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TMI Blog1968 (10) TMI 80X X X X Extracts X X X X X X X X Extracts X X X X ..... ry shares of Rs. 10 each. The objects for which the company was formed are set out in clause 3 of its memorandum of association annexed to the petition as annexure ''A". The principal objects in brief are as under : (1)To erect, purchase or take on lease or otherwise acquire any mills works, machine-y and other movable and immovable properties appertaining to goodwill of, and any interests in, the business of manufacturing or dealing in straw board, card board, mill "board and/or paste board, vegetable oil, vegetable, ghee, sugar, matches, cement, lime and artificial leather of all descriptions, and to acquire, purchase or hire forests or lands to grow and cultivate far the purpose of pulps and to acquire, establish and maintain other centres for production of pulp and other incidental raw materials and fibrous substances. (2)To purchase or otherwise acquire at Bhopal or other parts of India or elsewhere land or to accept lease thereof, and on such lands to erect building for the works and purpose of the company. (3)To carry on all or any of the businesses following, namely, to manufacture pulps from straw of all description, wood, bamboo, rags, waste material of all descript ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or otherwise aid benevolent, charitable, national and other institution or objects of a public character, or which may have any moral or other claims to support or aid by the company by reason of the locality of its operations or otherwise. Shortly after its incorporation the company commenced business and has been carrying on its business all over the country. By a special resolution of the company (annexure "B") duly passed in accordance with sub-section (2) of section 189 of the Companies Act, 1956, at the 27th annual general meeting of the members held on the 21st July, 1966, at its registered office, after due notice dated 18th June, 1966 (annexure "C"), sent to the members of the company as provided under the Act, it was resolved unanimously to amend clause 3(10)( viii ) of the company's memorandum of association by incorporating therein the words and terms "political" and "national and political". The resolution provided for substitution of the following in place of clause 3(10)( viii ): "3(10)( viii ). To establish and support or aid in the establishment and support of associations, institutions, funds, trusts and conveniences calculated to benefit employees or ex-emplo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arry on the business of processors, producers, importers, exporters, buyers, suppliers, stockists, agents, merchants, distributors, and concessionaires of and dealers in general merchandise goods. 10( b )To carry on the business of manufacturers, fabricators, processors, producers, growers, makers, importers, exporters, buyers, sellers, suppliers, stockists, agents, merchants, distributors and concessionaires of and dealers in commodities of all or any of the following : ( i )Office equipments of all descriptions, machinery parts, computors, articles, parts, components, apparatus, instruments, gadgets, devices, contraptions, tools, stores, spare parts, utensils, things and appliances of all description and materials pertaining to the aforesaid. ( ii )Synthetic yarn, clothes and materials, rubber and elastomers, synthetic resins, carbon black, rubber latex, plastics, latexes and formulations thereof: including reclaimed rubber and other kinds of resins, rubber and plastic products, starch and other sizing materials, textile intermediates and compounds. ( iii )All types of chemical, caustic soda, disinfectants and of electrical, photographical apparatus and materials of paper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agents, selling and purchasing agents, dealers, suppliers, distributors, brokers, trustees, attorneys and to transact all kinds of agency business. 16.To guarantee the payment of money unsecured or secured by or payable under or in respect of bonds, debentures, debenture stock, contracts, mortgages, charges, obligations and other securities of any company or of any authority Central, State, municipal, local or otherwise, or of any person whomsoever, whether incorporated or not and generally to transact all kinds of guarantee business to guarantee the issue of or the payment of interest on the shares, debentures, debenture-stock or either security or obligations of any company or association and to pay or provide for brokerage, commission and underwriting in respect of any such issue, and to further transact all kinds of trust and agency business. 17.To issue on commission, subscribe for, purchase or otherwise acquire and sell, dispose of, exchange, hold and deal in shares, stocks, bonds, debentures, debenture stock, public securities or other securities issued by any authority, Central, State, municipal or local. ( iii )That the existing sub-clause (10)( v ) herein renumbere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contributions to political parties by companies. Regarding the proposed alterations covered by the resolution dated 2nd November, 1967, it is contended that the proposed alterations are neither necessary nor required to enable the company's business to be carried on more economically or more efficiently and that they are inconsistent with the existing business of the company and, if allowed, they would not leave the existing business substantially as it was before. The proposed alterations do not come within the concept of "some business" which, under existing circumstances, may conveniently or advantageously be combined with the business of the company. It is true that, although the main business of the company is the manufacture of strawboards and paper, it has certain subsidiary and ancillary powers, but they are in essence associated objects and related purposes. The name of the company as "Straw Products Limited" would be illogical and misleading to the world dealing with the petitioner-company if they are permitted to carry on business in the proposed items which cannot by any means be called business which, under the existing circumstances, may conveniently or advantageou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... petition". Mr. B. K. Mohanty, for the petitioner, states that the proposed alterations fall within the purview of the clauses ( a ) and ( d ) of sub-section (1). I would first take up the special resolution passed unanimously at the annual general meeting of the shareholders of the company held on the 21st July 1966 and which essentially relates to contributions to be made by the company to funds of political parties. In this connection a reference may be made to section 293(1) of the Companies Act which runs as follows : "(1)The board of directors of a public company, or of a private company which is a subsidiary of a public company, shall not, except with the consent of such public company or subsidiary in general meeting,─ ...... ( e )contribute, after the commencement of this Act, to charitable and other funds not directly relating to the business of the company or the welfare of its employees, any amounts the aggregate of which will, in any financial year exceed twenty-five thousand rupees, or five per cent, of its average net profits as determined in accordance with the provisions of sections 349 and 350 during the three financial years immediately