1. Neelachal Auto Ltd. since changed to RSB Transmissions (India) Ltd. ('the company') has filed this petition under Section 17 of the Companies Act, 1965 ('the Act') for confirmation of the alteration to the situation clause of memo- randum of association ('memorandum') of the company for shifting the registered office from the State of Bihar to the State of Maharashtra, as approved by a special resolution passed at the extraordinary general meeting ('EOGM') held on 23.4.1997 in accordance with Section 189 of the Act. The petition came up for hearing from time to time and finally, on 22.12.1999.
2. The facts, in brief, are that the company having been incorporated in January, 1989, is an ancillary unit of Telco Ltd. and engaged in the business of manufacturing and production of automobile components. The company has manufacturing units at Jamshedpur and Pune. The company had undertaken massive expansion programme at its Pune plant which requires regular attention of the top management and fast co- ordination with various authorities like the Reserve Bank of India ('the RBI'), banks, etc. Moreover, the company's financial partner has its office at Mumbai. It will be con- venient for the company as well as its equity partner to co-ordinate with each other from Pune for better control of the day to day affairs of the company. The company will continue to maintain the existing factory and supporting office at Jamshedpur. All the employees attached with the registered office of the company have given their consent for the transfer of registered office from the State of Bihar to the State of Maharashtra. The proposed shifting will minimise and save the cost of maintaining two offices at different places. The Board of directors of the company and its share- holders, keeping in view the best interest of the company, its shareholders and all concerned, have unanimously approved the transfer of registered office to the State of Maharashtra.
3. The company has also filed in August, 1999, an application in C.A.No. 30A(17)/ ERB/99 stating that the company has changed its name into 'RSB Transmissions (India) Ltd.' with effect from 4.8.1999 and, in support of its contention, produced a copy of the certificate issued by the Registrar of Companies, Bihar (RoC, Bihar). Accordingly, the company has sought for-- (a) service of all notices, letters, process, orders and other communications in the changed name of the company, i.e., 'RSB Transmissions (India) Ltd.', and (b) issue of the order in the company petition in the changed name of the com- pany.
4. The company's proposal to shift the registered office from the State of Bihar to the State of Maharashtra has evoked controversies from -- (A) State Government of Bihar; and (B) Bihar State Credit & Investment Corporation Ltd. ('BSCICL') which are consi- dered together with replies of the company thereof as under: 4.1 Shri S.C. Shrivastava, Advocate, representing the State Government, submit- ted that the company's proposal to transfer its registered office from the State of Bihar to the State of Maharashtra, is not logical and sufficient, more so,when the company is capable of controlling the development and expansion work from its head office at Pune. The Government's liabilities and outstanding dues which include sales tax and electricity charges, have not been indicated in the petition, and without clearing the State Government's dues, the company should not be allowed to transfer its regis- tered office. The company has neither furnished particulars of the State Government dues in the petition, nor served a copy of the petition with enclosures thereon upon the State Government. Moreover, the general notice of the petition has not been pub- lished in the State and national level newspapers. The shifting of registered office will result in loss of revenue and employment in the State. The company's proposal is not fair and equitable and the resolution for shifting the registered office has not been passed in good faith which are material for the Company Law Board to consider the petition made by the company. Shri Shrivastava, in support of his submissions, has relied upon the following decisions: * Bharat Commerce & Industries Ltd., In re (1972) Tax LR 2034 (Cal) -- to state that 'the question of bona fides is a material consideration for the court in confirm- ing or refusing to confirm a special resolution of the company in an applica- tion under Section 17 of the Companies Act, 1956'.
* Orissa Chemicals & Distilleries (P) Ltd., In re AIR 1961 Ori 62 -- to state that 'bona fides of the applicant is essential while considering the application for change of registered office of a company from one State or another'.
Shri Shrivastava, further urged for dismissal of the company application filed during pendency of the present petition for adopting the changed name of the company being neither a proper application nor complied with the statutory formalities prescribed for the change of name of the company.
4.2 Shri Kishan Lal Rungta, authorised representative of the company, has main- tained that the company has served a copy of the petition together with the Anne- xures thereon upon the Government of Bihar. The company has issued individual notices to all the creditors, served a notice together with the copy of the petition upon the Chief Secretary, Government of Bihar and published general notice of the petition in (a) 'The Uditvani' (Hindi); and (b) 'The Avenue Mail' (English), meeting the require- ments of the Company Law Board Regulations, 1991. While the company is shifting only its registered office to the State of Maharashtra, the industrial unit inclusive of the plant and machinery and other assets will remain at Jamshedpur. There will be no scope for loss of revenue or employment by shifting of registered office to the State of Maharashtra. The employees working at the registered office of the company have given their written consent to the proposed transfer of registered office.
