Given the Federal character of our Constitution, the State whose interest are affected by shifting of Registered Office

of Company from one State to another has a locus standi to oppose

By Yashasvi Virendra(3rd year 2011-16) Anshika Agrawal(2nd year 2012-17)

From: Symbiosis Law School, NOIDA constituent Symbiosis International University, PUNE

Table of Content I.

Chapter I
i. ii. iii. iv. v. vi. vii. Overview of the topic. Pg 1 HypothesisPg 3 Scope of the researchPg 3 Research Methodology.Pg 3 Research QuestionPg 4 Limitation..Pg5 Chapterization Pg 6 Indian Federal Structure....Pg7 Relation of Indian federalism with incorporationPg9 Domination of Lists.Pg12 Role of state in relocation of a company.Pg13 Procedure of shift of office..Pg14 Locus standi of a state.. Pg 16 Argument 1Pg 17 Constitutional Limitation Pg18 Harmonious Construction.Pg18

II.

Chapter II i. ii.

III. Chapter III i. ii. iii. IV.

Chapter IV i. ii. iii. iv.

V.

Chapter V
i. Conclusion Pg 20

VI.

Bibliography

Chapter I
Overview of the topic
Aristotle defines state as a necessary institution of the society. When society is organized on a political basis in a given territory, and when human beings come together for a common purpose of having a common code of behavior or for respecting a common set of laws, the state is formed1. However in present era the dimension of state has been very widely enhanced. State is a has acquired much larger dimension and has served the purpose of the father of its citizen. Art 12 of Indian constitution defines state as the State includes the Government and Parliament of India and the Government and the Legislature of each of the States and all local or other authorities within the territory of India or under the control of the Government of India Explaining the scope of the state in the landmark case of Ajay Hasia vs Khalid
2

the Honble

Supreme Court held that all the bodies which have financial resourced of state in chief funding. Or have a existence of deep and pervasive control or function character being governmental in essence ie. Public order forms state under Art12. The creation of state leads a new question that how wills the state function and how will the administration runs. The social contract theory of Hobbes gave us the existence of the social contract and laid the ground of modern federalism. As per Prof Wheare Federalism mean the method of dividing powers, so that the general and regional government can exist in independent form without being a subordinate to each other3 The distribution of power is essential feature of federalism. The object for which a federal state is formed involves a division of authority between the State National Government and the state. India is a quasi-federal nation. In a federal state, the power of Centre and state is divided as per the list. Both the government cannot
1

B.K Gokhale,The political Science, The state and its Nature Himalaya publication house, New Delhi,19 edition,Pg 49 2 AIR1981 SC487 3 C.A.D Vol 4,p133

th

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interfere in the law making of ban the list in each others list .Subject of national importance are the matter of the Centre list and matter governing private interest and local instrumentalities are matter of state list. Art 246 gives expressly secure the predominance of Union list over State List and Concurrent list. Thus to simplify, it shall be noted that in a in a matter of conflict of state and center, union shall prevail4 It shall be noted that state is a juristic person. It has a right to sue and to be sued. Art 300 of the constitution of India expressly says that a state can be sued and has a right to sue. The state as per Art 12 of Indian constitution follow doctrine if Parent Parteces. it states that he Government has the sovereign power of guardianship over the persons under disability and it is its duty to protect them. It was further held that where the citizens are not in a position to protect their rights the Government must intervene and fight for their rights5.According to Indian concept parens patriae doctrine recognized King as the protector of all citizens as parent. Conceptually, parens patriae theory (originating in British law as early as 13th century) is the obligation of the State to protect and to take into custody the rights and privileges of its citizens for discharging its obligations.6 Relying upon this following doctrine the traditional meaning of Locus Standi has been very wholly modified to meet the demand of modern times. The Earlier concept of the locus standi where the victim has the only right to file the suit has been very broadly modified. The basic postulate of the argument was that it is only a person who has suffered legal injury who can maintain a writ petition for redress and no third party can be permitted to have access to the Court for the purpose of seeking redress for the person injured. However this definition of cannot remain constant and has to modulate. a country like India where access to justice being restricted by social and economic constraints, it is necessary to democratize judicial remedies, remove technical barriers against easy accessibility to Justice and promote public interest litigation so that the large masses of people belonging to the deprived and exploited sections of humanity may be able to realize and enjoy the socio-economic rights granted to them and these rights may become meaningful for them instead of remaining mere empty hopes.7 Thus with the
4 5

Praful Kumar vs Bank of Commerce, AIR 1947 PC 60 Charan Lal Sahu Vs Union of India 6 Union Carbide vs Union of India. 7 SP. Gupta Vs Union of India

