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Lets Analyze

October 3, 2013

In the earlier issue we have discussed on Section 13 of the Companies Act, 1956 and in the present issue we shall proceed with section 17 which deals with the alteration of Objects clause in the Memorandum of Association.

Query # 1 : If the business remains substantially same and additions, alterations and changes are only to improve efficiency of company, can the alteration be allowed ?

Decided Case Law : Delhi Bharat Grain Merchants Association Ltd., In re [1974] 44 Comp. Cas. 214 (Delhi)

Facts of the case : The company was formed with the object of doing ready and forward business of food grains and jaggery. Necessity arose for including cotton among the goods because forward trading in food grains and jaggery had been banned. The question was whether the special resolution of the company for altering the memorandum of association could be confirmed.

Clarification : Held that the petitioner company had not been doing any business itself in food grains, etc.; it had been only acting as a kind of a clearing house, a task which had been specifically and fully referred to in the memorandum. 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 was sought to be amended. Accordingly, the alteration was confirmed.

Conclusion : If the business remains substantially the same and additions, alterations and changes are only to improve the efficiency of the company, the alteration may be allowed. The true legal position is that the business must remain substantially the same and the additions, alterations and changes should only be steps-in-aid to improve the efficiency of the company.



Query # 2 : To fall within clause (d) of section 17(1), do the proposed and existing business be mutually conflicting ?

Decided Case Law : Cyclists Touring Club, In re [1907] 1 Ch. 269 (Ch.D)

Facts of the case : Where the club's object was to promote the use of bicycles and tricycles and the proposed alteration aimed at admitting all tourists including motorists, to its membership.

Clarification : Held that one of the club's objects being to protect cyclists from motorists, if the business of catering for motorists was combined with the existing business, the club would not be able to protect cyclists by taking measures against another class of its members (motorists). The business were, therefore, impossible to combine.

Conclusion : Where it is impossible to combine the new business with the existing one, i.e., when they are conflicting, clause (d) of section 17(1)* cannot be invoked. Hence to fall within clause (d), proposed and existing business should not be mutually conflicting.

* Clause (d) of section 17(1) is as follows :to carry on some business which under existing circumstances may conveniently or advantageously be combined with the business of the Company.
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