S.K. Mukherjea, J.
1. This is an appeal against an order by which the learned Judge dismissed an application under Section 17 of the Companies Act for confirmation of alteration of the provisions of the Memorandum of Association of a Company by special resolutions so as to transfer the place of its registered office from one State to another. The registered office of the company is situate at Calcutta. One of the main objects of the company is to carry on the business of distributors of films. By those special resolutions it was resolved that subject to the sanction of the High Court at Calcutta being obtained, the registered office of the company at present situate in the State of West Bengal be removed to theState of Maharashtra and the relevant clause in the Memorandum of Association be altered accordingly.
2. It is stated in the petition that in arriving at the decision to transfer its registered office from Calcutta to Bombay, the facts taken into consideration were:
(i) The Head Office of the company is situate in Bombay, registered office of the company is situate in Calcutta and it is essential that this anomaly should be removed by transferring the registered office of the company from Calcutta to Bombay to enable the company to carry on its business more economically and more efficiently from administrative point of view.
(ii) The registered offices of most of the foreign film companies are situate in Bombay and, therefore, it is considered essential that the company's registered office should also be situate at Bombay. It will assist the company to compete in its business with other foreign film companies if the registered office of the company is situate there.
(iii) There is better scope at Bombay for expansion of the company's business as it is easier there to come into contact with foreign visitors in the film industry who are interested in the distribution of their products and such personal contact will essentially promote the interests of the company.
(iv) It is in the Interest of the shareholders of the company that the registered office of the company be removed to Bombay.
3. Notice of the application was served on the Registrar of Joint Stock Companies and as directed by the learned judge, also on the State of West Bengal. No affidavit was filed by the Registrar or by the State. The application was opposed only by the State on the ground that sufficient cause has not been shown as to why the registered office should be transferred to Maharashtra.
4. It appears that the learned Judge refused to accede to the prayer of the company because. In his opinion, the petition was lacking in sufficient particulars In support of its case that the transfer of the registered office will be beneficial to the company and its shareholders. The learned Judge observed that a bare averment putting -in the relevant provisions of the statute is not enough. We respectfully agree. The petition however does not merely repeat the provisions of the statute. In paragraph 8 of the petition reasons have been given in sufficient detail as to why in the opinion of the shareholders which is expressed in the shape of special resolutions, the transfer of the registered office will enure to the benefit of the company. The reasons appear tobe cogent and have the merit of sound commercial sense to recommend them. The learned Judge found that material particulars are lacking because it is not indicated what has happened since 1963 when the Head Office of the Company was removed to Bombay by reason of which the decision to transfer the registered office to Bombay has been taken because the petition does not disclose why it is easier to make contacts with foreign visitors in the film industry if the registered office is transferred to Bombay when the purpose may well be served by, the Head Office; and because the petition does not indicate why it will be in the interest of the shareholders to trans-fer the registered office to Bombay.
5. The Head Office of the company was transferred to Bombay in 1962. That the shareholders did not decide to transfer the registered office to Bombay at once or soon thereafter does not, in out opinion, call for an explanation. The shareholders may decide early or late. The test to be applied is whether at the time when the resolutions are passed, the shareholders have, by domestic deliberation, for any of the reasons specified in Section 17, decided in favour of the transfer.
6. No doubt the Company has not indicated why trade contacts cannot be made through the Head Office at Bombay. Indeed it is not possible to contend that they cannot be. The case is, however, one of convenience. For the purpose of business negotiations it will be clearly more convenient to have the registered office at Bombay which is the hub of film industry in India, especially when the Head Office is already there, a that is so, we do not see why the Court, in exercise of its powers under Section 17 should make the decision of the shareholders nugatory by refusing to confirm the alteration.
7. It is true that no separate reasons have been given as to why the transfer of the registered office will be in the Interest of the shareholders. If the transfer is in the interest of the Company, it is ipso facto also in the interest of the shareholders.
