ORDER
K.K. Balu, Member
1. M/s. Usha Beltron Limited (“the company”) has filed this petition under Section 17 of the Companies Act, 1956 (“the Act”) for confirmation of the alteration to the situation Clause No. II of the memorandum of association (“memorandum”) of the company shifting its registered office from the State of Bihar to the State of West Bengal, as approved by a special resolution passed at its extraordinary general meeting (“EOGM”) held on August 26, 1998, in accordance with Section 189 of the Act.
2. According to Shri Trivikram Khaitan, counsel appearing for the company, the company is having its registered office at Ranchi (Bihar) since its incorporation in May, 1986. M/s. Usha Martin Industries Limited (“UMIL”) was merged with the company under orders of the High Courts of Patna and Calcutta and pursuant to the scheme of amalgamation, the company is carrying on all the business activities of UMIL which includes, inter alia, the production of pig iron, steel billets and steel wire rods, etc. from various locations in addition to its own activities. As the company is undertaking diversified business activities, the, registered office of the company at Ranchi is unable to cater to the increased business requirements. It has become necessary to shift the registered office to a place which is well equipped to efficiently handle the increased business activities. At present the company is effectively managed and controlled from its head office at Calcutta. Furthermore, five directors of the company are residing at Calcutta. It is convenient for the directors to manage the affairs of the company by having its registered office at Calcutta. The shifting of the registered office of the company is necessary for better administrative and economic control which will reduce overheads, eliminate duplication of work and unnecessary transfer of records and enable the company to rationalise and streamline its management, business and finance to its greater advantage. The shareholders belonging to Calcutta constitute a majority of the total number of shareholders of the company. In the circumstances, the proposed alteration of situation clause of the memorandum would be in the interest of the company, its shareholders and all concerned. No one will be prejudiced by the alteration and it is just and equitable that the alteration should be confirmed by the Company Law Board (“CLB”).
3. The company has filed an application in C. A. No. 66(17)/ERB/1999 for exemption from serving individual notices to the creditors, fixed deposit holders and debenture holders, having claims not exceeding Rs. 10,000. The company has served individual notices to all the creditors, fixed deposit holders and debenture holders having claims over Rs. 10,000 which constitute 98.91 per cent. of the total claims against the company. It is stated that the interest of the creditors, fixed deposit holders and debenture holders of the company would not be jeopardised and that they would be paid in the Usual course of business. The said application is allowed for the reasons stated therein.
4. Shri Srivastava, advocate, representing the Government of Bihar, while reiterating the averments made in the objection affidavit submitted that the Industrial Area Development Authority (“IADA”), Ranchi, has granted a lease to the company for establishing a factory for manufacture of jelly filled telephone cables and allied products and as per the lease deed dated October 30, 1987, the company was granted industrial land for the project with the specific undertaking that the company would maintain the registered office in Ranchi and would run its factory for the purpose for which the lease was granted. Further, the lease deed dated April 12, 1989, contained such a stipulation. The company has been running its business and its factories at Ranchi and Jamshedpur, both in the State of Bihar for more than 12 years without any difficulty. The assets and properties of the company are much more in the State of Bihar than any other State including Calcutta. The company has been enjoying facilities afforded by the Government of Bihar. Moreover, the State of Bihar is a creditor of the company with regard to payment of sales tax and interest-free loan in lieu of
sales tax and subsidy and electricity subsidy and all other charges in connection with the running of its business in the State amounting to very substantial amount. The company owes to other secured creditors including Bihar State Credit and Investment Corpn. Ltd. (“BSCICO”), an agency of the State of Bihar. The company’s three major units are located in the State of Bihar and the company has been enjoying various facilities and concessions from the Government of Bihar. The proposal for shifting of registered office to the State of West Bengal is not justified. The liabilities and outstanding dues of the Government of Bihar against the company have neither been shown in the list of creditors nor made any provision for discharging the liabilities. There could not be any difficulty on the part of the company in any way in undertaking the business from its head office at Calcutta as well as registered office at Ranchi. The plea that the residence of six directors is at Calcutta cannot be a cogent ground for shifting of registered office from the State of Bihar to the State of West Bengal, when the majority shareholders (36,210 shares) are outside the State of West Bengal. Therefore, the company’s proposal for shifting of its registered office is not fair and equitable and the resolution for shifting the registered office has not been passed in good faith, which aspects should be considered by the Company Law Board. Shri Srivastava, in support of his submissions has placed reliance on the following decisions, in support of his submissions :
(i) Bharat Commerce and Industries Ltd. v. Registrar of Companies [1973] 43 Comp Cas 275 ; TLRP 2034 (Cal), to state that the court has to examine the reasons set out in the petition for change of the registered office in order to find out whether the resolution has been passed in good faith or mala fide. The court shall satisfy itself from the facts placed before it that it would be just fair and equitable that the special resolution should be confirmed. The court would refuse to confirm such a resolution if it would be found to be unfair or unjust or inequitable.
