12.3.4 (Alteration of Memorandum)

Section 16 provides that the company cannot alter the condition contained in memorandum except in the cases and in the mode and to the extent express provision has been made in the Act' These provisions are explained herein below.

Change of name. Section 21 provides that the name of a company may be changed at any time by passing a special resolution at a general meeting of the company and with the written approval of the Central Government. However, no approval of the Central Government is necessary if the change of the name involves only the addition or deletion of the word ‘private’ (i.e., when public company is converted into a private company or vice versa).

If through inadvertence or otherwise, a company has been registered with a name which is identical with or too closely resembles with the name of an existing company, the company may change its name by passing an ordinary resolution and by obtaining the approval of the Central Government  in writing (s.22).

The change of name must be communicated to the Registrar of Companies within 30 days of the change. The Registrar shall then enter the new name on the register in the place of the old name and shall issue a fresh certificate of incorporation with necessary alterations [s.23(1)]. The change of name becomes effective on the issue of fresh certificate of incorporation. The Registrar will also make the necessary alteration in the memorandum of association of the company [s.23(2)].

However, change of name shall not affect any rights or obligations of the company or render defective any legal proceeding which might have been continued  or commenced by or against the company-by its former name may be continued by or against the company by its new name [s.23(3).]

Within 30 days of the passing of the special resolution, a printed  or a type written copy of the resolution should be sent to the Registrar of companies.

Change of registered office. This may include:

(a) Change of registered office from one premises to another premises in the same city, town or village. The company may do so anytime. A resolution passed by the Board of directors shall be sufficient. However, notice of the change should, within 30 days after the date of the change, be given to the Registrar who shall record the same (s.146).

(b) Change of registered office from one town or city or village to another town or city or village in the same State (s.1.45).In this case, the following procedure is to be followed:

(i) a special resolution is required to be passed at a general meeting of  the shareholders;

(ii) a copy of it is to be filed with the Registrar within 30 days.

(iii) Within 30 days of the removal of the registered office, notice of the new location has to be given to the Registrar who shall record the same.

(c) Shifting of the registered office from one place to another within the same state (s.17A) The shifting of the registered office lay a company from the jurisdiction of one registrar of companies to the jurisdiction of another registrar companies within the same state shall also require confirmation by the Regional  Director. For this purpose, an application is to be made in the prescribed form and the confirmation shall be communicated within four weeks. Such confirmation is required to be field within two months with the registrar of companies who shall register and certify the same within one month. Such certificate shall be conclusive evidence of the compliance of all requirements under the Act.

(d) Change of registered office from one state to another state.

Section 17 provides for the shift of the registered office from one State to another and such shift involves alteration of memorandum. The change of registered office from one locality to another in the same city or from one city to another in the same State does not involve alteration of memorandum.

The shift of the registered office from one State to another can be done by a special resolution which is required to be confirmed by the Company Law Board (CLB). The CLB, before confirming the resolution, will satisfy itself that sufficient notice has been given to every creditor and all other persons whose interests are likely to be affected by the alteration, including the Registrar of Companies and the Government of the State in which the registered office is situated. Also, the CLB will give an opportunity to members and creditors of the company, the Registrar and other persons interested in the company to be heard. The CLB may confirm the resolution on such terms and conditions as it thinks fit.
 

It was made clear in Zuari Agro Chemicals Ltd. v. F. S. Wadia and Others (1974) 44

Comp. Cas.465 that the Company Law Board will not substitute its own wisdom or judgement for the collective wisdom or judgement of the company expressed in special resolution. But the bonafides of the company’s application for change can be screened.

Loss of revenues of state, whether relevant consideration. In Orient Paper Mills Ltd. v. State, AIR (1957) Ori. 232 it was observed that a State whose interests are affected by the change has a locus standi to oppose shift of registered office of a company. Accordingly, the Orissa High court declined to confirm change of registered office from Orissa to West Bengal, inter alia, on the ground that in a Federal constitution every state has the right to protect its revenue and, therefore, the interest of the State must be taken into account.