8. We do not agree that each and every reason advanced for transfer of the registered office has to be justified by evidence. In the nature of things, the evidence which the company will be required to adduce will be of its prospective business operations and future conduct of its affairs in relation to the present. the evidence will be, therefore, necessarily vague and problematic and may well verge on speculation. And yet, the Company, its shareholders and directors may bona fide in exercise of their judgment after mature deliberation have decidedon the course proposed in the special resolutions. Nevertheless, the evidence that can be given is of little assistance to the Court.
9. In Re Jewish Colonial Trust Ltd., (1908) 2 Ch 287 it was held that the principles which have been laid down for the guidance of the Court in dealing with applications for confirmation of reduction of capital apply to applications for confirmation of alteration of the Memorandum of Association. In Ex Parte Westburn Sugar Refineries Ltd., (1951) 1 All ER 881 in an application for sanction of reduction of capital the company stated in the petition that the capital to be returned was in excess of its needs but did not State by how much it was surplus. The Company was threatened with nationalisation. The first court dismissed the application because it was against public policy to aid a company threatened with nationalisation to part with its assets and also on the ground that the company had failed to show by how much its capital was surplus to its requirements. On appeal, the House of Lords, in reversing the order of dismissal, held that the possibility that the industry in which the company was engaged might be nationalised as the result of future legislation was not a ground on which the Court should refuse to confirm the reduction.
10. As for the other ground, Lord Eadcliffe said:
'I pass, to the second, and, indeed, the main reason which weighed with the learned Judge. In his view it was essential for the appellant company, which showed by its petition that the ground of the proposed reduction was that the share capital to be returned was in excess of its wants, to demonstrate to the court by how much its capital was in fact, surplus, and, since the evidence presented to the court was deficient in this respect, a material fact had not been made out......
The conclusion itself is based on a misunderstanding. I cannot find any good reason why the court should be concerned to know what is the extent by which the company's capital is surplus to its requirements. If by that phrase, itself susceptible of ambiguity, is meant the extent by which the whole of the company's assets, at the best contemporary valuation that can be placed on them, exceeds what is required for the future conduct of its business, the precise information on this would do nothing to aid the task of the court, for it would throw no light on the sole point which is here in question, viz., how much of the paid up share capital is to be returned as surplus? Nor do I think that evidence of this kind is usually required in cases of this sort. In truth this, which is the real question, answers itself by the company's own resolution .........how much of the paid up share capital ofthe company can dispense with in future is a domestic matter which the shareholders and their managers must decide among themselves If the amount which they have decided on works no injustice to creditors or, to shareholders I see no purpose which can be served by the court's insisting on a precise figure of the company's wants or the striking of an exact balance between that figure and the total available resource in hand.'
11. In our opinion, the principles expressed in the judgment of Lord Radcliffe apply with equal force to an application for confirmation of alteration of Memorandum of Association.
12. The learned trial Judge directed notice of the application to be served on the State. Before us, the State opposed confirmation of the alteration on the ground that the transfer of the registered office of the company will affect the general economy of the State and in particular. Its revenue. Latterly, a great deal has been said with regard to the right of the State to appear in an application under Section 17 of the Companies Act and the grounds on which the State may oppose the application. In Re. Mackinon Mack enzie and Co. Ltd.. (1967) 71 Cal WN 340. A. N. Ray J. held that the State cannot as a matter of right be heard in an application under Section 17. In several decisions of the Orissa High Court to which we shall presently advert it was held that the prospect of loss of revenue to the State is a material consideration. A. N. Ray J. was of opinion that no hard and fast rule can be laid down that under no circumstances it is open to the State to contend in these applications that there may be loss of revenue. In Re Standard General Assurance Co. Ltd. : AIR1965Cal16 , B. C. Mitra. J. expressed the view that if the company has an existing liability to the State no doubt, the State becomes the creditor of the company and therefore would be entitled to oppose the alteration, if its interest as a creditor h likely to be affected by the alteration, but the statute does not confer upon the State as a prospective creditor, the right to oppose the proposed alterations.