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technical barrier of Locus Standi the justice was a mere vision thereby the court has curve the new method in name of public interest and enhanced the power of litigation so as the public can get the justice which was just a mere desire. State in India is the father of all citizens. It is under the duty to do all those act which are benefits the citizens. Art 12 strongly defines what is state. Art 246 expressly empowers the union to preside over the states in a matter of any dispute providing a quasi federal structure to India. It shall be noted that State is the father of all citizen and when any matter of public at large arise then state has to Stand. Companies and other incorporations are subject of Union list. All the procedure, establishment and function are govern by central legislation and Centre government enjoys complete power and dominance in it. However a paradox of argument which arises when a company who is empower to shifts it registered office from one state to other by the union guideline comes in conflict of public interest of the state. Sec 146 allows transfer of a registered office from one state to another. Now the question rises that can a state has any locus standi to restrict the transfer or oppose it? Now the answer to this question lies in the technicalities of the procedural as well and interpretation of the statues. It shall be noted that when a company registers its office in any states , the company enters into various agreement, taxes with the state government. Any transfer from one state to another will influence the public interest and various liabilities imposed by state. Thus in course of the research the quest to find the standi of a state in such shifting of registered office has been searched and analyzed.

Research Methodology
The research has been made on the doctrinal model collecting information from secondary sources. The research aims to study all the primary sources and analyzing with the judicial pronouncements. It shall highlight on the ambiguity and paradox of conflicting interest of Union , State and Public and the loopholes in the existing laws. The researchs doctrinal model will

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critically examine the existing laws and make a theoretic review regarding such shifting registered offices

Scope of study
The research is a doctrinal research and aim on a theoretical analysis of legal aspects of governing the shifting of the registered office of a company. It shall study the relation and interpretation of subjects of union list and state lists with special reference to Sec 146 of Companies Act of 1956. The research shall highlight the interpretation of the subjects list in views of Public interest and aims to investigate the role of doctrine of parent pant ice in light of public interest. It shall explore the locus standi of a state on a subject union list when it the subject over clash with interest of subject in state list and public interest.

Limitations
The research is restricted to a doctrinal model created by secondary source and judicial pronouncements. It shall be noted that the research is the analysis of observation of the researcher and has not been supported by a center or a state legislature.

Hypothesis
India is a federal state and all division of power is a basic feature of federal states. Companies and corporations are the subjects of union list and the center has the only power to legislature over it. However state can regulate the companies and has a locus standi against their movements and shift by the taxes and local laws which are matter of state list and public interest. If a conflict over public interest and state list subject occurs the dominating power of center can be challenged and be regulated.

Research Question
The following research question are set to verify the hypothesis.

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What is the federal nature of India and how the companies and other corporation are influence by it? What is the interpretation of subject list of India and what are the aspects controlled by the Union list and under what circumstances a state list influence the companies? What is a registered office of a company and method of shifting? What are the influence of shifting a registered office? Under what ground a state can be an aggrieved party by shifting of a registered office? What are the grounds of state having any locus to sue if shifting occurs? Can it be justified under the current legal position to permit the state to have a locus standi to oppose the transfer of a registered office? What are the harmonious ways of achieving such transfer

Chapterization
Chapter I- This chapter shall deals with the introduction of the topic containing the overview of the project, research methodology, it nature and scope , limitation of research and hypothesis. Chapter II- This chapter deals in analyzing the federal nature of counties with reference to U.S.A. It brings a comparison between India and U.S.A with special reference of federalism. It presents the unique nature of Indian federalism. It analyzes the nature of division of subject. It studies the concept of Locus Standi with special reference to India Chapter III- This chapter deals with analysis of domination of Union list and other. The procedure and factor governing the shifting of a registered office of a company Chapter IV- Under this chapter a researcher has made a review of the reason for states and right of a state to interfere with the shifting of registered office. The researcher has attempted to vertify and apply the meaning of agreevied person for the native state under the shifting of registered office. It aims to justify under the current legal position to permit the state to have a locus standi to oppose the transfer of a registered office.

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 Chapter V- Under this chapter the researcher conclude by checking the validity of the hypothesis of the research. It also present some special view points of the researcher.

