9911796707
TMI Blog1966 (11) TMI 50X X X X Extracts X X X X X X X X Extracts X X X X ..... into one lakh 6 per cent. cumulative taxable preference shares of Rs. 100 each and three lakhs ordinary shares of Rs. 100 each. The issued and subscribed capital of the company is Rs. 1,00,00,000. The objects for which the company was formed are various as have been set out in paragraph 4 of the petition. By a special resolution of the company duly passed in accordance with section 189 of the Companies Act, 1956, at a general meeting held on 2nd November, 1965, at the registered office of the company after due notices as provided in the Act, it was unanimously resolved as follows: " That the memorandum of association of the company be altered by the deletion of clause 2 therefrom and by the substitution of the following clause in the place thereof: "The registered office of the company will be situate in the State of Maharashtra." It is alleged in the petition that the directors and shareholders of the company considered that it was necessary and desirable that, having regard to the business activities of the company, the registered office of the company should be transferred from Calcutta to Bombay and that such alteration would enable the company to carry on its business mor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company's senior staff were posted at Bombay. It is also alleged in the petition that with the termination of the company's managing agency of the British India Company, the company lost a great deal of its work in London and work was transferred from Calcutta to Bombay because the senior staff who had to handle such work had already been posted at Bombay. Apart from one director and one shipping manager being at Calcutta, the rest are all at Bombay, namely, the managing director, the chairman, the branch manager, the chief accountant and secretary, the staff manager, three shipping managers and a passenger manager. Further, the head office of the company was transferred from Calcutta to Bombay in the month of August, 1964. It is alleged that most of the business of the company are now being carried out at Bombay and most of the vessels that the company operates pass through Bombay. It is also alleged that the British India Company's technical staff who are responsible for the maintenance of the ships and for rendering services to the company's vessels in the East are posted at Bombay. It is also alleged that the major asset of the company is the office building of the company at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were introduced in the petition. The September affidavit of Chittaranjan Gautam was used in answer to that application for amendment and at the hearing of the present application the September affidavit of Chittaranjan Gautam was used as the affidavit in answer to the paragraphs introduced in the petition for amendment. In the June affidavit of Chittaranjan Gautam it is alleged in paragraph 9 that the company took advantage of the benefits offered by the State of West Bengal and built up its fortune and it is denied that the registered office of the company should be changed. In paragraph 11 of the petition it is alleged that the company started gradually shifting the volume of work done by the Calcutta office to other establishments like Bombay. In paragraph 12 of the affidavit-in-opposition it is alleged that the retrenchment of staff would increase unemployment in West Bengal. It is also alleged in the affidavit that the assessment of tax depends on the situation of the registered office and if the registered office is transferred the allocation of the amount by the Central Government to the State of West Bengal will be reduced and there would be loss of revenue. The further al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e State has any locus standi. In section 17 of the Companies Act it is stated 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 and in the various sub-sections thereof it is stated that alteration shall not take effect until, and except in so far as, it is confirmed by the court on petition, and before confirming the alteration, the court must be satisfied that sufficient notice has been given to every holder of the debentures of the company, and to every other person or class of persons whose interest will, in the opinion of the court, be affected by the alteration. The contention on behalf of the petitioner is that the State is not a person contemplated in section 17 of the Companies Act. It should be stated here that sub-section (4) of section 17 of the Companies Act specifically mentions notice of the petition on the Registrar. The State is not mentioned separately and it is contended on behalf of the petitioner that the State is not a class of persons contemplated in section 17. In the present case notice was given to the State. The State appeared pursuant to the notic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e company. The creditors of the company either were paid or assented to the arrangement and when the petition for confirmation came on to be heard, the interest of the shareholders had to be considered. The petition being opposed was dismissed by the trial court and the Court of Appeal and both the decisions were reversed in the House of Lords. Lord Herschell said that there was no danger in the conclusion that the court had the power to confirm such a scheme and that it was the policy of the legislature to entrust the prescribed majority of the shareholders with the decision whether there should be a reduction of capital and, if so, how it should be carried into effect. Lord Herschell also said that the interests of the dissenting majority of the shareholders were safeguarded by the consideration that the decision of the majority could only prevail if it were confirmed by the court. Lord Macnaghten in Poole v. National Bank of China Limited [1907] A.C. 229 said that a company limited by shares may by special resolution modify the conditions contained in the memorandum and reduce its capital and the exercise of the power was fenced round by safeguards which were calculated to prote ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the interest of the public. The decisions on which counsel for the State relied do not to my mind support the contention of the State. The interests of the public in those cases were confined to the case of creditors, and shareholders, who would in future be brought in contact with the company. While the interests of the public were referred to in the decisions which related to the case of reduction of capital, the court considered not merely the interest of the shareholders and creditors as were present at the time for the application but also of the public who in future would come to have dealings and transactions with the company in that character. Counsel for the State contended that the right of the State to appear in the present case arose because of the public interest that the State had in relation to revenue