The com- pany has filed up to date commercial tax return and no undisputed dues of commer- cial tax or electricity dues are pending.
However, the company undertakes to pay all the lawful dues of Government of Bihar under normal course of business. There has not been any mala fide intention on the part of the company. None of the shareholders of the company has raised any objection for the proposed shifting of registered office. The proposed transfer of registered office from the State of Bihar to the State of Maha- rashtra will lead to administrative and business convenience as well as efficient manage- ment of the company. The State Government has no right of its own to be heard in the matter. In this connection, Shri Rungta relied on-- * Mackinmon Mackenzie & Co. (P) Ltd, In re (1967) 1 Comp LJ 200 (Cal) : (1967) 37 Comp Cas 516 (Cal) to state that 'in applying Section 17 of the Companies Act, what the court has to see is whether all the formalities of the statute have been complied with, and if the safeguards and protection envisaged in the section have been complied with, the court will look to the interests of absent share- holders and creditors and consider the objections of the Registrar and decide the matter'.
(a) the company has served a copy of the petition upon the Chief Secretary, Government of Bihar, Patna, on 5.10.1998 and again on 1.7.1999 together with the enclosures, pursuant to the order of this Bench; and (b) the company published general notice in 'Uditvani' (Hindi) and 'The Avenue Mail' (English), both in circulation in the district of West Singbhum, Bihar, where admittedly the registered office of the company is situated which, in my view, meets the requirement of regulation with 36(1)(i) of the Company Law Board Regulations, 1991.
Though it is contended that the company owes to the State Government of Bihar on account of sales tax, electricity charges and other dues, no attempt was made to sub- stantiate the outstanding claim by producing any material evidence by the State Govern- ment of Bihar.
It is pertinent to observe that the company has unequivocally under- taken to pay all the lawful does of the State Government of Bihar under normal course or business. The company is not shifting the industrial unit situate in the State of Bihar and the transfer of registered office by itself does not affect the scope of employment of people of the State. Moreover, the employees working at the registered office have given their written consent to the proposed transfer of the registered office to the State of Maharashtra. The State Government cannot object to the transfer of registered office on the ground of loss of revenue to, or of employment to the citizens of the State, as has been held i n Bharat Commerce & Industries Ltd. v. Registrar of Companies (1973) 43 Comp Cas 275 (Cal). The State Government cannot intervene in applications under Section 17 as has been held in Mackinnon Mackenzie & Co. (P) Ltd. case (1967) 1 Comp LJ 200 (Cal), supra. Moreover, 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, 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 (1968) 1 Comp LJ 129 (Cal) : (1968) 38 Comp Cas 487 (Cal).
Moreover, in view of the statement of Shri Rungta as well as written declara- tion made on oath by the representative of the company, there has been no substance in the contention of the objector that the company's proposed act is mala fide, and that the company is seeking to transfer its registered office to defeat the claim of the objec- tor. The citation placed by the counsel for the State Government in support of his con- tentions have no bearing in the facts and circumstances of the present case. In regard to the change of name of the company, the certificate dated 4.8.1999 issued by the Registrar of Companies, Patna, assumes importance, which reads as follows: "I hereby certify that Neelachal Auto Ltd., which was originally incorporated on 24th day of January, 1989, under the Companies Act, 1956 and under the name Neelachal Auto Ltd. having duly passed the necessary resolution terms of Section 21/22(1)(A)/22(1)(B) of the Companies Act, 1956, and the approval of the Central Government signified in writing having been accorded thereto in the Department of Company Affairs, Registrar of Companies, Bihar, letter No. 99/2000/128/331, dated 28.5.1999, the name of the said company is this day changed to RSB Trans- missions (India) Ltd. and this certificate is issued pursuant to Section 23(1) of the said Act." The certificate shows that the company has changed its name as RSB Transmissions (India) Ltd., incompliance with the prescribed statutory formalities, validity of which cannot be considered under Section 17 proceedings. Though the application in CA No. 30A(17)/ERB/99 is not happily worded, I am inclined to go by its spirit than letter to meet the ends of justice.