Chapter II
Indian Federal structure

Federalism is the theory or advocacy of federal political orders, where final authority is divided between sub-units and a center8.Prof Wheare observe it as it is a meant the method of dividing powers, so that the general and regional Government are each within a sphere co-ordinate and independent. Both the federal and regional government are independent in their own sphere and not subordinate to one and other9 Unlike a unitary state, sovereignty is constitutionally split between at least two territorial levels so that units at each level have final authority and can act independently of the others in some area There are provisions which dont make Indian Constitution to be a federal in the sense of American Constitution. Though, it is said that within India, neither the Union nor the states enjoys [absolute] internal sovereignty due to the division of powers between the Union and the States in which both the Governments have plenary power within their assigned sphere, there exist certain provisions in the Constitution which are considered to be going against the principle of federalism10. For example, article 200 of the constitution in which it is said that certain bills passed by state legislatures may be reserved by the governors for the consideration of the president of India11. The another article which is considered to be a deviation from the principle of federalism is Articles 356, 352 and 360 which gives the power to the president to declare
8 9

CK Shukla, The Indian Federalism :time to look back Nlsiu Journal, 3 Edition Pg 21 K.C Where : Federal Government Pg27, Jennings-Some Characterizes of Indian Constitution 10 th GK Gokale Political Science Himalyan Publication 18 edition Pg 45 11 rd J.N Pandey Constitution of India 33 edition Ph 17

rd

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emergency, which can transform federal system into a unitary system; however the provision is meant for temporary and can be used only under certain exceptional situations under certain restrictions created through judicial intervention, there are many circumstances in which the central government has used this power to dissolve the state governments of the opposite parties and to remain in power at the centre12. There has been a change in the construction of the nature of Indian federalism, in the case of S.R. Bommai v. Union of India13 , it has been held that Democracy and federalism are essential features of our constitution and are part of its basic structure. Dr. Baba Saheb Ambedkar, in this case referred Article 356 of the Constitution of India as a dead letter of the Constitution but sadly with the help of Article 356 many State Governments in India are buried from their power. In the constituent assembly debate it was suggested that Article 356 is liable to be abused for political purpose. In reply to this Dr. Ambedkar said that such articles will never be called into operation and they would remain a dead letter. If at all they are brought into operation, I hope the President, who is endowed with these powers, will take proper precautions before actually suspending the administration of the provinces. I hope the first thing he will do would be to issue a mere warning to a province that has erred, that things were not happening in the way in which they were intended to happen in the Constitution. If that warning fails, the second thing for him to do will be to order an election allowing the people of the province to settle matters by themselves. It is only when these two remedies fail that he would resort to this article14. But this was never the case the Presidents power to issue the proclamation under Article 356 has been abused most of the time. So far the power under the provision has been used on more than 90 occasions and in almost all cases against governments run by political parties in opposition. This makes S. R. Bommai v. Union of India a Land Mark Judgement in which Supreme Court had discussed at length the provision of Article 356 and various issues associated with the said

12 13

http://www.lawteacher.net/constitutional-law/essays/a-debate-on-indian-federalism.php lst visted on 7.10.13 AIR 1994 SCC 1 14 Constitutional Debates VOl VI pg 32

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provisions15 . The next another landmark case where the nature of the Indian Constitution questioned was State of Rajasthan V. Union of India16 . In this case, Chief Justice Beg, while interpreting Article 356, observed: "Our difficulty is that the language of Article 356 is so wide and loose that to circumscribe and confine it within a strait-jacket will not be just interpreting or construing it but will be Constitution-making legislation which, again, does not, strictly speaking, lie in our domain." Thus speaking in term of nature and Dr D.D Basu the constitution of India cannot be said to be completely Federal Neither it can be said completely unitary. It lie on the narrow edge of something of quazi federal Structure.

Relation of Indian Federalism with the corporation In all the Federations an attempt is made through constitutional provisions to create and preserve a national economic fabric to remove and prevent local barriers to economic activity, to remove the impediments in the way of interstate trade and commerce and thus country as one single economic unit so that economic resources of all the various units may be utilized to common advantage of all17. The framers of the Indian Constitution were fully conscious of the importance of maintaining the economic unity of the union of India18. Free movement and exchange of good throughout the territory of India was essential for the economic unity which alone could sustain the unity of progress of the country 19. Prior to intergration of India into Union of India and existence of the present constitution there were many prince state which have created lots of trade barrier of the trade among themselves and others state thus there had been huge hinderence were created at those point for economic development of the nation20. Thus the main this has been the prudence

15 16

Berubari V Union of India AIR1960 SC 845 AIR1977 SC 1361 17 Bowie Studies in Federalism,Pg 296-357 18 Austin 19 J.N pandey pg 690 20 MP Jain constitution