13. Section 17(3)(a) of the Companies Act enjoins that 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 a class of persons whose interests will, in the opinion of the Court, be affected by the alteration. It is, however, to be noticed that although Sub-section (4) specifically requires that notice of the petition must be served on the Registrar, no specific provision has been made for notice to the State. If it were the intention of the legislature to serve notice on the State, it is difficult to see why no specific provision was made in that behalf. Be that as it may, it can hardly be disputed that the language of Section 17(3)(a) is sufficiently wide to enable the Court to direct notice to be served on the State if the Court is of opinion that the interests of the State will be affected by the order to be made in the application,
14. If notice is served on the State under Section 17(3), the question arises whether the State can object to the transfer of the registered office on the ground that the reasons which have prompted the shareholders to pass the resolution are not valid or that those reasons have not been substantiated by the materials disclosed in the petition. In the absence of statutory provisions, it is not for the State to exercise control over the conduct of affairs of a company. Under the statute, it is for the members of the company and not for the State to decide whether the registered office of the company should be transferred from one State to another in the interest of the company for the reasons specified in Section 17. The shareholders have expressed their decision by special resolutions in favour of the transfer. It is for the court to confirm or not to confirm the alteration. If the State has no voice under the statute in the conduct and management of the company's affairs, it is difficult to see how the State can contend that the reasons which have impelled the share' holders after domestic deliberation to decide on transfer of the regcered office, are not tenable. In our opinion, the State has no such right. To permit the State to contend that the proposed transfer of the registered office will not enable the company to carry on its business more efficiently or economically, contrary to the opinion of the shareholders ex-Dressed in the special resolutions, will be to enable the State to have a voice in an aspect of the management of affairs of the company which is not warranted by statute.
15. It was then contended that the economy of the State will be adversely affected if the registered office is shifted elsewhere. The State is benefited by the opportunities of employment, a company affords. In most cases, the registered office employs a comparatively small number of people. The bulk of a Company's employees are engaged in industrial undertakings, in trade or in general administration. If a Company desires to transfer its business activities from one State to another there is nothing in law to prevent it from doing so. If the Court refuses to sanction the transfer of the registered office by dismissing the application for confirmation of the alteration, the Company may yet leave the husk of a registered office to function In the State and transfer its entire business activities elsewhere. There are many foreign companies which have their registered offices abroad but whose business activities are entirely confined to India. It will be wrong, in our view, to equate the location of the registered office of a company with the field of its business operations. The transfer of a registered office by itself does not affect, or appreciably affect, the scope of employment of the people of the State. In the present case the Head Office of the Company has already been shifted to Bombay. The company is free to engage or not to engage in business in Bengal. It is therefore useless to refuse to confirm the alteration on the ground of loss of prospect of employment in the State. In any event, taking a broader perspective, the loss of employment in one State will be balanced by employment in another. After all, the country is one and indivisible.
16. On behalf of the State it was urged that the revenue of the State in income-tax and sales tax is likely to suffer. In our opinion, this is a misconception. In the scheme of the State Sales Tax Acts, sales tax is payable to a State on sale of goods which are within that State; under the Central Sales Tax Act, it is payable to the State from where the movement of goods in the course of inter-State trade and commerce commences. Sales tax payable on the sale of a company's products or on goods purchased by the company does not depend on where the registered office of the company is situate or where the contract of sale is made. Transfer of the registered office of a company is, therefore, irrelevant for the purpose of Sales Tax realised by the State.