4.4 According to Shri S.C. Shrivastava, BSCICL has extended two loans of Rs. 80 lakhs and Rs. 9 lakhs in March, 1991, respectively, in favour of the company, for the purpose of setting up the industrial unit in the Adityopur Industrial Area, Bihar. As at 31.12.1999, the company owes Rs. 82.53 lakhs to BSCICL. The Government of Bihar, Department of Industries, has given State Capital Subsidiary amount aggregating to Rs. 15 lakhs; IDBI a sum of Rs. 12 lakhs by way of seed capital and Bank of India ('BoI') term loan as well as working capital limits. The company has defaulted in repaying the loans with interest of Bscicl and other creditors. The company is a chronic defaul- ter. A huge amount of public money is at stake. If the company is allowed to shift its registered office from the State of Bihar, the interests of BSCICL would be prejudiced and they would be put into difficulty in realising their dues from the company. The conduct and dealings of the promoters of the company without discharging the liabi- lities have not been fair and satisfactory. The petition is mala fide with an ulterior motive to escape from the liabilities due to the creditors. Unless the dues of BSCICL are secured to the satisfaction of the Company Law Board in accordance with Section 17(3)(b), the company should not be permitted to shift its registered office. By virtue of the loan agreement dated 7.8.1990, executed between the company and BSCICL, the company is barred from amending its memorandum and articles of association or alter its capital structure and change its registered office without the consent of BSCICL. The company has failed to obtain the consent from BSCICL for alteration of the memo- randum of association for shifting the registered office from the State of Bihar to the State of Maharashtra. The proposal is in breach of the terms and conditions of the loan agreement executed by the company.
The company has also changed its name to RSB Transmissions (India) Ltd., with effect from 4.8.1999, contrary to the stipulation con- tained in the loan agreement dated 7.8.1990.
4.5 According to Shri Rungta, authorised representative of the company, the loans taken from BSCICL are fully secured against the properties of the company. While the company is shifting only the registered office from the State of Bihar, the industrial unit together with the plant and machinery and other assets, charged in favour of BSCICL, will continue to remain at Jamshedpur. The shifting of registered office will in no way affect any of the creditors in recovery of their dues. As per the credit policy scheme of BSCICL for regularisation of the overdues, the company has remitted a sum of Rs. 9,15,000 (20% of the dues as on 30.9.1999) BSCICL. Though the company is dis- puting quantum of the outstanding amount, its bona fide intention is to regularise the account with BSCICL, which could not be met on account of the recession in auto- mobile industry. He further relied on Commercial & Industrial Bank Ltd., In re (1959) 29 Comp Cas 157 (AP) to show that-- "It is not for the creditor to dictate or direct how a company should conduct its business. It is a matter which the shareholders of the company are to decide and when the shareholders after considering the pros an cons of the matter have agreed that a proposed amendment should be made in the memorandum of association, the creditor cannot object to it. The credi-tor is concerned only with his money, and if the company is ready to give security for the amount due to him, the creditor cannot object to the confirmation for the resolution." The loan agreement with BsCICL cannot restrict the company in shifting its registered office and such a restrictive clause is bad in law. In this connection, he relied on Kali- tara Wood Industries (P) Ltd., In re (1989) 3 Comp LJ 24(CLB). In regard to the change of name of the company, Shri Rungta submitted that the company got changed its name suitable with the mandate of the shareholders of the company and after com- pelting and observing the formalities in accordance with Sections 21 and 23 of the Act. The Registrar of Companies, Bihar, has issued necessary certificate consequent upon the change of name effecting from 4.8.1999.
4.6 According to BSCICL, the company is liable to the extent of Rs. 82.53 lakhs as on 31.12.1999. The company is ready to settle the actual outstanding dues in the usual course of business. The Company Law Board cannot adjudicate claims and counter claims between the company and its objector as has been held in Symphony Comfort Systems Ltd., In re (1997) 3 Comp LJ (CLB) : (1998) Comp Cas 404. It is observed that the loan amount is secured by way of mortgage of immovable properties and hypothecation of the plant and machinery belonging to the company. In this context paragraph 9 of the objections filed by BSCICL become relevant, which runs as follows: "That the loan amount together with interest thereon is secured and for the pur- pose as required in law, charge has been created, filed and registered with the Registrar of Companies, Bihar, Patna." Further the certificate of registration of mortgage dated 27.3.1991, issued by the Regis- trar of Companies, Patna, shows that the charge of Rs. 80 lakhs has been registered in accordance with the provisions of Section 125 to 130 of the Act, which has been modi- fied by increasing the limit from Rs.80 lakhs to Rs. 89 lakhs as borne out from the cer- fificate of modification of registration of the mortgage dated 11.7.1991. There is, there- fore, no doubt that dues of BSCICL are secured and meets the requirement of Section 17(3)(b). BSCICL cannot object to the confirmation of the resolution, especially ,when the company has offered the security for the amount due to them, as has been held in Commercial & Industrial Bank Ltd.'s case (1959) 29 Comp Cas 157 (AP), supra. The plea of BSCICL that the company cannot transfer its registered office without their consent on accent of the negative covenant contained in the loan agreement executed bet ween them, is not sustainable in the light of the decision in Kalitara Wood Industries (P) Ltd.s case (1989) 3 Comp LJ 24 (CLB), supra, the relevant findings are as under (para 10 at page 27 of Comp LJ): "the right confirmed by Section 17 of the Act on the shareholders of the com- pany to shift the registered office form one State to another by passing a special resolution cannot be taken away by a State Financial Corporation or a State Indus- trial Development Corporation insisting upon the company to keep its registered office only in one State; for all time to come. A state can certainly regulate indus- tries and impose conditions while promoting or assisting the industries in the State, but any condition so imposed cannot extend to the situation of the registered office which is governed by the Central Act." Article X of the loan agreement dated 7.8.1990 provides of remedies in the event of default and violation of the loan agreement which BSCICL is at liberty to invoke against the company, if so advised.
