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TMI Blog1965 (11) TMI 78X X X X Extracts X X X X X X X X Extracts X X X X ..... esired to manufacture goods of natural rubber, synthetic rubber and reclaim rubber, after a sister concern, J. K. Commercial Corporation Ltd., obtained a letter of intent for industrial licence from the Government of India to. establish a factory for reclaim rubber and also obtained an import licence (which it may be noted is not transferable for importing plant and machinery for producing reclaim rubber under Belgium credit.) The company held an extraordinary general meeting on September 30, 1964, and, in accordance with the Companies Act, 1956, unanimously passed the following by a special resolution : "Resolved that the memorandum of association of the company be altered by adding a new clause 4(A) as specified below after clause 4 : "4(A) To undertake and carry on business as manufacturers of natural rubber, synthetic rubber and reclaim rubber and all kinds of rubber goods and rubber by-products and allied materials and to take all steps incidental to such business including acquisition of the requisite raw materials either by cultivation, purchase, processing or otherwise. " As provided in section 17 of the Companies Act, 1956, alteration to the memorandum of associa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India and it will be advantageous if the company carries on its new business. There is great demand for rubber and the rubber so produced by the company will immediately attract market to the advantage of the company." It is further mentioned that the company is in a sound financial position and has adequate arrangements for working capital (paragraph 10 of the petition); and that the company has taken a loan of Rs. 27 lakhs from the National Industrial Development Corporation, New Delhi, for modernisation and expansion of the plant of the company and the Corporation has accorded its approval to the proposed alteration to the memorandum of association (paragraph 9 of the petition). The company, at no time, issued debentures ; and the big creditors of the company, namely, J.K. Charitable Trust, J.K. Synthetics Ltd. and J. K. Commercial Corporation, gave their consent in writing to the proposed alteration. In the circumstances, it was not considered necessary to issue notice of the petition to the creditors of the company. The petition is opposed by the Registrar of Companies, U.P., Kanpur, on the ground that the business now sought to be undertaken by the petitioner-company is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the business at one time cannot be so combined at another occasion. They are the existing circumstances which shall be the basis of determination whether the new business can be combined with convenience and advantage with the existing one. The word "combine" used in section 17(1)( d ) of the Companies Act, 1956, strongly suggests that the new business should not be detrimental to the existing business of the company, nor is the new business meant to replace the existing business which would, immediately or in stages, be discontinued, This has often been expressed by saying that the additional business must not be destructive of, or inconsistent with, the existing business: see In re Parent Tyre Co. Ltd. [1923] 2 Ch 222 , In re Modi Spinning and Weaving Mills Co. Ltd. [1963] 33 Comp. Cas. 901 , In re Motilal Padampat Sugar Mills Co., ( Private ) Ltd. [1964] 34 Comp. Cas. 86 and In re Ambala Electric Supply Co. Ltd. [1963] 33 Comp. Cas. 585 . It is immaterial whether the new business is or is not akin to or connected with the existing business. For example, a person dealing in the purchase and sale of food-grains can do insurance business, and thus combine a busin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nnot be permitted to carry on an unrelated new business. It was observed ; "For instance, business in clocks, musical instruments and in surgical goods would be a very strange new-comer into a business in agricultural, mineral and animal products and live-stock." This case is thus distinguishable on facts ; and as laid down therein also, the company can be permitted to carry on a new business provided that such business can, under existing circumstances, be conveniently or advantageously combined with the existing business of the company and such business is not detrimental to the existing business. The other question which often arises, and has been raised in the instant case also, pertains to the power of the court while confirming or refusing to confirm the alteration to the memorandum of association. The court's power can easily be deduced from the provisions of section 17 of the Companies Act, 1956. Sub-section (1) of section 17 details the nature of alterations which can be made in the memorandum of association and sub-section (2) thereof provides that the alterations shall not take effect until, and except in so far as, it is confirmed by the court on petition. Conse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red by sub-section (1) thereof ; and that the court can confirm the alteration, either wholly or in part, or subject to such terms and conditions as it may deem fit, on being satisfied that the alteration being confirmed is not beyond the scope of sub-section (1) and does not adversely affect the rights and interests of the members of the company and or of its creditors. No hard and fast rule can be laid down as to the quantum of evidence necessary for the satisfaction of the court : this shall invariably depend upon the facts and circumstances of the case. For example, where the company is in a sound financial position and the alteration is not objected to by its shareholders and creditors, the court may take a lenient view and act like a court of revision; and in others, like a court of appeal In view of section 17(5) of the Companies Act, 1956, the learned advocate for the petitioner-company conceded the above legal position ; but urged that confirmation of the alteration should be a rule and the court may refuse to confirm, or confirm in part, in exceptional circumstances only. Reliance was placed upon the English case of Parent Tyre Company Ltd. In re [1923] 2 Ch 222 , wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the directors. If the directors consider that, under the existing circumstances, it will be convenient and advantageous to combine the new objects with the existing objects, and if it appears that that conclusion may be fairly arrived at, this court will not go behind it and hold an enquiry as to whether the opinion of the directors is well founded or is justified. In the very nature of things, such an enquiry will not be possible for this court to undertake." In this case the proposed alteration to the memorandum of association was confirmed because the view of the company was not unfair or unreasonable. In In re Bhutoria Brothers ( Private ) Ltd. [1958] 28 Comp. Cas. 122 , it was held that so long as the two requirements of clause ( d ) of section 17(1) of the Companies Act, 1956, were observed, namely, that the new business was one which could conveniently or advantageously be combined with the existing business of the company and this was possible under the existing circumstances and not under hypothetical circumstances, the shareholders and the management of the company should be left free to add to or reduce their business by suitable alterations to their memor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to show that there is scope for expansion of or making improvements in the existing plant. The company being in a sound financial position can expand its business, and this can be done by starting a new business permissible under the memorandum of association or one which can be undertaken after alteration to the memorandum of association. As already mentioned above, the objects for which the company was formed are so wide and general that the company can carry on many businesses not connected with jute, and hence confirmation of the alteration shall not be contrary to the spirit of the objects of the company. Further, the new business to be started by the company must be one for which there is a demand and which will prove advantageous to the members and creditors thereof. Nothing has come to my notice which may show that there is a greater demand for goods which can be manufactured under the existing memorandum of association than for rubber goods desired to be manufactured by the company. To put it differently, the manufacture of rubber goods shall not, under the existing circumstances, be detrimental to, nor shall be destructive of, or inconsistent with the existing business, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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