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In the Matter of Delhi Bharat GraIn Merchants Association, Ltd. Vs. Union of India - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtDelhi High Court
Decided On
Case NumberCompany Petition No. 7 of 1972
Judge
Reported in[1974]44CompCas214(Delhi); ILR1972Delhi793
ActsCompanies Act, 1956 - Sections 17(1)
AppellantIn the Matter of Delhi Bharat GraIn Merchants Association, Ltd.
RespondentUnion of India
Advocates: T.M. Chandwani,; H.L. Anand,; Daljit Singh and;
Cases ReferredJuggilal Kamlapat Jute Mills Co. Ltd. v. The Registrar of Companies
Excerpt:
.....the business of the company more economically and more efficiently. when it is objected that raj kumar bansal did not have any notice of the said general meeting of the company it has been stated by the petitioner company that raj kumar bansal had only subscribed his name to the memorandum but failed to pay the share money to the company and that his shares were forfeited on account of non-payment of share-money. 17.(1) 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 its business more economically or more efficiently; the following observations which, apply with considerable force..........paragraph 6 of the memorandum of association of the company. (3) this petition was opposed by raj kumar bansal, who claims to be one of the first directors of the company owning 20 shares of the face value of rs. 100.00 each which were paid up to the extent of 50%. including the said raj kumar bansal all the seven subscribers were allotted 20 shares each. the company was formed with the object of doing ready and forward business of food-grains and jaggery. necessity appears to have arisen for including cotton among the goods in respect of which the com- pany wanted to do ready and forward business because forward trading in food-grains and jaggery had been banned. (4) all that has been stated by the petitioner in the petition is that the alteration of the memorandum of association was.....
Judgment:

S. Rangarajan, J.

(1) This is a petition by the petitioner company (Delhi Bharat Grain Merchants Association Ltd.) for confirmation of the alteration of the Memorandum of Association of the Company by the Special Resolution passed at the General Meeting of the Company held on 18-12-1971 that the word 'cotton' be added after the word 'grains' and before 'and oils & oilseeds of all kinds' in clause Iii sub-clause I thereof.

(2) The petitioner company has been, among other things, regulating and maintaining a Clearing house for fixing and declaring market rates and settlement dates for fixing brokerage, for the periodical settlements of contracts and differences, for the passing on the delivery orders for clarification, control, regulation and admission of members, for declaring members as defaulters for non-payment of dues and doing various other such acts in the course of such business mentioned in paragraph 6 of the Memorandum of Association of the company.

(3) This petition was opposed by Raj Kumar Bansal, who claims to be one of the first Directors of the company owning 20 shares of the face value of Rs. 100.00 each which were paid up to the extent of 50%. Including the said Raj Kumar Bansal all the seven subscribers were allotted 20 shares each. The company was formed with the object of doing ready and forward business of food-grains and jaggery. Necessity appears to have arisen for including cotton among the goods in respect of which the com- pany wanted to do ready and forward business because forward trading in food-grains and jaggery had been banned.

(4) All that has been stated by the petitioner in the petition is that the alteration of the Memorandum of Association was necessary for carrying on the business of the company more economically and more efficiently. When it is objected that Raj Kumar Bansal did not have any notice of the said General Meeting of the company it has been stated by the petitioner company that Raj Kumar Bansal had only subscribed his name to the Memorandum but failed to pay the share money to the company and that his shares were forfeited on account of non-payment of share-money. It is further stated that the opposition by Raj Kumar Bansal is at the instance of his father-in-law (Sliri Ram Dayal Gupta), who is a Director in a rival company Messrs Punjab Exchange Ltd. It is, however, stated by Raj Kumar Bansal that he had paid a sum of Rs. 1000.00 towards 50% value of the 20 shares. This has, however, not been supported by the production of any receipt.

(5) Raj Kumar Bansal filed a petition (No. 26 of 1972) under section 155 of the Companies Act staling that the forfeiture of his shares was invalid and asking for rectification of the said register. Yet another application (C.A. No. 146 of 1972) has been filed by Raj Kumar Bansal praying that Company Petition No. 7 of 1972 may be stayed till the disposal of Company Petition No. 26 of 1972.

(6) To dispose of Company Petition No. 26 of 1972 evidence would have to be recorded. On the other hand Company Petition No. 7 of 1972 is stated to be urgent because the company's request for the issue of necessary permission by the Government will be held up and would not be considered unless the Memorandum of Association is altered. I find no ground whatever for staying the bearing of Company Petition No. 7 of 1972. The language of Section 155(2) of the Companies Act makes it clear that even if the Court is to grant the application the Court may direct the company to pay the damages, if any, sustained by any party aggrieved. This being the remedy indicated by Section 155 itself no ground has been made out for staying the hearing of Company Petition No. 7 of 1972. C.A. 146/72 is, thereforee, dismissed.

