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TMI Blog1974 (1) TMI 60X X X X Extracts X X X X X X X X Extracts X X X X ..... h 7 of the petition, it is stated that the Mysore State Financial Corporation Ltd., Bangalore, had advanced to the company a loan of Rs. 20 lakhs, and one of the conditions for the grant of the said loan was that the company would take steps to shift its registered office from the State of Maharashtra to the State of Mysore in which its mills were situated. It was further stated in the said paragraph that it was desirable to have the company's mills as well as its registered office at one and the same place, viz., Bangalore, in the State of Mysore, as the same would be helpful in carrying on its activities more economically and efficiently, and that the National Industrial Development Corporation Ltd. who were one of the secured creditors of the company had informed it that they had no objection to the transfer of the registered office from Bombay to Bangalore. By an order dated 19th October, 1971, issued by the Government of India in exercise of the powers conferred upon it by section 18A of the Industries (Development and Regulation) Act, 1951, the Central Government authorised the National Textile Corporation Ltd. to take over the management of the whole of the undertaking o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... address myself is, on what grounds is a State entitled to oppose the shifting of the registered office of a company from its territory to the territory of another State within the country. The answer to that question would depend on the further question as to in what cases notice should be given to the State from which the registered office is sought to be transferred to another State. In that connection, I must first refer to the revevant provisions of the Companies Act, 1956, as well as the Industries (Development and Regulation) Act, 1951. Sub-section (1) of section 17, inter alia, provides that a company may, by special resolution, alter the provisions of its memorandum so as to change the place of its registered office from one State to another. Subsection (2) of that section, however, lays down that such alteration is not to take effect until, and except in so far as, it is confirmed by the court on petition. Sub-sections (3) and (4) of the said section which are material for the purpose of the question I am now considering, are in the following terms : " (3) Before confirming the alteration, the court must be satisfied ( a )that sufficient notice has been given to ev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing persons holding office as managers or directors, are to be deemed to have vacated their office, and any subsisting contract of management between the industrial undertaking and any managing agent or any director is to be deemed to have been terminated. Section 18C empowers the authorised person who has taken over the management of such an industrial undertaking to apply to the court for cancellation of any subsisting contract or agreement. Then comes section 18E with which I am concerned in the present case. It is in the following terms : "18E. (1) Where the management of an industrial undertaking, being a company as defined in the Indian Companies Act, 1913, is taken over by the Central Government, then, notwithstanding anything contained in the said Act or in the memorandum or articles of association of such undertaking, ( a )it shall not be lawful for the shareholders of such undertaking or any other person to nominate or appoint any person to be a director of the undertaking; ( b )no resolution passed at any meeting of the shareholders of such undertaking shall be given effect to unless approved by the Central Government; ( c )no proceeding for the winding up of su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase, the State of Maharashtra being a creditor of the company to the tune of Rs. 73,882.45 in respect of arrears of sales tax, as mentioned in paragraph 18 of the affidavit in reply of D. V. Konker, dated 1st September, 1973, the State of Maharashtra was entitled to that notice under clause ( a ) of sub-section (3) of section 17 of the Companies Act as being a person whose interests would be affected by the alteration, and was also entitled, as such creditor, to have its claim discharged or secured to the satisfaction of the court under clause ( b ) of sub-section (3) of the same section. The object of my referring to sub-sections (3) and (4) of section 17, however, is that the terms of those sub-sections give a clear indication of the grounds on which the persons on whom it is obligatory to serve such notices are entitled to oppose the petition to shift the registered office of a company. A State from which the registered office is sought to be transferred and which is served with a notice under clause ( a ) of subsection (3) of section 17 can oppose the petition only on the ground on which it is entitled to be served with that notice, viz., on the ground of its adverse effect on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cient cause had not been shown for the transfer of the registered office to Maharashtra. It was stated in the judgment of the Division Bench that the test to be applied was whether at the time when the resolutions were passed, the shareholders had, by domestic deliberation, for any of the reasons specified in section 17, decided in favour of the transfer of the registered office. Following an English decision, the Division Bench took the view that the principles laid down for the guidance of the court in dealing with the applications for confirmation of reduction of capital applied to applications for confirmation of alteration of the memorandum of a company. Dealing with the question of notice to the State, the Division Bench observed that though sub-section (4) specifically required that notice of the petition had to be given to the Registrar, no specific provision had been made for notice to the State, and that if it was the intention of the legislature to serve a notice on the State, it was difficult to see why no specific provision was made in that behalf. It was, however, stated in the said judgment that it could hardly be disputed that the language of section 17(3)( a ) was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the State was likely to suffer in the matter of income-tax and sales tax if the registered office of the company was transferred to another State. It was observed that the loss of revenue in one State would be accompanied by increase in revenue in the other, and that in the administration of justice, the interests of a particular State ought not to be thought of in a sectional manner, but what had to be considered was "the interests of the country as a whole". It was further pointed out that having regard to the scheme of the State and the Central Sales Tax Act, as well as article 270 of the Constitution read with the Constitution (Distribution of Revenue) Orders by which a fixed percentage of income-tax was allotted to each State which did not vary with the tax collected in each State, it could not be held that the transfer of the registered office of a company would adversely affect the share of a State in the proceeds of those taxes. It was, therefore, held in the said case that the prospect of loss of revenue was not a relevant factor to be taken into consideration on the facts of the said case, and that if the interest of the public had to be taken into consideration in an app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly or wrongly on the faith of that assurance, it would have been dishonest on the part of the company not to have made the present application. Reference was also made by Mr. Cooper to the decision of a Division Bench of this court in the case of D. P. Kelkar v. Ambadas Keshav AIR 1971 Bom 124 in which, after considering the scheme of the Industries (Development and Regulation) Act, 1951, it was stated that, although the Companies Act continued to apply to an undertaking the management of which was taken over under the former Act, the conditions and limitations with which the operation of the Companies Act was circumscribed were so numerous and drastic as to make the provisions of sub-section (2) of section 18E that the Companies Act would continue to apply "more or less chimerical", that what was left with the company after it was notified under the Industries (Development and Regulation) Act, 1951, was "the mere outward shell of incorporation", and that every vestige of power to manage and control was taken away from the directors and shareholders. The actual question which arose before this court in Kelkar's case (supra) was quite different and I do not see how those g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ift the registered office from Bombay to Bangalore. That ground, as appearing in the minutes of the said meeting, a copy of which has been annexed to the affidavit in support of the petition and marked "B", was that a loan of as large an amount as Rs. 20 lakhs had been obtained by the company from the Mysore State Financial Corporation on condition that the registered office would be shifted from the State of Maharashtra to that State. Whether the imposition of such a condition was proper or not is immaterial. The company having taken the benefit of the said loan in order to survive, it would not be fair or proper that the present application for sanctioning the necessary confirmation of the memorandum of the company for shifting the registered office in order to comply with that condition should be rejected merely on the ground that the company had not moved earlier, as it should realty have done in this matter. The fact that the mills of the company have at all times been situate in Bangalore is also an important ground for shifting the registered office to that town. These are paramount considerations that have not changed by the mere lapse of a period of four years. The mere fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Constitution read with the Constitution (Distribution of Revenue) Order by which a fixed percentage of income-tax is allotted to each State, there would, in fact, be no adverse effect on the economy of this State of Maharashtra in general as Mr. Cooper sought to contend, and, indeed, he has been unable to point out any such effect to me in the course of his arguments. That brings me to the third contention of Mr. Cooper which is based on the provisions of section 18E(1)( b ) of the Industries (Development and Regulation) Act, 1951. Strictly speaking, it is the Central Government that is concerned with the contention which Mr. Cooper based on that statutory provision, and not the State of Maharashtra, since it is not something which specifically affects the pecuniary or proprietary interest of that particular State. Since, however, it is a pure point of law and, once my attention is drawn to the same, I am bound to take notice of it, I have allowed Mr. Cooper to argue the same with a view to assist the court. In this connection, it is important to bear in mind that the special resolution for the transfer of the registered office in the present case was passed long before th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . To hold clause ( b ) of section 18E(1) to be retrospective in operation would mean that resolutions which might have been passed over a hundred years ago in the case of a company like the present one which is an ancient company would become inoperative overnight, unless they were approved by the Central Government. Such a construction would be unreasonable and should not be placed upon clause ( b ) of section 18E(1). For all these reasons, I must reject this contention also. That leaves for my consideration only the point in regard to the bar of section 13(1)( e ) which was pointed out by me to the learned counsel on each side in the course of the argument of this petition. What section 13(1)( e ) prohibits is, however, the change of the location of the whole or any part of an "industrial undertaking", an expression which has been defined in section 3(4) of the Act itself. According to that definition the said expression means any undertaking pertaining to a scheduled industry carried on in one or more factories. The word "undertaking" simpliciter occurs in section 293(1)( a ) of the Companies Act, but it is significant to note that the expression used in the Industries (Develo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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