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TMI Blog1967 (9) TMI 81X X X X Extracts X X X X X X X X Extracts X X X X ..... lause in the memorandum of association be altered accordingly. It is stated in the petition that in arriving at the decision to transfer its registered office from Calcutta to Bombay, the facts taken into consideration were : ( i )The head office of the company is situate in Bombay but the registered office of the compay is situate in Calcutta and it is essential that this anomaly should be removed by transferring the registered office of the company from Calcutta to Bombay to enable the company to carry on its business more economically and more efficiently from administrative point of view. ( ii )The registered offices of most of the foreign film companies are situate in Bombay and, therefore, it is considered essential that the company's registered office should also be situate at Bombay. It will assist the company to compete in its business with other foreign film companies if the registered office of the company is situate there. ( iii )There is better scope at Bombay for expansion of the company's business as it is easier there to come into contact with foreign visitors in the film industry who are interested in the distribution of their products and such personal con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shareholders have, by domestic deliberation, for any of the reasons specified in section 17, decided in favour of the transfer. No doubt the company has not indicated why trade contacts cannot be made through the head office at Bombay. Indeed it is not possible to contend that they cannot be. This case is, however, one of convenience. For the purpose of business negotiations it will be clearly more convenient to have the registered office at Bombay which is the hub of film industry in India, especially when the head office is already there. If that is so, we do not see why the court, in exercise of its powers under section 17, should make the decisions of the shareholders nugatory by refusing to confirm the alteration. It is true that no separate reasons have been given as to why the transfer of the registered office will be in the interest of the shareholders. If the transfer is in the interest of the company, it is ipso facto also in the interest of the shareholders. We do not agree that each and every reason advanced for transfer of the registered office has to be justified by evidence. In the nature of things, the evidence which the company will be required to adduce w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o its requirements. If by that phrase, itself susceptible of ambiguity, is meant the extent by which the whole of the company's assets, at the best contemporary valuation that can be placed on them, exceeds what is required for the future conduct of its business, the precise information on this would do nothing to aid the task of the court, for it would throw no light on the sole point which is here in question, viz ., how much of the paid up share capital is to be returned as being surplus? Nor do I think that evidence of this real kind is usually required in cases of this sort. In truth this, which is the question, answers itself by the company's own resolution...... How much of the paid up share capital the company can dispense with for the future is a domestic matter which the shareholders and their managers must decide among themselves. If the amount which they have decided on works no injustice to creditors or to shareholders, I see no purpose which can be served by the court's insisting on a precise figure of the company's wants or the striking of an exact balance between that figure and the total available resources in hand". In our opinion, the principles expressed in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disputed that the language of section 17(3)( a ) is sufficiently wide to enable the court to direct notice to be served on the State if the court is of opinion that the interests of the State will be affected by the order to be made in the application. If notice is served on the State under section 17(3), the question arises whether the State can object to the transfer of the registered office on the ground that the reasons which have prompted the shareholders to pass the resolution are not valid or that those reasons have not been substantiated by the materials disclosed in the petition. In the absence of statutory provisions, it is not for the State to exercise control over the conduct of affairs of a company. Under the statute, it is for the members of the company and not for the State to decide whether the registered office of the company should be transferred from one State to another in the interest of the company for the reasons specified in section 17. The shareholders have expressed their decision by special resolutions in favour of the transfer. It is for the court to confirm or not to confirm the alteration. If the State has no voice under the statute in the conduct a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the State in income-tax and sales tax is likely to suffer. In our opinion, this is a misconception. In the scheme of the State Sales Tax Act, sales tax is payable to a State on sale of goods which are within that State ; under the Central Sales Tax Act, it is payable to the State from where the movement of goods in the course of inter-State trade and commerce commences. Sales tax payable on the sale of a company's products or on goods purchased by the company does not depend on where the registered office of the company is situate or where the contract of sale is made. Transfer of the registered office of a company is, therefore, irrelevant for the purpose of sales tax realised by the State. As for income-tax, the share of a State out of the proceeds of income-tax does not appear to vary with the income-tax realised in the State. Article 270(1) of the Constitution provides that taxes on income other than agricultural income shall be levied and collected by the Government of India and distributed between the Union and the State in the manner provided in clause 2. Clause 2 provides that such percentage, as may be prescribed of the net proceeds in any financial year of any such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he company is to be transferred. If the area of business operations of a company were to depend on the location of its registered office, the State to which the registered office is sought to be transferred, might very well contend that there is enough of that particular type of business in which the company is engaged and the transfer will not be in the interest of the State. The Union of India may also like to have a say in the matter. It may contend that in the interest of a just and proper economic development of different regions which is its declared policy, the transfer is or is not desirable. In that event, an application under section 17 for confirmation of the transfer of the registered office from one State to another will bring the different States and the Centre into the arena with rival economic contentions. We do not think that is a situation contemplated by section 17 of the Companies Act. In Orient Paper Mills Ltd. [1958] 28 Comp. Cas. 523; A.I.R. 1957 Orissa. 232 it was held by the Orissa High Court that where by a change of registered office of a company situate within a certain State, that State would suffer a substantial reduction of income from income-ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of shares. The head office of the company is not, however, necessarily the registered office of the company, but is the place where the substantial business of the company is carried on and its negotiations conducted". The passage, in our opinion, is no authority for the proposition that a company is necessarily assessable at the place where its registered office is situate. As we have already said, there is nothing in the Income-tax Act of 1922 or of 1961 under which a company is to be assessed at the place of its registered office. In these circumstances, we are unable to agree that the transfer of the registered office of the company by itself, affects the revenue of the State or even if it does, the prospect of loss of revenue is a relevant factor to be taken into consideration, in the facts and circumstances of the present case. It is only fair to point out that the company in its petition has stated that the removal of the registered office will not involve retrenchment or dismissal of any employee of the company nor will it cause any loss of revenue to the State of West Bengal. It has been argued that as an application for confirmation of alterations in a memorandum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... may be minded to invest in its securities". In Mahaluxmi Bank Limited v. Registrar of Companies [1961] 31 Comp. Cas. 287 ; A.I.R. 1961 Cal. 666 a Division Bench of this court expressed the view that the public and the shareholders individually and collectively are protected by the necessary publicity of the proceedings and by the discretion which is entrusted to the court. In Mackinnon Mackenzie and Company Ltd.'s case ( supra ) A. N. Ray J. understood those observations of Lord Macnaghten in the sense in which we have understood them and we respectfully agree with the views expressed by the learned judge on that aspect of the matter. We, therefore, hold that if the interest of the public has to be taken into consideration in an application under section 17, the interest contemplated is not revenue interest or the interest of the general economy of the State. In the view we have taken, the appeal succeeds. The order of the learned judge is set aside. The alteration of the memorandum of association sought to be effected by the special resolutions set out in paragraph 7 of the petition and passed at the extraordinary general meeting of the company held on the 8th day o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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