MINERVA MILLS LTD. Vs. GOVT.

OF MAHARASHTRA
[1975] 45 CompCas 1 (Bom)

FACTS OF THE CASE
 

The Company had its mills situated in Bangalore, whereas its registered office was situated in Bombay. The Mysore State Financial Corp. Ltd., Bangalore had advanced to the Company a loan of Rs 20 lakhs on the condition that the Company would take steps to shift its registered office from Bombay to Bangalore. Petition filed by the Company u/s 17(2) of the Companies Act, 1956 for alteration of the MoA so as to shift the registered office of the company from Bombay to Bangalore, after a special resolution had been passed to that effect in 1969. It was desirable to have the mills and the registered office at the same place and that would help in carrying on the business of the Company economically and efficiently. The secured creditors of the Company had no objection to the transfer of the registered office from Bombay to Bangalore.

FACTS (contd.)
 In

1971, the Central Government authorised the National Textile Corp. Ltd. to take over the management of the Company u/s 18A, Industries (Development and Regulation) Act, 1951 as the authorised controller of the undertaking for a period of five years.  In 1973, the petition for shifting of the registered office of the Company was accepted and such was advertised in two newspapers and notices were served to the RoC and the State.  The RoC did not contest the petition.  The State of Maharashtra opposed the petition and challenged the order of the learned district court.

STATUTORY PROVISIONS REFERRED:
The

Companies Act, 1956 S. 17(1): Company may shift its registered office through an alteration in the MoA. S. 17(2): Such alteration is to be confirmed by the Court on petition. S. 17(3): Notice to be served to every interested person or class of persons. Every creditor has to signify that either his consent to the alteration has been obtained or his debt has been discharged or his claim has been secured. S. 17(4): The RoC will be given an

 S.

17(5): The court can grant the order either wholly or in part.  S. 17(6): The court will have regard to the rights and interests of the members of the Company and to the rights and interests of the creditors.  S. 18(3): Filing of the court’s order with the RoCs of the two concerned states who will register the same in their records.  S. 19: The alteration of the MoA will not take place until the registration under S. 18(3) has taken place.

The Industrial (Development and Regulation) Act, 1951 S. 18A: The Cn. Govt. may authorise any person or body of persons to take over the management of an industrial undertaking. S. 18B: In case of such authorisation, all persons in charge of management will be deemed to have vacated their offices, and any subsisting contract will be deemed to have been terminated. S. 18C: The authorised person may apply to court for cancellation of any subsisting contract or agreement. S. 18E(1): Without the permission of the Cn. Govt, no resolution passed at any meeting of the shareholders shall be given effect to. S. 18E(2): The Companies Act will continue to apply to such undertaking. The hon’ble court suo-moto drew its attention to: S. 13(1)(e): No owner of an “industrial undertaking” can change the location of the whole or part of the

CONTENTIONS RAISED BY THE RESPONDENTS:
1)

2) 3)

4)

The special resolution was passed back in 1969 and since then, the shareholders have changed. It is not in the interest of the Company and the State to sanction the special resolution. U/s 18E(1)(b), Industries (Development and Regulation) Act, 1951, the special resolution passed by the board of directors would become inoperative, as it had not been approved by the Cn. Govt. The sanctioning of the resolution would adversely affect the general economy of the State.

REBUTTALS TO THE ABOVE CONTENTIONS:
CONTENTION

(1):

The fact that the resolution is 4 years old is not a proper ground for not sanctioning the resolution.  The grounds for the petition continue to be there namely, the loan of Rs 20 lakhs from the Mysore State Financial Corp. and the location of the mills of the Company at Bangalore.  The fact that some of the shareholders may be different from the shareholders who passed the special resolution cannot be a ground for refusing the sanction.

