1957 (5) TMI 20 - HC - Companies Law

Court permits expansion of business activities in company's memorandum of association

The court allowed the inclusion of clauses 21, 22, and 23 in the memorandum of association, permitting the company to work in jute, cotton, and woollen ... Requirements with respect to memorandum and Memorandum of association – Special resolution and confirmation by CLB required for alteration of Issues Involved:1. Alteration of the objects clause in the memorandum of association under Section 17 of the Companies Act, 1956.2. Opposition by the Registrar of Joint Stock Companies.3. Controversy regarding the inclusion of cold storage and ice plants in the objects clause.4. Legal principles governing the alteration of the objects clause.5. The role of the court in confirming alterations to the memorandum of association.Issue-wise Detailed Analysis:1. Alteration of the Objects Clause in the Memorandum of Association under Section 17 of the Companies Act, 1956:The application by Bhutoria Brothers (Private) Ltd. sought to alter the objects of the company as proposed by a special resolution passed unanimously at an extraordinary general meeting. The alterations aimed to include businesses in optical, photographical, chemical, surgical goods, watches, clocks, musical instruments, and other kinds of machinery. The application was made under Section 17 of the Companies Act, 1956, which allows a company to alter the provisions of its memorandum with respect to its objects to enable it to carry on its business more economically or efficiently, attain its main purpose by new or improved means, enlarge or change the local area of its operations, or carry on some business which may conveniently or advantageously be combined with the existing business.2. Opposition by the Registrar of Joint Stock Companies:The Registrar of Joint Stock Companies opposed the application. However, the applicant abandoned much of the proposed alterations, accepting most of the Registrar's objections. The remaining proposed changes pressed for alteration were found in clauses 21, 22, and 23 of Exhibit A to the petition. These clauses sought permission to work in jute, cotton, and woollen mills, carry on the business of spinners, weavers, balers, and pressers of jute, and start, erect, purchase, and continue cold storage and ice plants.3. Controversy Regarding the Inclusion of Cold Storage and Ice Plants in the Objects Clause:The inclusion of cold storage and ice plants in the objects clause was controversial. The company had been dealing in cold storage and ice plants for several years, deriving its main revenue and income from this business, even though the existing memorandum did not permit it. Section 17(1)(d) of the Companies Act permits alteration of the memorandum to enable the company to carry on some business which may conveniently or advantageously be combined with the existing business. The court emphasized that the views of the shareholders, expressed by their unanimous resolution, should be given foremost regard. The court also noted that the proposed new business must be one that can be conveniently or advantageously combined with the existing business under the existing circumstances.4. Legal Principles Governing the Alteration of the Objects Clause:The court discussed several legal principles and precedents, including:- The necessity for clear and specific objects in the memorandum to inform the public and shareholders of the company's business intentions.- The flexibility allowed in stating the objects, provided they give reasonable information about the intended business.- The requirement for objects to be those the company intends to carry out in the near and reasonable future.- The court's role in scrutinizing proposed alterations to ensure they are sensible and not speculative or overly broad.The court referred to several English cases, including In re John Brown & Co. and In re Parent Tyre Co. Ltd., to illustrate the principles governing alterations of the objects clause and the importance of ensuring that new businesses can be conveniently or advantageously combined with the existing business.5. The Role of the Court in Confirming Alterations to the Memorandum of Association:The court's role in confirming alterations to the memorandum of association under Section 17(2) of the Companies Act, 1956, was emphasized. The alteration does not take effect until confirmed by the court. The court may confirm the alteration wholly or in part and on such terms and conditions as it thinks fit. The court disallowed the alterations except for clauses 21, 22, and 23, which were allowed to be added to the existing memorandum of association. The court also addressed the costs, ordering the company to bear the costs of the Registrar of Joint Stock Companies and their own costs, with no further order as to costs for the Revenue authorities.In conclusion, the court allowed the inclusion of clauses 21, 22, and 23 in the memorandum of association, permitting the company to work in jute, cotton, and woollen mills, carry on related business activities, and continue its business in cold storage and ice plants. The court emphasized the importance of clear and specific objects in the memorandum and the need for court confirmation of alterations to protect shareholders' interests.