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behind including Art 301 in the constitution of India. Art 301 of the Constitution of India states Freedom of trade, commerce and intercourse Subject to the other provisions of this Part, trade, commerce and intercourse throughout the territory of India shall be free Thus the main objective of this Article was to break down the border barrier between states and to create one unit with the view to encourage the free flow of stream of trade and commerce throughout the territory of India21. Article 301 of the constitution of India is modeled on Sec 92 of the Australian Constitution which says trade and commerce and the inter course among states whether by means of internal carriage or ocean navigation shall be absolutely free 22. In his historical context this section was intended to abolish state custom barrier. However in case of James v Commonwealth of Australia
23

where the shipment of dry fruits where license of

common wealth was required and thus it shall be declared unconstitutional. In India power of this provision are more liberal. It includes interstate and intra state ie: that is within the territory of the state. The word trade means buying or selling of goods while the term commerce include all forms of transportations such as land air, water. Thus term Intercourse means movement covers all kind of movement which covers movement of goods from one place to another24. Art 301 applies not only to Interstate trade but also to intra state trade and commerce and intercourse. Thus Art 301 will be violated where restrictions are imposed at the frontier of a state on ant stage prior r subsequent. Thus freedom which shall be provided on the free movement of trade and commerce shall be free from all movements subject to restriction of Art 302-305. It shall be noted that the constitution has give utmost liberty for companies to expand and utilize resources to the fullest to the Union and shall not to be restricted to any state. The constitution has expressed all its intention that the by virtue of Art 302 Parliament has the expressed power to make laws for the freedom of trade. Further for the feasibility the framers of the constitution laid down the Art 303(1) which state that Notwithstanding anything in Article 302, neither
Parliament nor the Legislature of a State shall have power to make any law giving, or authorizing the giving of, any preference to one State over another, or making, or authorizing the making of,
21 22

Atiabari Tea Co Ltd Vs state of Assam AIR 1961 SC 252 Indian Cement V State of AP (1988)I SCC 744 23 1936 Ac 578 24 G.K Krishna Vs State of T.N AIR1975 SC 583

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any discrimination between one State and another, by virtue of any entry relating to trade and commerce in any of the Lists in the Seventh Schedule Thus the express intentions of the framers have been clear that when the

Chapter III

Dominance of Union List over State List

India is a quazi federal structure of administration. It administrative structure of government has been strongly made of Monstesque doctrine of separation of Power thereby it has a unique structure which is preferably called federal in structure and Unitary in Spirit25. The Union has been given superior pedestrian over the state. The power of centre and state are divided. They cannot make laws outside their allotted subjects. The Indian Constitution, in its Seventh Schedule, assigns the powers and functions of the center and the states. The schedule specifies the exclusive powers of the center in the Union list; exclusive powers of the states in the State list; and those falling under the joint jurisdiction are placed in the Concurrent list. All residuary powers are assigned to the center. The nature of the assignments is fairly typical of federal nations. The functions of the central government are those required to maintain macroeconomic stability, international trade and relations and those having implications for more than one state. The major subjects assigned to the states comprise public order, public health, agriculture, irrigation, land rights, fisheries and industries and minor minerals. The States also assume a significant role for subjects in the concurrent list such as education and transportation, social security and social insurance. The assignment of tax powers in India is based on a principle of separation, i.e., tax categories are exclusively assigned either to the center or to the states. Most broad-based taxes have been assigned to the center, including taxes on income and wealth from non-agricultural sources,
25

R B Goyal. India and the governmenr

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corporation tax, taxes on production (excluding those on alcoholic liquors) and customs duty. A long list of taxes is assigned to the states. However, only the tax on the sale and purchase of goods has been significant for state revenues.. In the Indian Division of power Union has been given predominance over the other subjects. The opening word of Art 246(i) nothwithstanding anything in clause(2)and (3)expressly secure the predominance of the union list over the state list and the concurrent list and that f the concurrent list over the state list. Thus in case of over lapping between union and state list it the union which shall always prevail26

Role of state in company Relocation Company

Being the federal Setup of our constitution the state government does not have much control over the corporations and companies in India. One of the foundation steps at initial formation of a company is the preparation of a document called the Memorandum of Association, which contains the fundamental conditions upon which the company has been incorporated27. It is also called the charter of the company or the constitution of the company which defines the scope of the company and decides the relationship of the company with the outsiders28. It consists of the Name Clause; the Registered Clause; the Objects Clause; the Liability Clause; and the Capital Clause29. The second clause, i.e. the Registered Clause30 , also known as situation clause specifies the State in which the registered office of the company is situated. All companies should have a registered office which establishes its domicile and also the address at which the Companys statutory book must be usually kept, to which notices and other communications could be sent31 . A change in the registered office of a company could be from-firstly, from one premise to another premise, within the same town, city or village; secondly, from one town, city or village

26 27

Prem chand Jain vs R.K.Chabra 1984 2scc 302 Supra 9 28 Supra19 29 Sec of the act 30 Supra 27 31 th Sk.Sahara,Campany Law,6 Edition