But in Minerva Mills Ltd. v. Govt. of Maharashtra (197S) 45 Comp. Cas l(Bom.), Justice Ray of the Bombay High Court held that the Company Law Board cannot refuse confirmation on the ground that the change would cause loss of revenue to a State or would have adverse effects on the general economics of the State. The question of loss of revenue to one state would have to be considered in  the prospectus of total revenues for the Republic of India and no parochial considerations should be allowed to turn the scale in regard to change of registered office from one State to another within India.

Similar view was expressed in Rank Film Distributors of India Ltd. a. Registrar of Companies, West Bengal[AIR(1969) Cal.32]. A Division Bench of the Calcutta High Court observed that State has no statutory right under S.17 to oppose the shifting of the registered office from one State to another.

A printed or a typewritten copy of the special resolution both under S. 146 and S.17 should be sent to the Registrar of Companies within 30 days of its passing.

A certified copy of the CLB’s order should be filed within three months thereof with the Registrar of Companies of each State - the old and the new State. If it is not filed within the prescribed time, then the alteration shall, at the expiry of such period, become void and inoperative.

A notice of the new location of the registered office must be given to the Registrar of the State to which the office has been shifted, within thirty days after the change of the office (s.1a6).

A company is in a position to shift its registered office from one State to another for certain purposes only. These are discussed in the following paragraph (under 'Alteration of objects'- the grounds being common).

Alteration of objects clause. Section 17 empowers a company by a special resolution Duly confirmed by the  Company law Board (CLB), to alter the objects or to change the place of its registered office from one State to another if  the alteration is sought on any of the following grounds.

l. To carry on its business more economically and  more efficiently. In Dalmia Cement (Bharat) Ltd., In re (1964)34 Comp. Cas. 729 (Mad.),the Court  observed that whether a company can carry on its business more economically or more efficiently is a matter for the judgement of the directors. If the directors consider that under the existing circumstances, it will be convenient and advantageous to combine the new objects with the existing objects and if it appears that such a conclusion may be fairly arrived at, the Court will not go behind it and hold an enquiry as to whether the opinion of the directors is well founded or is justified.

The true legal position, observed the Delhi High Court, 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 [Delhi Bharat Grain Merchants Assn. Ltd., In re (1974)44 comp. Cas.214(Delhi)].

In Re, Scientific Poultry Breeders Association (1933) 3 Comp. Cas. 89 (CA), a company's memorandum prohibited payment of remuneration to the members of its governing body. It wanted for efficient management, amendment in the memorandum to enable it to pay remuneration to its governing  body members which was allowed.

2. To attain its main purpose by new or improved means. For the companies registered after 10^th October, 1965, there is no difficulty in ascertaining the main purpose because the Memorandum would state it. But for the companies registered earlier, one has to look not only to the memorandum but also to what has actually been  done.

3. To enlarge or change the local area of its  operation. In India Mechanical Gold Extracting Company, ln Re (1891) 3 Ch. 538, the company's business was confined to the 'Empire of India'. It wanted to enlarge its operations by  dropping these words. It was allowed to do so on the condition that the word ‘Indian’ was also dropped from its name.

4. To carry on some business which under existing circumstances may be conveniently or advantageously combined with the business of The company. In fact, most of the amendments sought in objects clause are based on this ground. This clause enables a company to diversify. The working of the clause makes its scope very wide in as much as any activity which may either conveniently or advantageously be combined with the existing business may be allowed.

Thus, a company formed for generating power was allowed to carry on ‘cold storage and other allied business' [ In re, Ambala Electric Supply Co. Ltd. (1963)33 Comp.CAS.585(Punj)].

In Parent Tyre Co, Ltd. In re. (1922)2 Ch.222, a tyre company was allowed to take power to undertake financial operations. Similarly, a company formed for business in Jute was allowed to add business in rubber [Juggilal Kamlapat Jute Mills v. Registrar of Companies (1966) 1 Comp. L.J.292].