The other apprehensions of the objector do not merit consi- deration.
5. After considering the pleadings and oral submissions of the authorised represen- tative of the company and the counsel for the objectors, the issued that arises for consi- deration is whether this Bench shall confirm alteration to the situation clause of the memorandum of association of the company on the facts and circumstances of the case.
6. Section 17 of the Act read with the Company Law Board Regulations, 1991, pro- vides a procedural framework before the Company Law Board for considering a peti- tion in alteration of the memorandum. These formalities contain safeguards and protection for the persons affected.
The Company Law Board has to ensure fore- most that all the statutory formalities have been complied with safeguarding the inte- rests of concerned parties. In the present case, I find that an EOGM of the members of the company was held on 23.1.1997 at the registered office of the company for obtain- ing approval of the shareholders to alter the situation clause of memorandum. The notice dated 29.3.1997 of the EOGM together with explanatory statement was given to shareholders of the company in accordance with the provisions of Section 171 and 173(2). The minutes of the EOGM indicates that 12 shareholders of the company pre- sent at the meeting have in their business wisdom unanimously passed the special resolution approving the alteration to the situation Clause 11 of memorandum of asso- ciation of the company.
6 shareholders have also expressed their no objection in wri- ting to the company. The RoC, Bihar, has confirmed that the Form No. 23 filed by the company, has been taken on record. The RoC has no objection toe the company's pro- posal for alteration to situation clause of memorandum. A general notice of petition has been published in the Hindi and English Newspapers in September, 1998. Indivi- dual notices have been despatched by certificate of posting to the creditors in Septem- ber, 1998. Excepting the State Government of Bihar and BSCICL, none of the members or creditors has raised or filed nay objection to the company's proposal, which have already been dealt with appropriately elsewhere. The internal forum of the share- holders' 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 or conveniently or where to locate the registered office for efficient running of business, as has been held in the following among other reported decisions: * Commercial & Industrial Bank Ltd.'s case (1959) 29 Comp Cas 157 (AP).
* K.G. Khosla Compressors Ltd., In re (1997) 4 Comp LJ 461 (CLB) : (1998) 91 Comp Cas 546 (CLB).
*Zuari Agro Chemicals Ltd. v. F.S. Wadia (1974) 44 Comp Cas 465 (Bom).
* Mackinnon Mackenzie & Co. (P) Ltd.'s case (1967) 1 Comp LJ 200 (Cal).
*Parikh Engg. & Body Building Co. Ltd., In re (1975) 45 Comp Cas 157 (Pat).
*Dalmia Cement (Bharat) Ltd., In re (1964) 2 Comp LJ 63(Mad): AIR 1965 Mad 76.
However, in view of the apprehension expressed on behalf of the objectors and in exercise of the discretion vested with this Bench under Sub-Section (5) of Section 17, I am inclined to impose suitable conditions safeguarding their interests.
7. Considering all the fact and circumstances of the case, affidavits as well as counter affidavits on record, including the specific contentions of the objectors and the legal position explained hereinabove, it is ordered as under: "(a) The application in C.A. No. 30A(17)/ERB/99 for amending the company peti- tion to incorporate the changed name of the company, is allowed; and (b) The alteration in the memorandum of association of the company as approved by the EOGM held on 23.4.1997, is confirmed subject to the following conditions: (i) 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 (ii) that the claim of any of the creditors of the company including BSCICL as well as the Government of Bihar, shall not be adversely affected.
8. Accordingly, Clause 11 of the memorandum of association of the company shall stand altered as under: "Clause 11. The registered office of the company will be situated in the State of Maharasthra." 9. The company shall file a certified copy of this order with the concerned Regis- trars of Companies within the prescribed time limit.