17. As for income-tax, the share of a State out of the proceeds of income-tax does not appear to vary with the income-tax realised in the State. Article 270(1) of the Constitution provides that taxes on income other than agricultural income shall be levied and collected by the Government of India and distributed between the Union and the States in the manner provided in Clause 2. Clause 2 provides that such percentage, as may be prescribed of the net proceeds in any financial year of any such tax except in so far as those proceeds represent proceeds attributable to the Union Territories or taxes payable in respect of Union emoluments shall not form part of the Consolidated Fund of India, but shall be assigned to the States within which the tax is leviable in that year, and shall be distributed among those States in such manner and from such time as may be prescribed. The proceeds of income tax are distributed among the States under the provisions of the relevant Constitution (Distribution of Revenue) Orders by which a fixed percentage is allotted to a State. These orders are pro-mulgated by the President from time to time on the basis of the recommendations of Finance Commissions. No material has been placed before us from which we can conclude that the allocation of the share of income tax to a State varies with the collection of income tax in the State from year to year. We cannot proceed on the assumption, for which there is no basis, that the percentage increases or decreases with the increase or decrease of the tax realised in the State. Moreover, there is nothing in the Income-tax Act under which a company has to be assessed in the State where its registered office is situate. The registered office of a company may or may not be its principal place of business. It cannot therefore be held that the transfer of the registered office of a company will adversely affect the share of a State in the proceeds of income-tax.
18. In the view we have taken of the matter, the consideration that by transfer of the registered office, the economy and revenue of the State will suffer, appears to be unreal or at the most, speculative, and is, therefore, in our opinion, not a relevant consideration in the present application. In any event, the loss of revenue in one State will be accompanied by increase in revenue in the other. We agree with the views expressed by A. N. Ray, J. that in the administration of justice, the interests of a particular State ought not to be thought of in a sectional manner and what has to be considered, is the interest of the country as a whole. Incidentally if notice is to be given to the State where the registered office of the company is situate on the ground that its economy and revenue might suffer by transfer of the registered office, there is no reason why notice should not be given to the State where the registered office of the company is to be transferred. If the area of business operations of a company were to depend on the location of its registered office, the State to which the registered office is sought to be transferred, might very well contend that there is enough of that particular type of business in which the company is engaged and the transfer will not be in the interest of the State. The Union of India may also like to have a say in the matter, it may contend that in the interest of a just and proper economic development of different regions which is its declared policy, the transfer is or is not desirable. In that event, an application under Section 17 for confirmation of the transfer of the registered office from one State to another will bring the different States and the Centre into the arena with rival economic contentions. We do not think, that is a situation contemplated by Section 17 of the Companies Act.
19. In Orient Paper Mills Ltd. v. State : AIR1957Ori232 it was held by the Orissa High Court that where by a change of registered office of a company situate within a certain State, that State would suffer a substantial reduction of income from income-tax and sales tax, the Court would take that fact into account and would refuse to confirm the resolution seeking to transfer the registered office of the company. The decision in Orient Paper Mills was approved by a Division Bench of the Orissa High Court in Bonai Industrial Co. Ltd. v. State of Orissa, A. H. O. No. 1 of 1957 (Orissa) and followed in Re Orissa Chemicals & Distilleries Private Ltd., AIR 1962 Orissa 62.
20. In the Orient Paper Mills case the learned Judge accepted the contention on behalf of the State that the State of Orissa was likely to lose a substantial sum in revenue if the registered office was transferred to Calcutta. The contention appears to have been founded on the assumption that a portion of income-tax realised by the Central Government is paid to the respective States in proportion to the tax realised in the State concerned. Under the Finance Distribution Order then in force, every State was entitled to a fixed percentage of the proceeds of income-tax which did not vary with the income-tax collected in the State. Moreover, there was nothing in the Income-tax Act of 1922 under which a company was to be assessed at the place where its registered office was situate. A company was assessable at its principal place of business, which might or might not have been its registered office.
21. The other contention which was raised successfully on behalf of the State was that if contracts of sale were made by the registered office which was proposed to be transferred to Calcutta and contracts of sale were entered into at Calcutta the liability to pay sales tax might arise at Calcutta and the State of West Bengal might realise the sales tax. Under the Sales Tax laws then in force, sales tax was not necessarily payable to the State where the contract of sale was made or where the registered office of the company was situate. Reliance was placed on a passage in Halsbury's Laws of England, 3rd Edition Vol. 6 at page 113 where it is said:
'The residence of a company is of great importance in revenue law, and the place of incorporation is not conclusive on this question. In general, residence depends upon the place where the central management and control of the company is located. It follows that if such central control is divided, the company may have more than one residence. The locality of the shares of a company is that of the register of shares. Thehead office of the company is not however necessarily the registered office of the company, but is the place where the substantial business of the company is carried on and its negotiations conducted.'