(ii) Orissa Chemicals and Distilleries Pvt. Ltd., In re, AIR 1961 Orissa 62, (V 48 C 26) to state that the court shall be satisfied as to the bona fides of the company’s application for the proposed change of its registered office outside the State of Orissa.
5. While refuting the allegations and contentions of the State of Bihar, Shri Khaitan has submitted that the State of Bihar has no locus standi to file any objection to the petition. The shifting of registered office of the company is purely a domestic matter for the shareholders of the company and the Government of Bihar cannot raise any objection in this regard. All statutory dues and other dues payable by the company to the State of Bihar, have all along been paid by the company in the usual course of business. Under the terms of the lease deed dated October 30, 1987, the company has been maintaining and is continuing to run the factory for
which the lease of land has been granted by the IADA, Ranchi, and the company has not violated of the terms and conditions of the lease deed. Moreover, there is no such specific undertaking” in the lease deed to the effect that the company would maintain its registered office at Ranchi. The fact that the company holds more assets and properties in Bihar cannot be a ground for retaining the registered office of the company in the State of Bihar. The bond executed by the company in favour of BSCICO as an agent of the Government of Bihar, does not restrict the shifting of registered office and all the payments to BSCICO are being made in normal course of business. BSCICO was shown as a creditor inadvertently for a larger amount. However, this will not prejudicially affect the interest of BSCICO. The interest of State of Bihar, secured and unsecured creditors of Bihar will not be prejudicially affected by the shifting of the registered office, inasmuch as the payments to all the creditors are being made in the usual course of business and the manufacturing units shall remain in the State of Bihar. The list of creditors as on September 30, 1999, shows the particulars of all the liabilities and outstanding dues of the Government of Bihar and there is no requirement under the Company Law Board Regulations, 1991, to make segregation between secured and unsecured loans or to provide for the manner in which the liabilities will be satisfied by the company. The company has been paying all its dues on account of loans, sales tax and electricity charges in the usual course of business and as per the terms of repayment schedule. After the amalgamation of UMIL with the company, the company found it inconvenient to effectively manage the day-to-day affairs of the company and as such, the shifting of registered office to the State of West Bengal is necessary. The Calcutta office has better infrastructure and is better equipped to efficiently handle the increased business activities of the company as compared to Ranchi. The majority of the bankers, financial institutions and customers are based in Calcutta and as such shifting of the registered office to Calcutta will lead to administrative convenience and efficient management of the company. More number, of shareholders are in West Bengal as compared to Bihar. This will enable greater number of shareholders to attend general meetings and give their views in relation to management and affairs of the company. A very nominal number of debenture holders are from Bihar and majority of the debentures are held by public financial institutions, whose registered offices are outside Bihar. The shareholders of the company have unanimously approved the special resolution at the EOGM held on August 26, 1998. Shri Khaitan, in support of his submissions relied upon the following decisions :
Zuari Ayro Chemicals Ltd. v. F.S. Wadia [1974] 44 Comp Cas 465 (Bom);
Minerva Mills Ltd. v. Government of Maharashtra [1975] 45 Comp Cas 1 (Bom) ;
Rank Film Distributors of India Ltd. v. Registrar of Companies and State of West Bengal [1968] 38 Comp Cas 487 (Cal).
6. After considering the pleadings and arguments of both counsel for the company and objector, the issue that arises for considerations is whether this Bench shall confirm alteration to the situation clause of MOA on the fact and circumstances of the case.
