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TMI Blog1957 (2) TMI 16X X X X Extracts X X X X X X X X Extracts X X X X ..... funds, trusts and conveniences calculated to benefit persons who are or have been employed by or who are serving or have served the company or its predecessors-in-business or the dependants, connections of such persons and to grant pensions and allowances and to make payments towards insurances." The original clause in the memorandum on this point was in the following terms: "To establish and support, or aid in the establishment and support of, associations, institutions, funds, trusts and conveniences calculated to benefit employees or ex-employees of the company, or its predecessors-in-business or dependants or connections of such persons, and to grant pensions and allowances, and to make payments towards insurance and to subscribe or guarantee money for charitable or benevolent objects, or for any exhibition, or for any public, general or useful object." The application is being made under section 17 of the Companies Act, 1956. Due notices under direction of this Court have been given to the shareholders, creditors, debenture holders and the Registrar of Joint Stock Companies. Pursuant to such notices which were also published in the newspapers no one has come forward to o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t with grave dangers to commercial as well as public standards of administration. The object is stated plainly to be "to contribute to the funds of political parties which will advance policies conducive to the interest of the company." Persuasion by contribution of money lowers the standard of administration even in a welfare state or democracy. To convert convictions and conscience by money is to pervert both democracy and administration. Its dangers are manifold. Joint stock companies are not intended to be adjuncts to political parties and possible sources of revenue for these parties. They are statutory bodies working under statutory conditions for different purposes. Secondly, it will induce the most unwholesome competition between business companies by introducing the race, who could pay more to the political funds of political parties. In that competition business interest is bound to suffer in the long run. In the bid for political favouritism by the bait of money the company who will be the highest bidder may secure the most unfair advantage over its rival trader companies. Thirdly, it will mark the advent and entry of the voice of the big business in politics and in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essly declares it to be unlawful for any labour organisation to make a contribution of expenditure in connection with any election at which Presidential or Vice-Presidential electorates or members of the Congress are to vote for or in connection with any primary election or political convention or caucus held to select candidates for such offices. But in India there is no such legislative enactments with such prohibitions as are contained in the American Corrupt Practices Act, as amended by the Taft-Hartley Act, and the Lobbying Act and Regulations under the Revenue Act. As the number of applications here are becoming more and more numerous by which the companies are trying to divert commercial funds to political purposes it is essential in the interest of both commercial and public standards to have immediately similar legislation on the subject to keep the springs of democracy and administration reasonably pure and unsullied and before it is too late to control the dangers and mischiefs inherent in the situation. In the absence of such legislation in India today the point, however, must be governed by the provisions of the Companies Act, 1956. The courts are not concerned eit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any is production and manufacture of steel and iron and therefore certainly a "lawful purpose" within the meaning of section 12 of the Act. One of the essential requirements of the memorandum of every company is that it shall state the objects of the company. That is provided in section 13 of the Act. One of the objects now of the company after the proposed amendment is to enable it to contribute money to political objects or political funds. According to my interpretation contribution to political funds or political objects is not legally prohibited and therefore such a contribution is within the meaning of the expression of "lawful purpose" in section 12 of the Act. To draw a distinction between the word "purpose" in section 12(1) of the Act and the word "objects" in section 13 of the Act is to attempt to make a distinction without a difference. The purpose in this context is the object, and the object is the purpose. To distinguish between the purpose and object on the ground of what is main and what is subsidiary is not to draw a distinction on principle but to attempt a difference in degree for which I see no practical utility. My construction is that whatever purpose is not p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alteration shall not take effect until and except in so far as it is confirmed by the court on petition. It is this sub-section which gives the court the duty as well as the power to confirm this alteration even though it has been passed by a special resolution of the shareholders at a general meeting. If the shareholders were the only judges of their own interest then I do not see why there should be such a legislative provision to insist that such an alteration even though passed by a special resolution of the shareholders should have to be confirmed by the court On petition. Now the specific purposes for which the objects of the memorandum can be altered are important In sub-clauses ( a ) and ( b ) of section 17(1) of the Act the two specific purposes mentioned are: "( a )to carry on its business more economically or more efficiently; ( b )to attain its main purpose by new or improved means." The other clauses from ( c ) to ( g ) appearing in section 17(1) of the Act are not relevant for the purposes of this application. The present alteration of the memorandum has to be tested by sub-clauses ( a ) and ( b ). If they pass that test of satisfying either or both of the