The passage- in our opinion, is no authority for the proposition that a company is necessarily assessable at the place where its registered office is situate. As we have already said, there is nothing in the Income-tax Act of 1922 or of 1961 under which a company is to be assessed at the place of its registered office.
22. In these circumstances, we are unable to agree that the transfer of the registered office of the company by itself, affects the revenue of the State or even if it does, the prospect of loss of revenue is a relevant factor to be taken into consideration, in the facts and circumstances of the present case.
23. It is only fair to point out that the company in its petition has stated that the removal of the registered office will not involve retrenchment or dismissal of any employee of the company nor will it cause any loss of revenue to the State of West Bengal.
24. It has been argued that as an application for confirmation of alterations in a Memorandum of Association is in pari materia with an application for confirmation of reduction of share capital, in making an order under Section 17, the interests of the public have to be taken into consideration. The State represents the public and therefore the State is entitled to be heard and the interests of the State have to be safeguarded. In this connection, reliance has been placed on the decision in Poole v. National Bank of China Ltd., 1907 AC 229 where an application for confirmation of reduction of share capital fell to be considered by the House of Lords. Lord Macnaghten said:
'In the present case, creditors are not concerned at all. The reduction does not Involve diminution of any liabilities in respect of unpaid capital or the payment to any shareholder of any paid-up capital. The only questions therefore to be considered are these: (i) Ought the court to refuse its sanction to the reduction out of regard to the interests of those members of the public who may be induced to take shares in the company and (ii) is the reduction fair and equitable as between the different classes of shareholders?'
On the strength of these observations it has been contended that in an application for confirmation of the alterations in a Memorandum, the interests of the public have to be taken into consideration. Lord Macnaghten however made it clear that he meant by interests of thepublic when he said that the interests which have to be protected are of those members of the public who might be induced to take shares in the company. There is nothing in the judgment from which it appears that his Lordship intended that the revenue interests of the State or the economic interests of the State have to be considered in sanctioning a reduction of share capital. In 1951-1 All ER 881 Lord Radcliffe said:
'What is in question is a reduction of share capital by repaying some paid-up share capital. If transaction is itself competent, the court should only refuse its confirmation if what is proposed to be done is somehow unfair or inequitable and what is unfair and inequitable cannot well extend beyond consideration of the interests of creditors, shareholders and the general public, by which term is, I think, meant persons who may in the future have dealing with the company and may be minded to invest in its securities.'
25. In Re Mahalaxmi Bank Ltd. : AIR1961Cal666 a Division Bench of this Court expressed the view that the public and the shareholders individually and collectively are protected by the necessary publicity of the proceedings and by the discretion which is entrusted to the court.
26. In (1967) 71 Cal WN 340, A. N. Ray J. understood those observations of Lord Macnaghten in the sense in which we have understood them and we respectfully agree with the views expressed by the learned Judge on that aspect of the matter. We, therefore, hold that if the interest of the public has to be taken into consideration in an application under Section 17, the interest contemplated is not revenue interest or the interest of the general economy of the State.
27. In the view we have taken, the appeal succeeds. The' order of the learned Judge is set aside. The alteration of the Memorandum of Association sought to be effected by the special resolutions set out in para 7 of the petition and passed at the extraordinary general meeting of the company held on the 8th day of June 1966 is hereby confirmed in terms of prayer (1) of the petition. The appellant will pay the costs of the Registrar of Joint Stock Companies which we assess at 30 Gold Mohurs. Certified for two counsel so far as the appellant is concerned. Save as aforesaid there will be no order as to costs.
A.K. Mukherjea, J.
28. I agree.