(7) Shri Daijit Singh, learned counsel for the objector (Raj Kumar Bansal), attempted to cover a very wide ground to start with, but Realizing that he could not challenge the validity of the General Meeting held on 18-12-1971 on the ground that no notice went to him because he was not on that date a member according to the company, he (Shri Daijit Singh) confined his attention to whether the Special Resolution could be properly confirmed. It would be necessary to read Section 17(1)(a) and (d) of the Companies Act:

'17.(1) 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 its business more economically or more efficiently; xx xx xx xx (d) to carry on some business which under existing circumstances may conveniently or advantageously be combined with the business of the company.

(8) The petitioner company has not been doing any business itself in food-grains etc. It has been only acting as a kind of a Clearing house, a task which has been specifically and fully referred to in para 6 of the Memorandum of Association. For this purpose it would hardly matter if it acted as a Clearing House in respect of food-grains, as it was formerly, or cotton, as it is now sought to be amended. The true legal position is that the business must remain substantially the same and the additions, alterations and changes are only steps-in-aid to improve the efficiency of the company. This was so held by Ramaprasad Rao, J. of the Madras High Court in Rajendra Industries (Private) Ltd. (1967 (2) Company Law Journal 144), who followed a decision of the Punjab High Court rendered by Khanna, J. (as his Lordship then was in re. New Asiatic insurance Co., Ltd., (1965) 2 Com L.J. 240. A question arose in the Punjab case whether a company which was carrying on life insurance business could after taking over of such business by the Central Government be allowed to include within the scope of its Memorandum business in engineering works, cotton, import and export. Khanna, J. allowed the application on the ground that the proposed business must be one which can (1) conveniently or advantageously be combined with the business of the company, and (2) that this must be so under the existing circumstances and not under hypothetical circumstances.

(9) My attention has also been invited to yet another decision of the Allahabad High Court in Juggilal Kamlapat Jute Mills Co. Ltd. v. The Registrar of Companies 1966 1 Com LJ 292 in which it was held that the addition of 'some business' includes a new business which could be conveniently or advantageously combined with the existing business. A company in that case resolved to alter the objects to include business in rubber. The Registrar of Companies opposed the application on the ground that an entirely new business is sought to be added and that it was alien to the existing business. Allowing the said application Matbur, J. observed as follows:

'......the objects for which the company was formed are so wide and general that the company can carry on many business not connected with jute, and hence confirmation of the alternation shall not be contrary to the spirit of the objects of the company. Further, the new business to be started by the company must be one for which there is a demand and which will prove advantageous to the members and creditors thereof. Nothing has come to my notice which may show that there is a greater demand for goods which can be manufactured under the existing Memorandum of Association than for rubber goods desired to be manufactured by the company. To put it differently, the manufacture of rubber goods shall not, under the existing circumstances, be detrimental to, nor shall be destructive of, or inconsistent with the existing business, and can be advantageously combined with the existing business of the company. Considering that the company has the business experience and can instal and run the rubber factory, it can be held that this business can also be conveniently combined with the existing business'.

(10) There are a number of decisions of the Calcutta High Court on this question out of which it may be sufficient to refer to the decision rendered by B. C. Mitra, J. in the Matter of Standard General Assurance Co. Ltd. : AIR1965Cal16 . A number of cases, English and Indian, have been referred to. The following observations which, apply with considerable force to the present case appear well-worth quoting:

'INa trading company, whose aim is to earn profits for the benefit of share-holders, the directors and share-holders of the company are the best judges of the trading policy of the company and so long as the requirements of the statute are complied with and the policy pursued by the company through the object clauses in its memorandum is not fraudulent or unfair to any class of its members and does not violate the statutory provisions, the court should not easily or lightly interfere with the decision of the share-holders and directors of the company and also of creditors, if any. But the decision of the share-holders, creditors and directors, is not final and it is for the court to see if the statutory requirement has been complied with and the alterations sought for are not contrary to or inconsistent with the object clauses in the memorandum as they stand. The doctrine of paramount object or main object of the company which have received judicial notice in several cases, is a matter, which in my view, is material for consideration in applications for an order for winding up of the company on the just and equitable ground or in other applications, where the question of winding up is material, for instance, in an application under Sec. 397 of the Act. This is the view which has been taken in all the cases discussed above, in which the question was whether the company should be wound up on the just and equitable ground. If the substratum of the company is gone, that may be a good ground for making an order for winding up of the company on the just and equitable ground. But the loss of substratum of the company is not by itself a ground on which this court should decline to confirm alterations in the memorandum of association of a company, if the conditions mentioned above are fulfillled.'

(11) Judged in the light of the above principles I can find no cogent reason for refusing to confirm the alteration of the Memorandum of Association of the company. The objection which has been raised in the matter of the suitability of the petitioner company operating with reference to cotton also is not one for this Court to consider, but for the appropriate authorities of the Government. Even so far as the objector is concerned the matter will again come up before the company, if permission to operate in cotton is granted, when the objector, if he succeeds in getting his name back in the register of members in the meantime, would be able to discuss and himself vote at the said meeting.

(12) The alteration of the Memorandum of Association of the company by the Special Resolution passed at the General Meeting of the Company held on 18-12-1971 is confirmed and the petition is accepted accordingly. Formal order will be drawn up by the Office in Form No. 15. The petitioner will be entitled to his costs. Counsel fee Rs. 250.00.


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