of its memorandum of association by adding the word "cotton" to expand its business scope. The alteration was approved by a special resolution at a general meeting. The petitioner argued that the change was necessary for more efficient business operations. The opposing party, a former director, contested the alteration, claiming lack of notice for the meeting due to his share forfeiture. The court found no grounds to stay the confirmation, emphasizing the statutory remedy for damages under section 155 of the Companies Act if needed.

2. The former director filed a petition under section 155 challenging the share forfeiture and sought a stay on Company Petition No. 7 of 1972. However, the court noted the urgency of the latter petition for necessary government permissions, dismissing the stay application. The former director's objections were based on his alleged partial payment for shares, which lacked supporting evidence. The court highlighted the importance of following statutory procedures for resolving such disputes.

3. The court delved into the legal framework under section 17(1)(a) and (d) of the Companies Act concerning alterations to the memorandum of association. It referenced precedents from various High Courts on allowing changes to enable more efficient business operations. The court emphasized that the core business must remain substantially the same, with alterations aimed at enhancing company efficiency. Precedents highlighted the importance of ensuring new business additions align with the company's existing objectives and are beneficial to members and creditors.

4. Citing judgments from different High Courts, the court emphasized that shareholders and directors are best positioned to judge the company's trading policy, as long as statutory requirements are met. The court stressed the need for alterations not to be fraudulent, unfair, or inconsistent with the company's objects clauses. The doctrine of paramount object and the substratum of the company were discussed in the context of winding-up orders. Ultimately, the court found no valid reasons to deny the alteration of the memorandum of association, emphasizing that concerns about the company's operations with cotton should be addressed by relevant authorities.