A.K.G. Acoustics (India) Ltd. vs Company Law Board
1997 Latest Caselaw 827 Del

JUDGMENT

M.K. Sharma, J.

(1) The present appeal has been preferred by the appellant against the order passed by the Company Law Board, Northern Region Bench, New Delhi (hereinafter referred to as the Board) on 16.5.1996 in the Company Petition No.4/17/96-CLB filed by the appellant Company under section 17 of the Companies Act, 1956 (hereinafter referred to as the Act) confirming the Special Resolution passed in the Extraordinary General Meeting of the appellant Company with condition that the appellant Company shall provide transportation facilities to its shareholders from Delhi to Gurgaon for every Annual General Meeting of the Company held at Gurgaon.

(2) The appellant Company was incorporated on 7.3.1988 and is a public Company under the provisions of the Companies Act. The paid-up capital of the appellant Company as on 23.11.1995 was Rs. 5,75,16,390.00 divided amongst 8125 shareholders holding 5751639 shares out of which 2490 shareholders are in Maharashtra, 2023 shareholders are in Delhi, 1133 shareholders are in Gujarat and the rest spread over different parts of India. The appellant Company is engaged in the business of manufacturing and marketing of Acoustic Transducers,Conference/ Congress System, Pa System, Professional Audio Products Etc. and has its manufacturing factory in Gurgaon, Haryana. In order to optimise the efficiency of the appellant Company and to economise on revenue expenses the appellant Company called an Extraordinary General Meeting to pass a Special Resolution to shift the registered office of the appellant Company from its location at New Delhi to its factory site at Gurgaon. The Special Resolution of the appellant Company was passed unanimously at the Extraordinary General Meeting in the following terms: "RESOLVED that pursuant to he provisions of Section 17 and the other applicable provisions if any, of the Companies Act, 1956 and subject to such other approvals as may be prescribed in granting such approval and which may be agreed to by the Board of Directors, the existing Clause Ii of the Memorandum of Association of the Company relating to Registered Office of the Company be and is hereby altered by deleting the same and substituting in its place and stead the following as a new Clause II. (ii) The Registered Office of the Company will be situated in the State of Haryana. Resolved further that the Board of Directors be and is hereby authorised to do all such acts, deeds, matters and things as may be considered necessary, desirable or expedient for giving effect to this resolution and or otherwise considered by them in the best interest of the Company."

(3) After passing of the aforesaid Special Resolution at its Extraordinary General Meeting the appellant Company filed a petition before the Company Law Board under Section 17 of the Companies Act alongwith all requisite documents seeking confirmation of the Board to the Special Resolution passed in the Extraordinary General Meeting of the Company. The aforesaid petition was opposed by one of the creditors and the issue raised by him appears to have been resolved during the course of hearing to his satisfaction. By order dated 16.5.1996 the Board confirmed the Special Resolution passed in the Extraordinary General Meeting permitting shifting of the registered office from Delhi to Gurgaon on specific condition that the appellant Company shall provide transportation facilities to its shareholders from Delhi to Gurgaon for every Annual General Meeting of the Company held at Gurgaon.

(4) The appellant has preferred this appeal challenging the aforesaid order passed by the Board only to the extent only of laying down the condition while confirming the Special Resolution to the effect that the appellant Company shall provide transport facilities to its shareholders from Delhi to Gurgaon to attend the Annual General Meeting. According to the appellant the Board exceeded its jurisdiction and acted arbitrarily in laying down such a condition which is unknown to the Statute while confirming the resolution.

(5) Mr. Shankardass appearing for the appellant submitted that the power and/ or discretion conferred on the Board under Section 17(5) of the Act to confirm a Special Resolution of the shareholders passed in accordance with law cannot be exerted to go beyond the ambit of Section 17 and other Statutory requirements so as to impose a condition which substantially interferes with the unfettered positive right of the Company to shift its registered office.

(6) The further submission of the learned Counsel for the appellant is that in subjecting confirmation of the change of registered office to a condition that transportation facility shall be provided to shareholders in Delhi amounts to a hostile discrimination against he other shareholders of the Company and is, therefore, illegal.

(7) MR.A.K.WALI learned Counsel appearing for the Registrar of Companies, on the other hand submitted that the Board is empowered under the provisions of Section 17 of the Act to lay down terms and conditions while confirming a Special Resolution passed in an Extraordinary General Meeting and therefore, if in the course of exercising such powers and discretion if a condition like the present one is imposed by the Boar .1 considering the interest of the creditors and the sha re hold crs no objection could be taken to imposition of such a condition. He further submitted that in terms of the findings of the Board that there are more shareholders in Delhi if such a condition is imposed like providing transportation facilities to the shareholders to attend the Annual General Meeting the same cannot be said to be exercising powers by the Board in excess of its jurisdiction.

(8) During the course of arguments the learned Counsel for the parties drew my attention to the provisions of .Section 17 of the Act which provides that a Company may be Special Resolution alter the provision of its Memorandum so as to change the place of its registered office from one State to another or with respect to the (objects of the Company to achieve the purposes as enumerated under Section 17(1). Section 17(3) provides that before confirming the alterations the Company Law Board must be satisfied about issuance of sufficient notice teethe shareholders and also to the creditors. Under Section 17(5) of the Act powder has been vested in the Company Law Board to make an order confirming alteration either wholly or in part and on such terms and conditions, if any, as it may think fit and pass such order as it thinks proper.