interest and interest in the employment problem of the State. The observations of Lord Radcliffe in Westburn Sugar Refineries Limited's case (supra) indicate as to what the interest of the public means: "What is in question is a reduction of capital by repaying some paid-up share capital. If the transaction is itself competent, the court should only refuse its conf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... use notice had already been directed by the court to the State. The next question is that if the State is entitled to be heard in the present application in view of notice having been directed to the State, to what extent will the State be entitled to object and what would be the character of objections. In other words, will there by any restriction on the matters that the State can agitate ? This question became important because the State put in the forefront the contention that any change of office from Calcutta to Bombay would mean loss of revenue to the State. It was said by counsel for the State that the company paid taxes in Calcutta and therefore if the registered office of the company were changed to Bombay the State would lose revenue. Counsel for the State submitted that it had all along been the view of the State of West Bengal that the State was entitled to a large share of income-tax revenue because of collections of large revenues from the State. The allocation of income-tax revenues to different States has from time to time been advocated either on the principle of collection or on the principle of population. Reference was made by counsel for the State to the Repo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lop its State in its own way and the interests of the State are to be taken into account and are of considerable importance in confirming special resolutions of the companies if they have adverse effect on the interests of the State concerned. In the other decision, In the Matter of Orissa Chemicals and Distilleries Private Limited's case (supra), it was held that the State of Orissa was a person whose interests would be affected by the alteration and was therefore entitled to be heard. I have already indicated that it will depend on the facts and circumstances of each case as to whether the State comes within the clause of section 17(3) to be entitled to notice. In Orissa Chemicals and Distilleries Limited's case (supra) there was the sales-tax aspect and this naturally brought the State within the class of creditors who were entitled to notice. The contention on behalf of the petitioner that the State has not given particulars of loss of revenue must be upheld in the facts and circumstances of this case because there is no suggestion as to what loss in revenue will be. As far as the concept of India as a federation is concerned, it will be parochial to consider any State as havi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be found in section 68. It is stated there that the court, if satisfied with reference to every creditor of the company who is entitled to object to the reduction, that either his consent to the reduction has been obtained or his debt or claim has been discharged or has determined, or has been secured, may make an order confirming the reduction on such terms and conditions as it thinks fit. It is also enacted in the English Companies Act that where the court makes an order of reduction of capital, the court may make an order directing that the company shall add to its name the words "and reduced" and make an order requiring the company to publish the reasons for reduction. In Westbum Sugar Refineries's case (supra) one of the contentions was that the company was threatened with nationalisation and the court should not aid the company threatened with nationalisation to "eviscerate" itself by parting with valuable assets. In dealing with the contentions Lord Radcliffe said that the contingency of nationalisation did not have any relevance to the public policy which the courts of justice should support and if the reduction was objectionable on other grounds it would not become the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y seeking reduction passed a special resolution to that effect. In essence the contention of counsel for the petitioner is that if there is a compliance with the statutory provisions the jurisdiction of the court is attracted and the court will exercise its discretion. It is necessary at this stage to refer to the provisions of section 17 of the Companies Act and examine the rival contentions as to whether clauses (a) to (g) of sub-section (1) of section 17 of the Companies Act are applicable or referable to the case of a company changing the place of its registered office from one State to another. In sub-section (1) of section 17 it is stated 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 or with respect to the objects of the company so far as may be required to enable it-(a) to carry on business more economically or efficiently, (b) to attain its main purpose by new or improved means, (c) to enlarge or change the local area of its Operation, (d) to carry on some business which under the existing circumstances may conveniently or advantageously be combined with the busin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect, alteration of objects is permissible. Secondly, if it is not shown to the court that there is any objection to the case of alteration of objects, it is also permissible to alter the objects. In the case of Parent Tyre Company Ltd. [1923] 2 Ch. 222, an alteration of objects was sought for to carry on the business. It was held that it was essentially a business proposition whether an additional business could or could not be conveniently or advantageously carried on under existing circumstances with the existing business of the company. The limitation that could be put upon such an additional business was that it should not be destructive of or inconsistent with the existing business. The decision in Parent Tyre Company's case (supra) illustrates what is known as the business wisdom of the shareholders and members of the company and the court usually does not disturb such business propositions of the company 'unless there are other objections. Counsel for the petitioner relied on the decision in Parent Tyre Company's case (supra) to advance his contention that it was for the companies to state as to whether change of office would be beneficial or not and the State had no locus s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tection envisaged in the section have been complied with. Firstly, the court will look to that interests of absent shareholders. Secondly, the court will look to the interests of the creditors and, thirdly, the court will look into the objections that the Registrar may have. Objections of the Registrar may be that the annual returns have not been filed. There may be other objections advanced on behalf of the Registrar, namely, that the company has not complied with the statutory requirements. In