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to another town city or village, but within the same state; and thirdly; from one State to another State. Procedures For Change Of The Registered Office Of A Company A company can change the place of its registered office from one premise to another, within the local limits of the same city or town, village where it is situated, by simply passing a resolution of the Board of Directors. The notice of change should be filed with the Registrar within 30 days, who shall then record the same32. The procedure involved in this kind of change is a relatively simple procedure, which does not involve the change of Memorandum of Association33. This is because, in the registered office clause only the name of the State is mentioned, and not the exact address, town, city of the office34 . The second manner in which the change could be effected in the location of the registered office is the change of the registered office from one town, city, or village to another town, city, or village35. This requires a slightly complicated procedure than the earlier case, and involves the passing of a special resolution in the general meeting of the shareholders 36. After passing a special resolution, confirmation of the Regional Director (hereinafter RD) is required to obtain, in case the change is from the jurisdiction of one Registrar of Companies (hereinafter RoC) to the jurisdiction of another Registrar of Companies37. The RD is required to convey his confirmation within four weeks from the date of receipt of application 38 . A copy of the special resolution is to be filed with the Registrar within 30 days in Form 23, and no change will be effected, unless it is confirmed by the RD39 . The copy of the confirmation by the RD shall have to be filed with the RoC within two months of the date of confirmation together with a printed copy of the altered memorandum of association40 , who then registers it and certifies the
32 33

Bangia Campany Law, Allahabad Publication House Ibid 4 34 http://www.caclubindia.com/articles/procedure-to-change-the-registered-office-to-another-state-9328.asp 35 http://www.caclubindia.com/forum/change-of-registered-office-from-one-state-to-another-state-183332.asp 36 Supra 4 37 http://www.cseindia.com/listing_guide/ADDRESS%20CHANGE/Chenge%20of%20registered%20office%20from%201%20state%20t o%20another.doc 38 http://blog.abhyankarcs.com/company-formation-in-india/procedure-steps-for-shifting-of-registered-office/ 39 Supra 34 40 Resim Industry v Union of India AIR 1987 SC5

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registration within one month from the date of filing of the document. The certificate will be conclusive proof that all the requirements with respect to the alteration and confirmation has been complied with 41 . Further within 30 days of the removal of the registered office, the notice of the new location has to be given has to be given to the Registrar who shall record the same42. The change of registered office from one State to another, involves a much more complicated procedure, as it involves alteration of the memorandum itself. However, the change should be within the States of India43. Section 17 (1) of the Act, provides that a company may by special resolution, alter the provisions of its memorandum so as to change the place of its registered office from one State to another.44 The alteration is subject to the confirmation by the Central Government, and before confirming it must be satisfied that sufficient notice has been given to debenture holders of the company, and to every person whose interests may be affected by the alteration45 . Further it should see to it that every creditor who is entitled to object to the alteration, and objects in the manner directed by the Central Government, that his consent has been obtained or his debts, claims have been discharged, determined, or secured46. The Central Government should also serve a notice of the petition for confirmation of the alteration to the RoC who shall also be given a reasonable opportunity to appear before the court and state his objections, suggestions, with respect to the confirmation of the alteration . It can also make an order confirming the alteration either wholly or in part, and on such terms and conditions, if any, as it thinks fit47 . In exercising its powers under the said section, the court must have regard to the rights and interests of the members of the company and of every class of them, as well as to the rights and interests of the creditors of the company and of every class of them48 .Also the Central Government should provide an opportunity to the members, creditors, and other interested parties to the company, to be heard.

41 42

CL Mukherjee, Procedure of Shifting the registered office, www. Companyguru./procedure/ Venus Industry v Ramson Mills 43 ibid 44 Vipul Jain, Business naratives,Fingureprints publishing 45 Ak Majumdar Company Law, Taxman Publication house 46 Supra 26 47 Supra 2 48 Supra23

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It is to be noted that before the Companies (Second Amendment) Act, 2002, the power of confirming the inter-state shifting of the registered office was vested in the Company Law Board. And before the Company Law Board, it was the courts who exercised jurisdiction under Section 17 of the Act49. In the following cases50 it was held that the Central Government has to ensure that all the formalities of the statute have been complied with, safeguarding the interest of the parties. Though Section 17 confers a discretionary jurisdiction, including the power to impose conditions while confirming the alteration of memorandum on the Central Government, it should not supplement its own wisdom over of the collective wisdom of the shareholders of the company expressed in the special resolution 51 .