However, Punjab Distilling Industries Ltd. which was engaged in carrying on Distillery business and other allied objects was not allowed alteration of its objects so as to include a cinema business. The Punjab High Court held that it was not a business which could be conveniently or advantageously be combined with the existing business. [Punjab Distilling Industries Ltd. v. Registrar of Companies (1963)83 Comp. Cas.811 (Punj)].

Likewise, Cyclists Touring Club Ltd. was not allowed to change its objects so as to admit motorists since of the objects was to protect cyclists from  motorists [In re, Cyclists Touring Club Ltd. (1907) 1 Ch.269].

In Sipani Automobiles (1993), diversification sought by the company  was refused

by the Company Law Board on the ground that the company had liabilities (Rs 24 crores) far in excess of its current assets (Rs 21 crores) besides accumulated losses and also had to pay a large number of persons who had deposited money for booking of its motor cars. In these circumstances, Company raw Board observed that it would not only be against public interest but also against public policy to permit the addition of the proposed new clauses.

In view of the above judgements, it becomes pertinent to note the principles that court (CLB) normally follow in permitting or refusing alteration of objects on this ground.

Confirmation of alteration of objects is not to be refused only because new business is wholly different from existing business [New Asarwa Mfg. Co. Ltd., In re (1975) 45 Comp. Cas. 151 (Guj)].

5. To restrict or abandon any of the objects specified in the memorandum. Even for deleting any portion of the object clause, the procedure laid down in s.17 has to be followed. CLB has jurisdiction to confirm alteration which involves the abandonment of objects which are in their character fundamental. In Hampstead Garden Subrub Trust Ltd., In re (1963) 33 Comp. Cas. 166, one of the objects of the company was that the surplus in the event of winding up was to be given or transferred to some institution or institutions having objects similar to the object of the company and in default to some charitable object. It was sought to be amended so as to give or transfer the said balance to H Ltd.’ The company’s contention was that the alteration by special resolution was within its powers as the alteration was to 'restrict or abandon any of the objects of the company’.

Held that, what was sought to be done by the alteration was, first, to exclude altogether any institution or institutions having objects similar to the objects of this company and, secondly, to make the balance go to a specified charity, i.e., one of the class of beneficiaries. This virtually amounted  to destruction of the objects and could in no way be regarded as restricting or abandoning any of the objects.

6. To sell or dispose of the whole or any part of the undertaking. Where a company wishes to adopt a cut-back or retrenchment strategy, i.e., where it feels that it has either grown too big or diversified in various directions that managing becomes difficult or uneconomical, it may alter its objects to sell or dispose of any of its undertakings. The decision of Hindustan Lever to divest itself of Oil Unit and its consequent sale to Lipton India (now BBL) is an illustration on this point. Similarly, sale of Kissan Foods by Vijaya Mallaya to Brooke Bond (Now BBL) is another example of sale of an undertaking by a company and the consequent alteration in its memorandum.

7. To amalgamate with any other company or body of persons [Hari Krishna Lohia v. Hoolungoree Tea Co. Ltd. (1970)40Comp.Cas.458Cai.].

A printed or a typewritten copy of the special resolution is required to be filed with the Registrar of Companies within thirty days of the passing thereof.

Also a petition is to be filed with the CLB for confirmation of the special resolution. The CLB, being satisfied that the notice of the resolution was given to all persons whose interests are likely to be affected by the alteration, including the Registrar of Companies and the State Government and having heard them, may confirm the alteration either wholly or in part.

A certified copy of the CLB;s  order together with a printed copy of the altered memorandum must be filed within three months of the date of the order, with the Registrar. The Registrar will register the documents and issue, within one month a certificate which will be conclusive evidence that everything required has been done (s.18). If the required documents are not filed within the prescribed time, the alteration and the order of the CLB confirming the alteration, shall, at the expiry of such period, become void and inoperative (s.19).

