Re, MacKinnon Mackenzee & Company

Background

• By passing a special resolution in line with Section 189 of the Companies Act[1], 1956, the company called “MacKinnon Mackenzie” made a modification in the company’s memorandum of agreement for the purpose of moving the company’s head office from Calcutta to Bombay on November 2, 1965[2].
• Following the general meeting, the corporation unanimously came to an abiding decision under which the company’s memorandum of association was altered by the termination of clause 2 therefrom, after giving due notice as required by the act.
• By replacing the following clause with that, the company’s registered office will be in the “State of Maharashtra,” allowing it to do business on a larger scale in a more stable and effective manner, according to the company’s directors and shareholders, who see it as a necessary and beneficial measure.
• When the proposal for the adjustment was sent before it, however, the state of West Bengal and the registrar of companies vehemently objected, claiming that the relocation of the registered allocation office would result in a significant revenue loss for the state.

Additionally, workers’ conditions were subject to a higher level of risk, requiring them to take necessary steps to defend their interests. As a result of this massive measure, the corporation lodged a motion for granting the resolution, which was approved by the court, with the conclusion that the state had no locus standi.

Issue

The corporation lodged an appeal for an injunction in favour of its resolution to change, which was refused by the state and the registrar. The petitioner then presented all of the valid points before the judge, which cleared the reasons for the modification. The court must now decide if the State has any locus standi in the present subject matter to appeal the application.

Is the state’s argument legal?

Contentions

1. That is because the company’s main activity is now conducted in Bombay rather than Calcutta.
2. The number of services departing from or passing via Calcutta was significantly higher.
3. The company runs a number of services in Bombay, including the Bombay/Gulf Passenger Service, India/Africa Cargo and India/Africa Passenger Service, Africa/India Cargo Service, India/Straits Passenger/Cargo Service, and Far East/Gulf Cargo Service.
4. The company’s Calcutta office consists solely of the administration of four services: Bay of Bengal/Far East and India/Australia, Gulf/Australia, and India/New Zealand.
5. The company’s administration would be more productive if the registered office was moved from Calcutta to Bombay.
6. Since the chairman of the board of directors and the secretary of the corporation are also based in Bombay, it would be more administratively convenient to have the secretarial function controlled by the Bombay office.
7. In comparison to other cities, Bombay has a higher number of ship calls and a higher number of jobs.
8. The company’s estate is located in Bombay and has a market value of Rs. 50,000,000, while the company’s leasehold interest in Calcutta will expire in three years.

Respondent

1. The key arguments on behalf of the State of West Bengal and the Registrar of Companies are that the retrenchment of workers will result in a greater loss of public interest in relation to tax interest as well as the State’s job crisis, which will raise unemployment in West Bengal.
2. The tax calculation is based on the situation of the registered office, and if the registered office is transferred, the tax collection sum for the State of West Bengal will be decreased, resulting in revenue loss.
3. The proposed relocation of the registered office to Bombay does not seem to save much money, according to the petition.
4. The resolutions are invalid, and the notification in relation to the resolution suffers from the vice of a lack of material particulars, i.e., there are gaps in the rules of section 17[3].

Judgment

1. In most cases, decisions on changing the company’s items are made based on two broad concepts.
2. To begin with, it is a matter that specifically affects the representatives and creditors, and where certain groups of individuals, including debenture holders, do not protest, object modification is permitted.
3. Second, since no objection to the alteration of objects is presented to the court, it is legitimate to do so.
4. In order to keep the competition going, Parent Tyre Company Ltd demanded a change of objects.
5. It was decided that it was simply a commercial decision whether or not an additional business could be carried out conveniently or advantageously with the company’s established business under the current circumstances.
6. The only restriction that could be placed on such a new company was that it could not be harmful to or incompatible with the current one. The ruling in the Parent Tyre Group case exemplifies what is known as the shareholders’ and representatives’ market wisdom, and the court generally does not interfere with certain business propositions unless there are other objections.

The State had no locus standi to object on the question of loss of revenue and the State could only resist as an ordinary person and not in advancement of revenue interest. 

7. The right of a state to appear in Companies Act applications is not taken from the section’s provisions. According to the Court, the State does not have a constitutional right to participate in applications for a change of registered office under Section 17 of the Companies Act.
8. The State appears in response to the court’s notification whether the court has issued it. Regardless of if a notice is given to decide whether taxes have been charged or not, the court maintains that a company does not leave liabilities to the state unpaid until the office is relocated.
9. In issuing an order, the court may attach conditions to ensure that all liabilities are discharged. It is true that the Orissa High Court has addressed the State’s arguments about the likelihood of revenue loss and has found those issues to be important in the assessment of a change of office.
10. The Court stated that there is no clear and fast rule that the State can not claim that there is a risk of revenue loss in any circumstances. If a vast amount of businesses want to move their registered office from one state to another, the state will be able to deal with the risk of economic disruption.
11. In the end, the issue of revenue, whether it comes up for discussion, should be decided on the grounds of the Republic of India’s integrity, not on a sectional and parochial basis.
12. In the present case, as far as the shareholders are concerned, they are only two in number and they have signified their consent and their interests are protected. With regard to the contention on behalf of the State as to the possibility of loss of revenue, the Court observed that the facts and circumstances of the present case do not indicate any materials on which it can be said that there is any loss of revenue.
13. Second, the chance of revenue reduction for one state implies a similar probability of revenue increase for another state.
14. Third, justice requires that applications under Section 17 for transition of registered office from one state to another be seen from the perspective of the Republic of India as a whole, rather than for the promotion of local or sectional interests. Second, the chance of revenue reduction for one state implies a similar probability of revenue increase for another state.
15. Third, justice requires that applications under Section 17 for transition of registered office from one state to another be seen from the perspective of the Republic of India as a whole, rather than for the promotion of local or sectional interests.
16. Fourth, the issue of income tax begs the question of where the income tax is calculated.
17. Referring to the counsels’ findings, the judge ruled that this case has absolute power and impact. Apart from authority, he believed that common sense dictated that the presence or absence of a particular scheme at the moment the petition is brought before the court be treated as a wholly unrelated matter, for otherwise the court would be unable to draw any.
18. The court is simply not called upon to adjudicate the merits or demerits of any scheme, and this fact seems to me to make the court’s analysis of the presence or non-existence of a certain scheme all the less prolific.

Conclusion

It is clear that the decision was taken with the aim of clarifying the state’s status in the future, when it was seen to be holding a shaky position over its right to argument and note. The decision emphasises that firms must put themselves first in order to succeed, and only then can they strive for the interests of their workers.

It can be seen from that if the company had been in Calcutta, the likelihood of making a profit would have been much lower, and that all the favourable circumstances for the company’s as well as its members’ growth lie with the shifting of the registered office from Calcutta to Bombay. The only aspect that remains unresolved is that, as previously said, the state does not have absolute authority.

References:

[1] The Companies Act, 1956, s. 17.

[2] In Re: Mackinnon Mackenzie & Co. … vs Unknown, 1967 37 Comp Cas 516 Cal.