Chapter IV

Locus Standi Of The State To Object To The Change in the Registered Office
In cases where the registered office is to be shifted from one State or another, it is often seen that objections are raised by the State on the ground that alteration of the registered office of the Company will adversely affect the interests of the State Government. In such cases, generally a preliminary objection is raised by Company, arguing that the State has no locus standi to object to the confirmation of the special resolution as it is a matter solely concerning the shareholders and the only persons who can object are either the creditors or debenture-holders. Indeed it is one of the fundamental issues in cases determining the role of a State in relocation of a company. The question of the locus standi came up for the first time in Orient Paper Mills Limited v. State52 . In this case, an application was made by Orient Paper Mills Limited a limited liability Company had its registered office in Sambalpur district in Orissa. An application was made by the company under Section 12 of the Indian Companies Act, 1913 for confirming a special
49 50

GL Bhatia, New Changes and trend in Companies Jurisprudence Supra 43 51 Manik Chand Industries V State of Maharastra 52 AIR1998 SC67

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resolution of the Company, to change the registered office from the State of Orissa to the State of West Bengal, for it was more convenient and economical to have the registered office of the Company in West Bengal. However, objections were raised by Orissa, contending that the alteration of the registered office will affect the interests of the State, its revenue with reference to various taxes, namely, income-tax, sales-tax etc., the interests of the labourers; that the alteration is not bona fide and that it was aimed at evading application of sales-tax and the provisions of the Companies Act, 195653. One of the objections raised by the petitioner was that that the State of Orissa did not have any locus standi to object, for the matter solely concerns the shareholders and only the creditors or debenture-holders can object54. However, the court did not accept this contention, and observed that Section 12(3)(a) requires notice to any persons or class of persons whose interests will be affected by the alteration, does not only include creditors, debenture-holders but also to every person whose interests may be affected. It was further said that that rights and interests of the members of the Company, should not be the only paramount guide in exercising the discretion to confirm the special resolution changing the registered office of the company55. Since the interests of the State could be affected, by the change in the registered office, the State was held to have locus standi to object to the confirmation of the resolution. The same view was taken in In Re Orissa Chemicals & Distilleries Private Ltd56 , where the court said that the State in which the registered office is situated is a person, whose interests will, be affected by the alteration. Hence it was held following Orient Paper Mills that the state has the locus standi to object57. Thus the courts in the above two cases took the view that the State has the locus standi to object to the shifting in the registered company. The question of the locus standi came up again in In Re: Mackinnon Mackenzie & Co. Private Ltd.58 However the court took a slightly different stand from the earlier case. In this case, the registered office was to be shifted from Calcutta, to Bombay, for the convenience of the
53 54

Sec 17 of Companies Act Ibdi 54 55 AIR 1957 Or 78 56 AIR 1999 A.P 45 57 Supra 54 58 AIR 2002 SC 45

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Company, as the head office, and as well as the control of the Company was at Bombay, the volume of business, the number of calls of ships; the number of employees is larger at Bombay. However, the State of West Bengal raised objections by saying that there will be loss of revenue to the State that the resolutions are not validly passed and that the notice in respect of the resolution lacks material particulars. The petitioners contended since the State is not mentioned separately and it was contended that the State is not a class of persons contemplated in Section 17 . The State contended that since notice was served, it appeared pursuant to the notice, and since the State appeared, the State could be heard as amicus curiae59 . It also contended that State represented the interest of the public, and that it should be heard to expound such interest and protect the public.60 The court said that it couldnt accept the abstract and inflexible proposition that the State has a right of its own to be heard61. According to the court, right of a State to appear in applications under Section 17 does not flow from the provisions of the Section and the State cannot as a matter of right be heard in an application under Section 17. The only reason why the State could be heard in the present case is because the State has been given notice 62 . Therefore it was held that though there was no statutory right under Section 17 of the State to be heard, since notice was served, State had the locus standi to object. Therefore this departs from the earlier views of the Orissa High Courts, which held that State has a locus standi to object the change in the registered office. In Rank Film Distributors v. Registrar of Companies63 ,the company, carrying on business of film distributors passed special resolutions for the transfer of its registered office from the Calcutta to the Bombay on the grounds that its head office had been transferred to Bombay, that the registered offices of most of foreign film companies were situated there, that there was better scope in Bombay for expansion of business, and that it was in the interest of the shareholders that the registered office of the company should be moved to Bombay. West Bengal opposed on the

59 60

A person friend to the state and in present state was friend of the state appearing on without any summons. Ibdi 59 61 Bharat COmmerece Industry Limited Vs Registrar of Company 62 In Re dalmia Cement Lmt 1974 Mad 729 63 California, [1941] 86 L.Ed. 119

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ground that sufficient cause had not been shown for the transfer of the registered office to Maharashtra. The Calcutta High Court, while dealing with the question of notice to the State, observed that no specific provision requires notice to be served to the State. Further it was said that in the absence of any specific provision requiring notice to the State, the legislature also could not have intended that a notice should be served on the State. However, they took the view that the language of Section 17(3)(a) was wide to enable the court to direct notice to be served on the State if the court was of opinion that the interests of the State would be affected by the order to be made on the application64. The court relied on In Re Standard General Assurance Co. Ltd65. according to which if the company has an existing liability to the State undoubtedly the State becomes the creditor of the company and hence would be entitled to oppose the alteration, provided its interest as a creditor is likely to be affected by the alteration. But the statute does not confer upon the State as a prospective creditor, the right to oppose the proposed alterations66.

