1957 (6) TMI 12 - HC - Companies Law

Court upholds company's political contributions alteration, emphasizing transparency and shareholder approval.

Jayantilal Ranchchoddas Koticha Versus Tata Iron & Steel Co. Ltd.

The court upheld the legality of a company's proposed alteration allowing contributions to political parties, emphasizing transparency in accounting for ... Memorandum of association – Special resolution and confirmation by CLB required for alteration of Issues Involved:1. Public Policy2. Interests of Shareholders and the General Public3. Scope of Section 17(1)(a) and (b) of the Companies Act, 1956Issue-wise Detailed Analysis:1. Public Policy:The court addressed the issue of whether the proposed alteration allowing the company to make contributions to political parties is opposed to public policy. The court noted the warnings from eminent judges about the dangers of basing judicial decisions on public policy, which is a 'slippery ground.' The court referenced various authorities, including Lord Atkin and Lord Halsbury, to emphasize that public policy should only be invoked in clear cases where harm to the public is 'substantially incontestable.' The court concluded that while the power to make political contributions could be used for corrupt purposes, such as lobbying, the company's stated intention was to support political parties whose policies align with its interests, which is not inherently corrupt. The court imposed a condition that the company must separately show in its profit and loss account every year any contributions made to political parties to ensure transparency.2. Interests of Shareholders and the General Public:The court considered whether the proposed alteration is against the interests of shareholders and the general public. It was noted that the special resolution was passed without dissent among the shareholders, indicating their approval. The court pointed out that shareholders are generally the best judges of their own interests. The court also addressed concerns that political contributions might influence political parties to favor employers over labor, but concluded that such concerns are speculative and that it is the role of Parliament, not the judiciary, to regulate such matters. The court found no evidence that the proposed alteration was against the interests of the public.3. Scope of Section 17(1)(a) and (b) of the Companies Act, 1956:The court examined whether the proposed alteration falls within the scope of Section 17(1)(a) or (b) of the Companies Act, 1956. Section 17(1)(a) allows alterations to the memorandum of association to carry on the business more economically or efficiently, while Section 17(1)(b) allows alterations to attain the main purpose by new or improved means. The court held that the business of the company, in this context, is the manufacture and sale of iron and steel, and that the proposed alteration could enable the company to carry on its business more economically or efficiently by ensuring favorable government policies. The court emphasized that a liberal construction should be placed on Section 17(1)(a) and concluded that the proposed alteration falls within its scope.Separate Judgments:The judgment delivered by the High Court of Bombay included separate opinions by Chagla C.J. and Tendolkar J. Both judges expressed concerns about the potential dangers of allowing companies to make political contributions but ultimately concluded that the proposed alteration was lawful and within the scope of Section 17(1)(a) of the Companies Act, 1956. The court imposed a condition of transparency by requiring the company to publish details of political contributions in its annual profit and loss account and in leading newspapers. The appeal was dismissed, with the appellants ordered to bear their own costs.