1974 (1) TMI 60 - HC - Companies Law

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

Issues Involved:
1. Petition for alteration of the memorandum to change the registered office location.
2. Opposition by the State of Maharashtra.
3. Grounds for opposition by the State.
4. Legal provisions under the Companies Act, 1956, and Industries (Development and Regulation) Act, 1951.
5. Validity of a stale resolution.
6. Interests of the company and the State.
7. Approval of the Central Government under section 18E(1)(b).
8. Impact on the general economy of the State.
9. Bar under section 13(1)(e) of the Industries (Development and Regulation) Act, 1951.
10. Security of the State's claim as a creditor.

Detailed Analysis:

1. Petition for Alteration of the Memorandum:
The petitioner-company sought to alter its memorandum under section 17 of the Companies Act, 1956, to change its registered office from Maharashtra to Karnataka. This was resolved by a special resolution passed on July 29, 1969, which required court confirmation.

2. Opposition by the State of Maharashtra:
The State of Maharashtra opposed the petition, despite the Registrar of Companies not opposing it. The State filed a lengthy affidavit and appeared through counsel to argue against the petition.

3. Grounds for Opposition by the State:
The State opposed the petition on several grounds, including the potential adverse effect on the State's economy and the interests of shareholders and creditors. The court noted that the State's opposition on regional considerations was improper.

4. Legal Provisions:
- Companies Act, 1956: Section 17(1) allows alteration of the memorandum to change the registered office location, subject to court confirmation under section 17(2). Sub-sections (3) and (4) require notice to be given to affected parties, including creditors and the Registrar of Companies.
- Industries (Development and Regulation) Act, 1951: Section 18A allows the Central Government to take over management of an industrial undertaking. Section 18E(1)(b) states that resolutions passed by shareholders require Central Government approval if the management is taken over.

5. Validity of a Stale Resolution:
The resolution passed in 1969 was argued to be stale. The court rejected this contention, stating that the resolution's grounds, including a loan condition from Mysore State Financial Corporation, remained valid.

6. Interests of the Company and the State:
The court emphasized that shareholders are the best judges of the company's interests. The State cannot assume the role of guardian for shareholders or interfere in the company's management. The court also dismissed the argument of adverse effects on the general economy of Maharashtra, citing the broader perspective of national integration.

7. Approval of the Central Government:
The court addressed the requirement under section 18E(1)(b) for Central Government approval of resolutions. It held that this provision does not apply retrospectively to resolutions passed before the Central Government took over management. Thus, the resolution did not require such approval.

8. Impact on the General Economy:
The court dismissed the argument that shifting the registered office would adversely affect Maharashtra's economy. It noted that the loss of revenue in one State would be balanced by gains in another, and no specific adverse effects were demonstrated.

9. Bar under Section 13(1)(e):
Section 13(1)(e) of the Industries (Development and Regulation) Act, 1951, prohibits changing the location of an industrial undertaking. The court clarified that this applies only to the industrial unit (factory) itself, not the registered office. Since the factory was already in Bangalore, this provision was not applicable.

10. Security of the State's Claim:
The State of Maharashtra was a creditor due to sales tax arrears. The court ordered the petitioner-company to furnish a bank guarantee for the claimed amount to secure the State's interests. If the guarantee was provided by February 16, 1974, the petition would be granted; otherwise, it would be dismissed.

Conclusion:
The court granted the petition for altering the memorandum to change the registered office, subject to the condition of providing a bank guarantee to the State of Maharashtra for sales tax arrears. The opposition by the State on grounds of regional considerations and economic impact was dismissed, emphasizing the broader perspective of national integration and the interests of the company as determined by its shareholders.

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