7. In the present case, I find that an extraordinary general meeting of the members of the company was held on August 26, 1998, at the registered office of the company located at Tatisilwai, Ranchi for obtaining approval of shareholders to shift the registered office of the company to the State of West Bengal. The notice dated July 22, 1998, of the extraordinary general meeting together with the explanatory statement was given to shareholders of the company in accordance with the provisions of Sections 171 and 173(2). The minutes of the extraordinary general meeting indicates that 31 shareholders of the company either in person or by proxy present in the meeting have in their business wisdom unanimously passed the special resolution approving the alteration to the situation Clause II of the memorandum of association of the company. The company has filed on September 24, 1998, Form No. 23 before the Registrar of Companies, Bihar who has confirmed that the said document has been taken on record. The Registrar of Companies has no objection to the company’s proposal for shifting of the registered office. The Registrar has further confirmed that the company is up to date in filing its balance-sheet and annual return, A general notice of the petition has been published in Prabhat Khabar (Hindi daily) on October 27, 1998, and in The Hindusthan Times (English daily) on October 28, 1998. Individual notices have been despatched by certificate of posting to the creditors having claims over Rs. 10,000. Excepting the Government of Bihar, none of the members or creditors has raised or filed any objection to the company’s proposal. It is observed that out of 44,416 shareholders 8,206 shareholders are from the State of West Bengal constituting 18.48 per cent. as against 1,438 shareholders from the State of Bihar constituting 3.24 per cent. and other shareholders are spread in Delhi, Haryana, Punjab, Chandigarh, U. P., Rajasthan, Gujarat, M. P., A. P., Karnataka, Tamil Nadu, Kerala, Orissa and Assam. Section 17 of the Act, provides a procedural framework before the Company Law Board considers a petition for alteration of the memorandum. The procedural framework is intended to take care of the interest of the shareholders, creditors and every other person or class of persons whose interests will be affected by the alteration. The internal forum of the shareholders meeting provides an opportunity to the members of the company to air their views with regard to the alteration of memorandum. So long as the Company Law Board is satisfied that the company has complied with the prescribed procedure it is only appropriate to presume that the interests of concerned
parties are taken due care of. While the decision to shift the registered office of the company to another State being a domestic matter, rests with shareholders, the company is the best judge of how to run its business more economically and conveniently or where to locate the registered office for efficient running of business. For these propositions, I derive support from the following reported decisions :
K.G. Khosla Compressors Ltd., In re [1998] 91 Comp Cas 546 (CLB).
Zuari Agro Chemicals Ltd. v. F.S. Wadia [1974] 44 Comp Cas 465 (Bom). Mackinnon Mackenzie and Co. Pvt. Ltd., In re [1967] 37 Comp Cas 516 (Cal).
Parikh Engineering and Body Building Co. Ltd., In re [1975] 45 Comp Cas 157 (Patna).
Dalmia Cement (Bharat) Ltd., In re , AIR 1965 Mad 76.
8. The State Government cannot intervene in applications under Section 17 as has been held in Mackmnon Mackenzie and Co. Pvt. Ltd., In re [1967] 37 Comp Cas 516 (Cal). Moreover, it is for the members of the company and not for the State to decide where the registered office of the company should be transferred from one State to another in the interest of the company, as observed in Minerva Mills Ltd. v. Government of Maharashtra [1975] 45 Comp Cas 1 (Bom) and Rank Film Distributors of India Ltd. v. Registrar of Companies and State of West Bengal [1968] 38 Comp Cas 487 (Cal). The plea of the State Government that the company was granted industrial land for its project with the specific understanding that the company would maintain its registered office in Ranchi, has not been substantiated. Moreover, the lease deed dated October 30, 1987, and indenture dated April 12, 1989, relied on by the State Government, do not contain such a restrictive clause. The contentions of the State Government that the company has been enjoying interest free loan in lieu of sales tax, electricity and other subsidies, do not have any bearing on the proposed alteration of the memorandum of association of the company. The apprehension of the State Government that the company owes to them and other secured creditors including BSCICO is safeguarded by imposing suitable conditions in exercise of the discretion of this Bench under Sub-section (5) of Section 17. Though the State Government has contended that the shifting of the registered office is not in good faith but mala fide, the grounds adduced by the company for shifting the registered office stand unrebutted by the State Government. The citations placed by counsel for the State Government in support of his contentions, have no bearing on the facts and circumstances of the case. The other apprehensions do not warrant any consideration.
9. Considering all the facts and circumstances of the case including the specific contentions of the Government of Bihar and the legal position explained hereinabove, the alteration in the memorandum of association
of the company, as approved by the special resolution passed at the extraordinary general meeting held on August 26, 1998, is hereby confirmed subject to the following conditions :
(a) that the interests of none of the employees of the company at its registered office shall be prejudiced by way of retrenchment or otherwise ; and
(b) that the rights of any of the creditors of the company including the State Government of Bihar shall not be adversely affected.
10. Accordingly Clause II of the memorandum of association of the company shall stand altered as under :
“II. The registered office of the company will be situated in the State of West Bengal”.
11. The company shall file a certified copy of this order with the concerned Registrar of Companies within the prescribed time limit.
12. Ordered accordingly.