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Rabia Mittal, 3rd Semester of BA LLB of Baba Farid Law College (affiliated to Punjabi University, Patiala
FACTS OF THE CASE
On November 2, 1965, MacKinnon Mackenzie & Co. Private Limited, located at 16 Strand Road, Calcutta, enacted a modification to its memorandum of association. This change was made to assist the relocation of the company’s head office from Calcutta to Bombay, achieved through the passage of a special resolution in agreement with Section 189 of the Companies Act, 1956, during a general meeting convened by the company. Following the needful announcements as quested by the Act, the company reached an amicable decision to amend the memorandum of association by removing Clause 2 and replacing it with the following” The listed office of the company will be positioned in the state of Maharashtra.” The company sought to expand its operations on a larger scale in a more effective manner, as articulated by its directors and shareholders, who supposed this move was both necessary and profitable. Still, this action faced strong opposition from the state of West Bengal and the register of companies upon the submission of the operation for revision. They argued that shifting the listed office would result in significant loss of revenue for the state and would expose the workers to increased pitfalls, challenging defensive measures for their interests. In response to this substantial opposition, the company filed a petition to obtain approval for the resolution, which was ultimately supported by the court, leading to the resolution being granted on the grounds that the state lacked the standing to contest the matter.
ISSUES
(1) Whether the State possesses any locus standi regarding the present subject to challenge the application ?
(2) Whether the State’s claims are suitable within the legal framework?
LAW
Alteration of MOA:
Memorandum of association is considered as a charter of any company as per whose instruction all other rules and regulations are formed which are abiding in all respect including article of association. The present case was previewed in accordance with the sections 17 of the Companies Act, 1956 which lays down the provisions regarding the Special resolution and confirmation mandate by Company Law Board required for alteration of memorandum.
The company is permitted to modify the terms of its memorandum regarding the relocation of its registered office from one state to another or concerning the objectives of the company by adopting a special resolution. This process is contingent upon meeting specific criteria that should enable the company to:
(a) Conduct its business in a more cost-effective or efficient manner;
(b) Achieve its primary objectives through new or enhanced methods;
(c) Expand or alter the geographical scope of its operations;
(d) Engage in business activities that can be conveniently or beneficially integrated with the company’s existing operations;
(e) Limit or discontinue any of the objectives outlined in the memorandum;
(f) Sell or dispose of all or part of the company’s undertakings; or
(g) Merge with another company or entity.
The proposed alteration will not become effective until it is confirmed by the company law board upon petition.
Prior to granting confirmation of the alteration, the Company Law Board must ensure that:
( a) Adequate notice has been handed to all debenture holders of the company, as well as to any other individualities or groups whose interests may be impacted by the revision; and
(b) Regarding each creditor who’s supposed entitled to object to the revision and who expresses similar expostulation as directed by the Company Law Board, either concurrence to the revision has been secured, or their debt or claim has been settled, or has been adequately secured to the satisfaction of the Company Law Board. It’s noted that the Company Law Board may, for valid reasons, waive the notice demand specified in clause( a) for certain individualities or groups.
(c) The Company Law Board is needed to ensure that notice of the petition for the evidence of the revision is served to the Registrar, who must also be given a reasonable occasion to present any expostulations or suggestions regarding the evidence of the revision before the Company Law Board.
(d) The Company Law Board has the authority to issue an order that confirms the revision in whole or in part, along with any terms and conditions it deems adequate, and may also determine the allocation of costs as it sees fit.
(e) In exercising its powers under this section, the Company Law Board must consider the rights and interests of the company’s members, including each class of members, as well as the rights and interests of the company’s creditors and their separate classes.
(f) The Company Law Board may choose to adjourn the proceedings if it believes it’s necessary to assist an arrangement that satisfies differing members regarding the purchase of their interests. It may also issue directions and orders to assist in implementing any such arrangement, provided that no portion of the company’s capital is utilized for this purchase.
PETITIONER ARGUMENTS
The petitioner contends that the majority of the company’s operations are now conducted in Bombay rather than Calcutta. While the volume of services forming from or passing through Calcutta was significantly advanced, the company presently manages a wide array of services in Bombay under the British India Steam Navigation Company Limited. These services include the Bombay/ Gulf Passenger Service, India/ Africa Cargo and Passenger Services, Africa/ India Cargo Service, India/ Straits Passenger/ Cargo Service, and Far East/ Gulf Cargo Service. In discrepancy, the Calcutta office is limited to operating only four services: Bay of Bengal/ Far East, India/ Australia, Gulf/ Australia, and India/ New Zealand.
