TMI Blog1957 (5) TMI 20X X X X Extracts X X X X X X X X Extracts X X X X ..... ods on the one hand and watches, clocks and musical instruments on the other, as also other kinds of machinery. Due notice of the application was given to the Registrar of Joint Stock Companies. It was, however, discovered later that there was a very large sum claimed by the Income-tax authorities for more than Rs. 7 lakhs and notice thereafter was, therefore, given to the Revenue authorities. The Registrar of Joint Stock Companies has opposed this application. In fact, much of the proposed alterations of the objects has now been abandoned by the applicant which has been duly minuted. This means that most of the objections of the Registrar of Joint Stock Companies have been accepted by the applicant. The three main changes that now are pressed for alteration are found in clauses 21, 22 and 23 in Exhibit A to the petition which the company now wants to be added to the existing, objects of the company. These three clauses in substance seek permission to (1) work in jute, cotton and woollen mills and (2) to carry on at the said mills the business of spinners, weavers, balers and pressers of jute etc., and (3) particularly to start, erect, purchase and continue cold storage and ice p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nces may conveniently or advantageously be combined with the existing business of the company. Jute and cotton will certainly come under agricultural products forming one of the main objects in the existing memorandum. I certainly think that so far as these two clauses are concerned, business in them can be conveniently or advantageously combined with the existing business of the company. With regard to cold storage and ice plants, there was a good deal of controversy. It obviously is a business which does not come under the present clauses of the existing memorandum. Section 17(1)( d ) of the Companies Act permits alteration of the provisions of this memorandum with respect to the objects of the company to enable it "to carry on some business which under existing circumstances may conveniently or advantageously be combined with the business of the company." Therefore, it is clear from the language of the section that some business which is not already there under the existing memorandum may be introduced by alteration of the memorandum provided such business can be conveniently or advantageously combined with the business of the company under existing circumstances. The importan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en the clauses were reduced in number and simplified, and the interpretation clause had been deleted and that a further clause was inserted disabling the directors from treating any of the new objects as principal objects without the consent of a special resolution of the company. NEVILLE J. at page 234 of the report observed: "I have been thinking this matter over a great deal. The Legislature may pass a law which will prevent companies trading except within the limits of their memorandum: but, if you have got a memorandum which is co-extensive with the business of the whole world, you get behind the ambit of the legislation. I think this would meet the case where it is desired (I think unwisely) to have these enormously extended memorandums The point is that the directors could abandon the main business and take up an entirely new business without consulting the shareholders. I should stand in the way of the company taking up distinct businesses. Where distinct businesses are proposed by the alterations suggested I would not sanction them except upon evidence that there was a really present desire on the part of the company to extend its business in the directions indicate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , observes: "I have come to the conclusion that, although the businesses there described are, in my opinion, a new departure, in the sense that they do not fall within the memorandum as at present drawn and are businesses which have no definite relation to the present business of the company, yet, in my judgment, this fact is not fatal to the introduction of the additional objects enumerated in the special resolution. The question whether any given additional business is one which may conveniently or advantageously be combined with the business of the company carried on at the time when the special resolution is passed must, in my judgment, be determined by the persons engaged in the business of the company. It is essentially a business proposition, whether an additional business can or cannot be conveniently or advantageously carried on under existing circumstances with the business of the company. The additional business, of course, must not be destructive of or inconsistent with the existing business: it must leave the existing business substantially what it was before." I arrive at a similar conclusion from a construction and interpretation of the language of section 17(1)( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anctioned. In the present case before me it may be noted here that the business in ice plant and cold storage had already been carried on for some years. It is interesting, however, to note that Lord Justice MAUGHAM at pages 425 and 426 of the report went on to say: "I only wish to add that I do not in the least take the view that the learned Judge was wrong in dismissing the petition on the materials before him. The matter was brought before him under conditions which were exceedingly unsatisfactory. An order was asked for, which involved the company being allowed to extend its memorandum so as to include a large number of businesses which obviously the company did not really decide or hope to carry on at any rate at the present time. For those reasons and for the reasons which EVE J. gave, I think he was right, if I may express the opinion, in dismissing the petition; and, in taking the course which the Court of Appeal is taking now, I also think it is true to say that we are not in any way throwing doubt upon the decision of NEVILLE J. and the statements he made in the well known case of In re John Brown Co. Ltd. [1914] 112 LT 232 , a case which people who are intending t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is the need for it. All this is in the best interest of the company and ultimately for the protection of the interests of the shareholders against directors embarking on spurious and doubtful business and squandering company's trading funds under the cover of vague and ambiguous objects clauses in the memorandum and whom the shareholders might otherwise find difficult to control or manage by reason of the operation of the whip of majority which directors will normally be expected to enjoy. This is the reason why the new company legislation in India has made special provisions in particular relation to objects clauses in the memorandum as distinguished from other clauses in the same memorandum. A glance at the provisions contained in section 16 of the Companies Act, 1956, makes it clear. Those provisions which are required by law to be stated in the memorandum by section 13 or any other section of the Companies Act, 1956, are expressly treated as conditions by section 16(2) of the Act and cannot be altered except as provided expressly by the Act, while other provisions including those for appointment of managing directors, etc., are allowed to be altered in the same manner as the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bsolete and they only remain as useful guides for indicating now the grounds upon which perhaps an application to the court in modern times to cancel the alteration would be likely to succeed in whole or in part. But the law in India has remained on the older keel. It may be that the Indian Parliament in its wisdom might have thought that shareholders in India today have neither the sense of responsibility nor the maturity of business experience of English shareholders to be left free to judge by themselves or on their own resources the ultimate desirability of altering so important a feature of the companies as the objects of the memorandum. Nevertheless, it may be said that the modern English procedure saves a good deal of time and expense both for the companies and the courts and thereby relieves them a good deal of their unnecessary work in many instances, and it may not be altogether unprofitable to examine the desirability of introducing a similar reform on this point in the Indian company legislation. On behalf of the Income-tax authorities an affidavit has been filed, but the Revenue authorities as creditors have not objected to the alterations of the memorandum. I, the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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