su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ous relationship is a manifest part of business efficiency. I am, therefore, of the opinion that the proposed alteration of the objects of the memorandum of the company successfully passes through the test provided in sub-clause ( a ) of section 17(1) of the Companies Act, 1956. It is unnecessary for me, therefore, to proceed to interpret further the words "new or improved means" in section 17(1)( b ) of the Act to find out if they can be construed to mean a company's contribution to the political funds of political parties. I, therefore, do not feel inclined to express any opinion on sub-clause ( b ) of section 17(1) of the Act. As a result of this interpretation no discrimination is created between the companies which are being formed today with an object clause similar to the present one which requires no confirmation of the court at the time of formation and such other existing companies who having no such clause previously want now to suitably alter them to include such object. In the former case it comes within the expression "lawful purpose" used in section 12 of the Companies Act, 1956, and in the latter case it comes within the expression of carrying on the business "m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase that there was nothing in the Trade Union Acts from which it could be reasonably inferred that trade unions were intended to have the power of collecting and administering funds for political purposes. Lord Shaw expressed the opinion in that case that the rule which purported to confer on the trade union a power to levy contribution from members for the purpose of securing parliamentary representation was fundamentally illegal and in violation of that sound policy which was essential to the working of representative Government. Lord Shaw based his decision on the fundamental principle that a member of the Parliament must be free and should not be the paid mandatory of any man or organisation of men. Nor should he be entitled to bind himself to subordinate his opinions on public questions to others for wages or at the peril of pecuniary loss. [See 1910 A.C. 87 at p. 115]. The purposes of the special statute relating to the trade unions are not similar to the Companies Act, 1956, which I am considering. It is also a historic fact that upon this question trade union legislation has passed through many vicissitudes of fortune and crises in ideas. The learned Advocate-General also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion upon the powers of the court in respect of the terms and conditions that it may choose to impose while confirming the alteration either wholly or in part. By sub-section (6) of section 17 of the Act, the statute gives a guidance to the court that in exercising its power under this section, the court shall have regard to the rights and interests of the members and creditors of the company and of every class of them. In the Tata case, Tendolkar J. added the word "useful" as a condition of his confirming the alteration in the memorandum of the Tata Iron and Steel Co. Ltd. The learned Judge also indicated that the company should show in their profit and loss account every year every single contribution directly or indirectly made to a political party, although in the formal order it was not introduced as a condition because the company's counsel conceded and undertook to do so. The learned Advocate-General of this State appearing for the company, however, asked me to consider the question whether such terms and conditions could be included in the court's order for confirmation. In his submission to this court he argued that such a term or condition could not be imposed by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs made under these provisions. I do not think that there can be a set pattern in which all the condition is that the court may impose can be limited. The court's hands; in is respect are in my view free and unfettered. The learned Adocate-General contends that a condition under section 17(5) of the Companies Act, 1956, means a condition precedent not a condition subsequent. I am not prepared to limit the scope of condition in that way. I: think a condition can not only be a condition precedent but also a condition concurrent or even a condition subsequent. The main burden of the learned Advocate-Generals argument in this respect was to suggest to this court that a condition such as Tendolkar J. suggested in his judgment in the Tata case by saying "I would have felt disposed to impose it as a condition of confirmation," in respect of showing the contribution in the balance sheet every year which in this case was not necessary because the company undertook to do so, would be difficult for the court to enforce. The learned Advocates-General's contention is that the memorandum is altered by the court's order with that condition. Thereafter, suppose the company does not observe tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... untry may know what these contributions are and from what sources they come. So long as these contributions remain honest, within the limits of business prudence, and reasonable the companies have nothing to lose by this wholesome publicity. With respect to the other condition of adding the word "useful" as done by Tendolkar J. in the Tata case I do not think it is necessary to impose such a condition in the present application, because in this case it is already there in the memorandum as altered by the special resolution. I, therefore, make the following order on this application : (I)I confirm clause 16( b ) as amended by the special resolution without imposing any condition. (II)I confirm also clause 16( a ) of the memorandum as altered by the special resolution on the following terms and conditions : ( i )that it shall remain effective and operative for a period of six years from this date and this sanction by the court will lapse and stand revoked upon the expiry of the said period of six years unless further extended as hereinafter ordered ; and ( ii )that during this period of six years the company shall show in their balance-sheet and profit and loss accoun ..... X X X X Extracts X X X X X X X X Extracts X X X X
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