Transferring the listed office from Calcutta to Bombay would enhance the company’s operation effectiveness and give lesser executive convenience. This shift would allow the secretarial functions to be consolidated in the Bombay office, where both the president of the board and the company clerk are grounded, thereby easing smoother operations.
RESPONDENT ARGUMENTS
The primary arguments presented by the State of West Bengal and the Registrar of Companies emphasize that the proposed conduct would out-turn in significant detriment to public interest, particularly concerning profit generation and the employment challenges faced by the State due to implicit staff layoffs, which would intensify unemployment in West Bengal.
Tax assessments are dependent upon the position of the listed office; therefore, if the listed office is dislocated, the State of West Bengal would witness a drop in its revenue , leading to fiscal losses.
The petition fails to demonstrate any economic benefits that would arise from the suggested transfer of the registered office to Bombay.
Furthermore, the resolutions in question were not properly enacted, and the notice pertaining to the resolution is flawed due to a lack of essential details, indicating a failure to adhere to the stipulations outlined in Section 17.
ANALYSIS
The issues surrounding the modification of a company’s objects have typically been resolved based on two fundamental principles. First, such matters primarily pertain to the company’s members and creditors, and if these groups, including debenture-holders, do not raise objections, the alteration of objects is allowed. Second, if the court is not presented with any evidence of opposition to the proposed alteration, it is also permissible to proceed with the changes.
The State lacks the standing to object on the grounds of potential revenue loss and can only contest as an ordinary individual, rather than in pursuit of revenue interests. The authority of a State to participate in applications under Section 17 of the Companies Act does not derive from the section’s provisions.
In the current situation, concerning the shareholders, there are only two individuals, both of whom have expressed their consent, ensuring that their interests are safeguarded. Regarding the State’s argument about the potential for revenue loss, I believe that the facts and circumstances of this case do not provide sufficient evidence to support claims of revenue loss. Furthermore, if one State faces a potential revenue loss, it is likely that another State may experience a corresponding revenue gain. Additionally, it is imperative that applications under Section 17 for the relocation of a registered office from one State to another be evaluated from the perspective of the Republic of India as a whole, rather than for the benefit of local or sectional interests.
Counsel representing the petitioner also referenced the Bench ruling in East-India Commercial Company (Private) Limited v. Raymon Engineering Works Limited, which established that material facts should be presented rather than exhaustive particulars. In the current matter, the material facts have been adequately provided, and the absence of complete particulars does not render the notice defective. The remarks made in the case of In re Dorman Long and Company, [1934] Ch. 635, are also relevant here. It was noted on page 665 of the report that in cases of significant complexity, it is impractical to include every detail, as an overly lengthy circular may undermine its purpose. Ultimately, the determination of whether notice has been appropriately given is a factual matter for each case, and I conclude that all material facts have indeed been presented in this instance.
CONCLUSION
Counsel for the State argued that since this is a foreign company with foreign shareholders, the convenience or inconvenience of the shareholders regarding the registered office remaining in Calcutta, rather than being relocated to Bombay, is not a pertinent issue. As previously mentioned, this is a domestic decision concerning their economic arrangements. For these reasons, I am of the opinion that the petitioner is entitled to prevail. An order will be issued in accordance with prayer (1) of the petition. Given the assistance provided by both counsel for the State and counsel for the Registrar, I believe that the company should bear the costs for both the State and the Registrar. The costs assessed for the State amount to 30 G.Ms., and the costs for the Registrar are also set at 30 G.Ms. Certified for counsel.
The judgment appears to have been rendered with the intention of clarifying the state’s position for the future, particularly in light of its previously ambiguous stance regarding its rights to contest and receive notice. The ruling emphasizes that companies must prioritize their own sustainability, as their survival is essential for promoting the welfare of their employees. The analysis indicates that had the company remained in Calcutta, the likelihood of generating profit would have been significantly diminished. In contrast, the favorable conditions for the company’s growth and that of its stakeholders are enhanced by relocating the registered office from Calcutta to Bombay.
REFERENCES
ProBono India, https://probono-india.in/Indian-Society/Paper/416_deepti%20nayak.docx (last visited Dec. 15, 2024).
In Re: Mackinnon Mackenzie & Co. … Vs Unknown on 30 November, 1966, indiankanoon.org/doc/1183344/. Accessed 15 Dec. 2024.
Companies Act, 1956, www.mca.gov.in/Ministry/pdf/Companies_Act_1956_13jun2011.pdf. Accessed 15 Dec. 2024.
Indian Kanoon – Search Engine for Indian Law,https://indiankanoon.org/doc/153279772/. Accessed 15 Dec. 2024.
Section 189 in the Companies Act, 1956, https://indiankanoon.org/doc/1635284/. Accessed 15 Dec. 2024.