preceding, whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... initially for a period of six years, to be extended on further application, Ramaswami J. of the Madras High Court in In re Sn Natesar Spirning and Weaving Mills ( P. ) Ltd. [1960] 30 Comp. Cas. 54. , referring to the aforesaid decision of the Calcutta High Court, was of ihe view that the court's power to impose terms and conditions under section 17(5) is limited only to such terms and conditions as may be called for in the interests of the shareholders or creditors or other persons who might be affected by the alteration, and where no such prejudice is involved, the court has no power to impose terms and conditions. Admittedly, in the present case, there has been no objection from any shareholders or creditors of the company in respect of this resolution. There is no serious challenge that the financial position of the company is sound. Indeed, the only objection advanced on behalf of the Registrar in paragraph 8 of his affidavit is that the alteration suggested is in conflict with the proposed legislation in Parliament banning contributions to political parties by companies. Apart from the fact that no such bill has been placed before me, it is not certain whether Parliament ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ermitted under section 17(1)( a ) and ( d ) on the ground that the new business can be economically and efficiently carried on and, under the existing circumstances, they can conveniently and advantageously be combined with the existing business of the company because jute and cotton will certainly come under agricultural products forming one of the main objects in the existing memorandum. But, in respect of items relating to clocks and musical instruments and surgical goods, the learned judge thought that they would be a very strange new-comer into a business in agricultural, mineral and animal products and livestock and, hence, disallowed those items. A recent decision of the Calcutta High Court in the matter of Standard General Assurance Co. AIR 1965 Cal. 16 Ltd. dealt with the case of a company whose original object was to carry on all kinds of insurance, guarantee and indemnity business. One of the other objects was to carry on business as capitalist, financiers, concessionaires and merchants and to undertake and carry on and execute all kinds of financial, trading and other operations. In July 12, 1063, a special resolution was passed to alter the memorandum of associat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a case where the existing objects of the company included import, export in cement, alumina cement, lime and limestone, kanker and bye-products thereof and building materials generally. The new objects sought to be added were to enable the company to do export business in all varieties of goods. The court allowed that application. The Allahabad High Court in Juggilal Kamlapat Jute Mills Co. Ltd. v. Registrar of Companies [1963] 33 Comp. Cas. 585 held that the court cannot refuse to confirm the alteration to the memorandum of association simply because the change is desired to carry on a new business not connected with, nor having any relation to the existing business or businesses of the company, provided the new business desired to be undertaken is one which can be combined with the existing business of the company, and it is not destructive of or inconsistent with the existing business. Practically the same view was taken by the Punjab High Court in the case of Ambala Electric Supply Co. Ltd., In re [1967] 37 Comp. Cas. 20 ; AIR 1966 All. 417. In another case of the same High Court in Punjab Distilling Industries Ltd. v. Registrar of Companies (8) [1963] 33 Comp. Cas. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bearing on the subject, the following principles can be laid down ( i )The language of section 17(1)( d ) of the Companies Act permits the alterations in the memorandum of association of a company to enable it to carry on a business which is entirely a new departure from the business already carried on provided ( a ) that such business is one which can conveniently or advantageously be combined with the existing business of the company and ( b ) that this must be so under the existing circumstances and not under hypothetical circumstances. The additional business need not be even akin to the existing business but it must not be destructive of or inconsistent with and detrimental to the existing business. It must leave the existing business substantially what it was before. ( ii )The question whether any additional business is one which may be conveniently or advantageously combined with the business of the company carried on at the time when the special resolution is passed, is essentially a business proposition and must be determined by the persons engaged in the business of the company. ( iii )The court can confirm the alteration either wholly or in part subject to such t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he company should be free to take up this and other lines of business and once they "take up business relating to plant, machinery and office equipments, the company would also be able to provide the servicing and maintenance on account of its having experienced and qualified engineers under the employment of the company. ( ii )Regarding manufacture of computers it is submitted that the company is doing business in paper industry and has got an equipped workshop and trained personnel. They can be able to assemble, manufacture repair, maintain computers and other business machines considered to be efficient and economic and this can be advantageously combined with their existing business. The same argument is also advanced in respect of typewriters and it is submitted that the company has already taken certain steps in collaboration with other companies for the manufacture of typewriter. ( iii )Regarding furniture it is stated that for the purpose of running the paper mills they take forest leases and for this purpose they have got a trained staff and necessary machinery. At the present moment they operate and exploit bamboos in the forest. It would be economical to take up the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore use this personnel with advantage. At the present moment the company has to engage transport contractors to take finished products from them and also to get bamboo, etc., from the forest. If the company can maintain its own vehicles, it can save a huge amount. For maintenance of its existing vehicles it runs an efficient motor garage and workshop and, with little addition to it, this can efficiently handle bigger transportation facilities both for itself and for the purpose of business. ( x )Regarding sub-paragraph 14, the submission of the company is that at present it has to generate its own power and if the proposed expansion is done this will mean a lot of savings and with small alterations and expansion of the generating units and utilisation of its own electrical staff and know-how it can save a huge amount and also can have some profit. ( xi )Regarding sub-para. 15 it is stated that it is ancillary to the existing and proposed objects and can be efficiently combined with the existing business. ( xii )Regarding sub-paragraphs 16 and 17 the submission of the company is that these clauses are found in the memorandum of association of all companies of repute and are n ..... X X X X Extracts X X X X X X X X Extracts X X X X
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