CONTENTION

(2): The shareholders are the best judge of the interests of the Company and the State cannot assume the role of a guardian. As for the interests of the State, the same has been dealt with in the case of Rank Film Distributors v. RoC, W.B. • CONTENTION (4) The same has been dealt with in the case of Rank Film Distributors

CONTENTION

(3):

It is the Cn. Govt and not the State Govt. that is concerned with the contention u/s 18E(1)(b) of the Industries (Development and Regulation) Act, 1951.  Moreover, the resolution was passed long before the directive of the Cn. Govt. authorising the National Textile Corp. Ltd. to take over the management of the Company.  S. 18E(1)(b) cannot be given a retrospective effect. It is a well-settled principle of law that no statute can be construed to have a retrospective effect unless such construction appears very clearly in the terms of the Act or by necessary and distinct implication.  It is a well accepted canon of construction

ARGUMENTS RELIED UPON BY THE COURT:
The State being a creditor of the Company to the tune of Rs 73,882.45 as arrears of sales tax was entitled to be served a notice u/s 17(3)(a) as an interested person and u/s 17(3)(b) as a creditor. The State can challenge the petition only on the ground of its adverse effect on some specific pecuniary or proprietary interest of the State and not on regional considerations or the effect of its shifting on the general economy of the State. Being a creditor of the Company, the State is not entitled to oppose the application on the ground of its adverse effect on the

Rank Film Distributors of India Ltd. v RoC, W.B., AIR1969 Cal 32 company carried on the business of film  The
distributors and its registered office was situate at Calcutta. The company passed special resolutions for the transfer to its registered office from the State of West Bengal to the State of Maharashtra on the grounds that its head office had already been transferred to Bombay as far back as the year 1962, that the registered offices of most of foreign film companies were situated in Bombay, that there was better scope in Bombay for expansion of the company's business, and that it was in the interest of the shareholders that the registered office of the company should be moved to Bombay. This application was opposed, as in the present case, only by the State. It was opposed in that case on the ground that sufficient cause had not been shown for the transfer of the registered office to Maharashtra.

Contd.
The test to be applied: whether at the time when the resolution was passed, the shareholders had decided to shift the registered office under any of the conditions stipulated u/s 17. It was 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 interests of the company for the reasons specified in section 17. To permit the State to contend that the proposed transfer would not enable the company to carry on its business more efficiently or economically would be to enable the State to have a voice

Contd.
A loss of employment in one State would be balanced by employment in another State. The loss of revenue in one State will be balanced by greater revenue generation in another State. Under the scheme of the State and Cn. Sales Tax Act and Art. 270 of the Constitution r/w the Constitution (Distribution of Revenue) Orders, a fixed percentage of revenue is allotted to each State which does not depend on the tax collected in each State.

CASES RELIED UPON BY THE RESPONDENTS:
ORIENT PAPER MILLS v. STATE IN RE ORISSA CHEMICALS AND DISTILLERIES PVT. LTD.  Where by a change of registered office of a company, the State from which the office was sought to be transferred would suffer a substantial reduction of revenue from income-tax and sales tax, the court should take that fact into consideration and refuse to confirm such a resolution.  In both cases, the HC had refused the petition on the ground that it was not bonafide.

FINAL SUO-MOTO CONSIDERATION BY THE COURT OF BAR OF S. 13(1)(e)
S. 13(1)(e) bars the change of location of the whole or any part of an “industrial undertaking”. S. 3(4) of the Act defines “industrial undertaking” as any undertaking pertaining to a scheduled industry carried on in one or more factories. Hence, the bar of the section would apply only to the part of the undertaking in which the industry itself is carried on, which would mean the factory of the Company which is already located at Bangalore and is not being shifted. Whether the registered office or the head office, or one or more of the branch company is also shifted or not, unless the industrial unit of the Company is also shifted, the bar of S. 13(1)(e) would not be attracted.

DECISION OF THE COURT
Company

directed to furnish to the State a bank guarantee to the tune of Rs 73,882.45 claimed by it by way of arrears of sales tax. Company allowed to shift its registered office from Bombay to Bangalore.

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