Arguments of State to have a Locus

most of the cases where objections have been raised by the State towards changing the registered office, it was mainly contented that the change in the registered office will adversely affect the economy of the State and that it will affect its interests of the and its revenue with reference to various taxes, namely, income-tax, sales-tax. The decisions of the courts, especially on this point of law are varied, and different stands have been taken by different High courts. However, three distinct lines of reasoning could be traced in this regard.

The loss of Revenue

The first line of reasoning comes from Orient Paper Mills67 , where it was held that the interests of the State must necessarily be taken into account which shifting the registered office form one state to another. The court said that the State of Orissa would be a loser as far as its revenue is

64 65

Supra 56 A.I.R. 1965 Cal. 16, 66 Supra 42 67 ibdi

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concerned. The court looked into the amount of income tax paid by the company and said that even though the income-tax is a central revenue, a large portion of the income-tax realized by the Central Government is paid to the respective States in proportion to the tax realized from the State concerned. Therefore if the registered office is changed, then the income-tax paid by the Company would be credited to West Bengal, and Orissa would thus lose out on revenue.68 The interest of the State therefore is affected if the special resolutions are to be confirmed. Further it was also stated that if the registered office is changed, then State of West Bengal will be capable of collecting the sales-tax, and hence again Orissa would be the loser. The court also agreed with the contention that the shifting of the registered office would handicap the people of Orissa who want to approach the registered office directly either for appointment or ventilating their grievances. The court also took into account the fact that Orissa is an underdeveloped state, and shifting of the registered office will take away the opportunities of the people of Orissa to be employed in the registered office or in the factories of the company. The court ended by saying that the interests of the State are to be taken into account and it is of considerable importance in confirming special resolutions of the companies if they have adverse effect on the interests of the State concerned. This judgment could be critiqued from the angle that in considering the interests of the State, the court completely ignored the interests of the company, which is one of the essential conditions for the court affirming the resolution. The court did not even consider or inquire into the interests of the company, and came to the conclusion that the transfer could not be bonafide. The same line of reasoning was taken in Orissa Chemicals & Distilleries69 , where the State of Orissa opposed the change of its registered office from Orissa to the State of Andhra Pradesh on the ground that it would facilitate more direct and economic administration of the affairs. The petitioners contented that considerations of income-tax, sales-tax etc. are not relevant for deciding an application under Section 17 of the Act, and that a change in the registered office necessarily involve loss to the State but if such consideration is allowed to prevail as a valid objection, Section 17 would be negated.70 The court however agreed with Orient Paper

68 69

Supra 45 AIR 1961 Ori 62, 1962 70 Supra 65

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Mills 71 and stated that with respect to income tax and sales tax, the change of the registered office of the Company from the State would seriously affect the revenue of the State. Then the court highlighted the importance of the registered clause and said that in India, the policy of State Autonomy in the federal scheme of our Constitution does not to encourage such change of registered office from one State to another. Similar views were taken in Bonai Industrial Company Limited v. Commissioner of Income-Tax, Bihar, Orissa, Patna72 .

The Counter Argument against state

However, there has been a deviation from this line of thinking in three later subsequent cases. The first case which diverted from the views taken by the courts above is the Mackinnon Mackenzie 73 case, the court while considering the question of loss of revenue of the State in which the registered office is situated, it has to be considered based on the integrity of the Republic of India and not in a sectional and parochial manner. Further the court said that if loss of revenue is taken to be a decisive factor, then it will rob Section 17 of the statutory power conferred on a company to change its registered office74. It was further elaborated that allocation of revenue, allocation of funds out of income-tax to the States is a matter for the Centre and in interpreting Section 17 the court should look into the interests of absent shareholders; the interests of the creditors and, the objections that the Registrar may have. Even if there is any possibility of loss of revenue to one State there is the corresponding likelihood of gain of revenue to another State, and that in considering applications under Section 17 the matter should be looked at from the point of view of the Republic of India as a whole and not for advancement of local or sectional interest75. Therefore, it would not be desirable to put the consideration of revenue of one State as the determinant to turn the scale in regard to the change of office from one State to another. Hence the petitioner was entitled to succeed. Hence the court took the view that the State in no circumstances can object to the transfer of registered office. According to the researcher, this is a