Alteration of liability clause (s.38). The liability of a member of a company cannot be increased unless the member agrees in writing. The consent of the member may, however, be given either before or after the alteration. Increase in liability may be by way of subscribing for more shares than the number held by him at the date on which the alteration is made or in any other manner.

In case where the company is a club or any other similar association and the alteration in the memorandum requires the member to pay recurring or periodical subscription or charges at a higher rate, although he does not agree in writing to be bound by the alteration, it shall be binding on him.

In case of unlimited liability company, the liability may be made limited by passing a special resolution and obtaining the Court's approval (s.32). A copy of the special resolution and that of Court's confirmation must be filed with the Registrar within the time specified. The alteration will, however, not affect any debts, liabilities, obligations or contracts entered into by or with the company before the registrations [s.32 (3)].

Alteration of capital clause. Section 94 provides that, if the articles authorise, a company limited by share capital may, by an ordinary resolution passed in general meeting, alter the conditions of its memorandum in regard to capital so as:

1. to increase its authorised share capital by such amount as it thinks expedient by issuing fresh shares;

2. to consolidate and divide all or any of its share capital into shares of larger amount than its existing shares;

3. to convert all or any of its fully paid-up shares into stock and reconvert the stock into fully paid-up shares of any denomination;

4. to sub-divide its shares, or any of them, into shares of smaller amount than fixed by the memorandum, but the proportion paid and unpaid on each share must remain the same;

5. to cancel shares which, at the date of the passing of the resolution in that

behalf, have not been taken or agreed to be taken by any person.

These five clauses are now explained.

Increase of authorised share capital. A company, limited by shares, if the article authorize, can increase its authorised share capital by passing an ordinary resolution.

Within 30 days of the passing of the resolution, a notice of increase in the share capital must be filed with the Registrar of Companies. On receipt of the notice, the Registrar shall record the increase and also make any alterations which may be necessary in the company’s memorandum or articles or both.

If default is made in filing the notice, the company and every officer of the company who is in default shall be punishable with fine upto Rs 50 per day during which the default continues (s.97).

Consolidation and sub-division of shares. Consolidation is the process of combining shares of smaller denomination. For instance, 10 shares of Rs 10 each may be consolidated into one share of Rs 100.

sub-division of shares is just the opposite of consolidation, e.g., one share of Rs 100 may be divided into 10 shares of Rs 10 each.

Once a resolution has been passed, a copy of the resolution is required to be sent within thirty days to the Registrar of Companies.

Conversion of shares into stock and vice versa. Stock is simply a set of fully-paid up shares put together and is transferable in any denomination or fraction. On the other hand, a share is transferable as a whole; it cannot be split into parts. For example, a share of Rs 10 can be transferred as a whole; it cannot be transferred in parts. But if 10 shares of Rs 10 each fully paid are converted into stock of Rs 100, then the stockholder can transfer stock, say, worth Rs 5 also.

Section 94 empowers a company to convert its fully paid-up shares into stock by passing a resolution in general meeting, if its articles authorise such conversion. A notice is to be filed with the Registrar within thirty days of the passing of the resolution specifying the shares so converted.

It is to be noted that stock cannot be issued in the first instance. It is necessary to first issue shares and have them fully paid-up and then convert them into stock. Also, stock can be reconverted into fully paid-up shares by passing a resolution in general meeting.

When shares are converted into stock, the shareholders are issued stock certificates. In the Register of Members, the amount of stock is written against the name of a particular member in place of number of shares. The stockholder is as much a member of the company as a shareholder.

Diminution of share capital. Sometimes, it so happens that shares are issued, but are not taken up by the members of the public and, therefore, not allotted. Section 94 provides that a company may, if its articles authorize, by resolution in general meeting, cancel shares which, at the date of the passing of the resolution in that behalf, have not been taken or agreed to be taken by any persons and diminish the amount of the share capital by the amount of the shares so cancelled. This constitutes diminution of capital and should be distinguished from reduction of capital which is discussed under Chapter on ‘Share capital’.