(9) The issue, therefore, that a rises for my consideration, in the light of the facts of the present case and the arguments advanced by the Counsel for the parties is whether the Board is empowered to confirm the alteration in respect of the place of its registered office by laying down a specific condition that the Company shall have to provide transportation facilities to the shareholders to attend the Annual General Meeting of the Company In other words whether the aforesaid condition could be said to be a valid term and condition within the meaning of Section 17(5) of the Act read with the other statutory requirements as provided for under sections 171, 174 and 176 for an Annual General Meeting to be valid. Section 171 makes' provision with regard to issuance of notice for holding an Annual General Meeting whereas Section 174 of the Act provides for he quorum for such a meeting and Section 176 provides for proxies. These are the Statutory requirements to be complied with by a Company for holding a valid Annual General Meeting. Counsel for the appellant submitted that the condition for providing transport facility for attending the Annual General Meeting does not have any nexus with validity of an Annual General Meeting. It is submitted that in case such transport facilities are not provided for attending an Annual General Meeting the said meeting cannot be held to be vitiated and/or invalid under the provisions of the statute only because such facilities were not extended.

(10) The submission of Mr. Wali that the members of shareholders in Delhi are more than any other place stands negated on the face of the record of the case inasmuch as the specific pleading of the appellant that Delhi has about 2023 shareholders whereas in Maharashtra there are about 2490 shareholders and Gujarat about 1133 shareholders are not controverted. The Board has given a categorical finding that justifications given by the appellant Company for shifting the registered office to Gurgaon are adequate justification and also found to be in the best interest of the Company. The Board has further recorded that whatever decision which is in best interest of the Company but may not be individually convenient to the shareholders of the Company must be upheld because the former must have precedence over the latter. Having found the reasons and grounds given by the appellant Company for shifting its registered office to Gurgaon to be adequate whether the Board was justified in laying down a further condition other than what is recognised under the statute.

(11) In Re. Mackinnon Mackenzie & Co.Private Limited, 1967 (37) Company Cases page 516 the Calcutta High Court has held 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 interest of absent shareholders and creditors and consider the objections of the Registrar and decide the matter.

(12) The aforesaid Single Bench decision of the Calcutta High Court was followed in Rank Film Distributors of India v. Registrar of Companies, State of West Bengal, (1968) 38 Company Cases 487, where in it was held that whether it is necessary or desirable that he registered office of the Company should be shifted from one State to another is a domestic matter which has to be deckled by the shareholders and the Managers of the Company and if their decision works no injustice to the creditors and the shareholders it is not for the Court not to confirm a resolution for shifting or transfer passed by the Company. In the present case the Board has confirmed the Special Resolution of the appellant Company for shifting the registered office of the Company from Delhi to Gurgaon and, therefore, apparently the Board was satisfied that such decision for shifting the registered office has not caused any injustice to the creditors or the shareholders.

(13) Having arrived at the aforesaid conclusion could the Board lay down a condition for providing transport facilities to the shareholders for attending the Annual General Meeting. Provisions of Section 171,173,174 which have been dealt with hereinbefore provide for three pre-conditions to be satisfied for an Annual General Meeting to be valid By laying down a further condition in the present case by the Board for holding an Annual General Meeting, another pro-condition is sought to be attached for an Annual General Meeting to be valid. Consequence of the said condition would be that if the.terms of the aforesaid condition laid down by the Board are not complied with and/or fulfillled and no transport facility is provided for carrying the shareholders to the Annual General Meeting held at Gurgaon as per the orders of the Board the meeting would have to be declared to be invalid. Even if such transport facilities are provided for by the Company to its shareholders to attend the Annual General Meeting at Gurgaon and if there is a break-down of the said vehicle as a result of which some shareholders cannot attend the meeting then also the Annual General Meeting will have to be declared as invalid. The condition attached by the Board to provide transport facilities to the shareholders is, therefore, not only outside the scope and ambit of the statute but would also amount to interfering with the domestic matter of the Company. The reason and justification sought to be advanced by the learned Counsel appearing for the Registrar of Companies in support of the condition laid down by the Board that Delhi has more shareholders and therefore, providing for such facilities to the shareholders of Delhi is justified, cannot be accepted as the same is found to be contrary to the records of the case.

(14) Besides, the Bombay High Court in Minerva Mills Limited v. Government of Maharashtra, (1975) 45 Company Cases page I, has held that shifting of the registered office from one State to the other can be opposed on the ground of its adverse effect on some specific pecuniary or proprietory interest of that particular State, and not on regional considerations, or on the vague ground of the effect of the shifting of the registered office on the general economy of the State which must necessarily be involved in every case.

(15) In the light of the ratio of the aforesaid decision the shifting of the registered office from Delhi to Gurgaon cannot be opposed as the same would involve regional considerations. Even such a regional consideration or for that matter the consideration that shareholders of Delhi being more in number should be provided with the said extra facility did not find favour even With the Board and the Board has not refused confirmation of the resolution passed in the Extraordinary General Meeting on that count. If confirmation cannot be refused on the ground of regional consideration no condition can also be laid down making it obligatory for the Company to provide for transport facilities to the share holders for attending the Annual General Meeting of the Company.

(16) Taking all the factors into consideration I am of the considered opinion that the Board was not justified and acted in excess of its jurisdiction in laying down the aforesaid condition for providing transport facilities to the shareholders for attending the Annual General Meeting at Gurgaon from Delhi while confirming the special resolution passed in the Annual General Meeting and I hereby set aside the said condition. The appeal is allowed to the extent indicated above with no order as to costs.