the present case, as far as the shareholders are concerned, they are only two in number and they have signified their consent and their interests are protected. With regard to the contention on behalf of the State as to the possibility of loss of revenue, I am of opinion that the facts and circumstances of the present case do not indicate any materials on which it can be said that there is any loss of revenue, secondly. If there is any possibility of loss of revenue to one State there is the corresponding likelihood of gain of revenue to another State thirdly justice demands that in considering applications under section 17 for change of registered office from one Stat to another, the matt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te to another. With regard to the grounds for change of registered office, it was contended on behalf of the State of West Bengal that the chairman and the chief accountant were at Bombay and the head office was also at Bombay, and therefore the story of economy was illusory. In particular, it was said that if the Calcutta office had to be maintained no establishment charges could be saved and, though business might be large at Bombay, that did not justify change of registered office. Secondly, it was said that the shareholders of the company were foreigners and it was not material or relevant whether the registered office was at Calcutta or at Bombay because they would have to meet the expenses wherever the meeting would be held. Thirdly, it was said that the Bombay administration indicated that it was economical to transfer senior staff to Bombay, but one shipping manager was to remain at Calcutta and therefore there was no question of economy. Fourthly, it was said that the fixed assets at Calcutta were of higher valuation than the assets at Bombay. The Bombay property belongs to the company. The Calcutta property is leasehold interest of the company and the lease is to expire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be regarded as satisfactory evidence of the intention of the company to go forward into some new venture ? The court clearly is not called on to adjudge the merits or demerits of any scheme, and this fact appears to me to make the consideration by the court of the existence or non-existence of a particular scheme all the less fruitful." Again in the case of Westburn Sugar Refineries Limited's case (supra), to which reference has already been made, Lord Radcliffe said in regard to cases of reduction of capital that if it had to be considered whether the company's capital were surplus to its requirement and if by that phrase it was meant that the company's assets exceeded what was required for the future conduct of its business, precise information on that aspect would do nothing to aid the "task of the court and evidence of that kind was considered by Lord Radcliffe not to answer cases for reduction of capital because in truth the real question was answered by the company's own resolution. In other words it has to be found out as to whether the economy and sufficiency that the company proposes to have has received adequate domestic deliberation that the statute enjoins. The statu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... land fixed the domicile of the company and it was clear from the unalterable nature of the registered office in England that the registered office of the company should not be altered and the alteration should not be confirmed as and when the company passed a special resolution. I am unable to find that the provisions of the Companies Act in India restrict the change of registered office. The provisions of our Companies Act do not impose any restriction on the change of registered office from one State to another nor do the provisions of the Companies Act in India have the effect of making the registered office unalterable. The domestic decision of the shareholders or business wisdom of shareholders as embodied in the resolution is to be confirmed by the court and counsel for the State relied on the decisions in Bhutoria Brothers [1958] 28 Comp. Cas. 122 and Indian Iron Company [1957] 27 Comp. Cas. 361, respectively, in support of the contention that traders' interest is not the only concern. These decisions go not hold that the traders', interest is the only concern but the court in exercising discretion will consider' the business wisdom of the shareholders. Counsel for the Stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reholders were themselves not shareholders and therefore they did not fulfil this character of holders of ordinary shares to be entitled to vote. The contention on behalf of the state that under article 87 of the company only shareholders can appear raises the question of construction of the articles Section 187 of the Companies Act indicates that a body corporate may, if it is a member of a company, by resolution of its board of directors Authorise such person as it thinks fit to act as its representative at any meeting of the company or at any meeting of any class of members of the company. Further, sub-section (2) of section 187 of the Companies Act enacts that a person authorised by resolution as aforesaid shall be entitled to exercise the same rights and powers (including the right to vote by proxy) on behalf of the body corporate which he represents as that body could. exercise if it were an individual member, creditor or holder of debentures of the company. The corresponding provision in the English Companies Act is section 139-The section in the English Act is in similar language and the right of a person to vote as a representative of a company under the English section is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... given and not particulars. In the present case the material facts were given and if all the details of particulars were not set out, there would be no vice in the notice. The observations in the case of Dorman Long and Company In re [1934] Ch. 635 are also apposite in the present case. It was said at page 665 of the report that in a case of great complexity all details would not be stated because a lengthy circular would sometimes defeat its own object. It is always a question of fact in each case as to whether notice has properly been given and in the present case I am of opinion that all the material facts have been given. It was contended by counsel for the State that in view of the fact that this was a foreign company and the shareholders were foreigners, it would not be the question of convenience or inconvenience of shareholders if the registered office remained at Calcutta and were not shifted to Bombay. As I have already indicated, it is a domestic decision and arrangement of their economy. For all these reasons I am of opinion that the petitioner is entitled to succeed. There will be an order in terms of prayer (1) of the petition. In view of the fact that counsel for the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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