71 72

AIR 1980 SC 1729 State of Bihar V Fishery trust AIR1976 SC5467 73 Supra 62 74 Supra 30 75 Duken Industry v state of Bihar AIR1983 SC

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very strict interpretation of Section 17, which is not completely desirable. However the aspect that the Section 17 should be considered from the point of view of the Republic of India is to be appreciated. Constitution limitation It shall be observe that when interpretation of list comes Union is sole supreme. The Constitution by virtue of Art 301 and Art 303 has empowered the companies the complete liberty in terms of the liberty to be free from state interference. However things are not absolute and principal of natural justice are well impounded upon it with reasonable restriction which are empower by the constitution. Ar 305 and Art 306 allows the state to regulate these companies and make laws for them if it is required for protection of any other law in existence. The Harmonious Construction - A Midway Approach: The next line of reasoning, which is a midway between the two earlier lines says that only in certain circumstances, when the pecuniary interest of the state is involved like pending of the arrears of service tax etc., the State can raise objections. This was stated in Minerva Mills Ltd. v. Govt. of Maharashtra 76 . In this case, Minerva Mills Ltd. filed a petition for the confirmation of the special resolution to shift its registered office from the State of Maharashtra to the State of Mysore. Maharashtra opposed the granting of the relief sought in this petition. The court critiqued the reasoning taken in Orient Paper Mills77 , and said that considering the fact that the State is neither the shareholders of the company, nor has the state taken over the Company, it is strange that the state of Maharashtra has raised objections. He further stated that when national integration is of vital importance it is improper for a State to oppose the shifting of the registered office of a company to another State on narrow considerations 78. The court came to the conclusion that the State of Maharashtra, being in the position of a creditor of the company, in the present case can oppose the petition only on the ground on which it is entitled to be served with that notice, i.e., on the ground of its adverse effect on some specific pecuniary or proprietary interest of that particular State. Further it was said that the State cannot raise
76 77

ibid Supra 45 78 Supra 38

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objections regarding 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.79 The State here was not entitled to assume the role of the protector of the interests of the shareholders of the company, or the public at large. This line of reasoning departs from Orient Paper Mills, where excessive importance was given to the interest of workmen and labour, over and above the interests of the Company. The court completely agreed with the holding of Rank Film Distributors case where it was held that a State couldnt object to the shift, on the ground that the reasons which prompted the shareholders to pass the resolution were not valid. It was further held that that to permit the State to contend that it would be affected economically, contrary to the opinion of the shareholders would be to enable the State to have a voice in an aspect of the management of affairs of the company which was not warranted by statute.80 The court in Minerva Mills said that "a broader perspective" must be taken by the court and the loss of employment in one State would be balanced by employment in another State [61] .It was, therefore, held in the said case that the prospect of loss of revenue was not a relevant factor to be taken into consideration, and that if the interest of the public had to be taken into consideration it cannot be the revenue interest or interests of the general economy of the State, but the interests of those members of the public who might, in future, be inducted to take shares in the company in question. The Division Bench, therefore, allowed the appeal, and confirmed the special resolution for the transfer of the registered office of the company in the said case from the State of West Bengal to the State of Maharashtra. In Pel-Peugeot Ltd. Re 81 , it was held that a company has a legitimate right to carry its registered office to another State. Recent cases 82 have also held that the State does not have the locus standi to object to the inter-state shifting on the ground of loss of revenue. The settled position of

79 80

Supra 34 HS gaur 81 AIR1995 SC86 82 AIR1968 SC56

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law now is that a State has no right to object on the ground of possible loss of future revenue, though it may do so as a creditor in respect of arrears of revenue due to it83.

Chapter V
Conclusion
To sum up, when the registered office of a company is sought to be transferred from one state to another, then the procedure involves the alteration of the memorandum, and a special resolution has to be passed. However the alteration is subject to the confirmation by the Central Government. It is when confirmation of the resolution is required that the State in which the registered office is situated often raises objections. On the question as to whether the State has the locus standi to raise objections in an application under Section 17 of the Act, it has been held in most cases that though there is no statutory right of the State to appear in such proceedings, a State is indisputably bound to be heard, if notice has been served to the State under Section 17(3)(a) of the Act. However, the courts have mostly rejected the contention that the State can raise objections on the solely on the grounds that the economy and interests of the State will be affected adversely. The first line of reasoning regarding the issue was mainly espoused by the Orissa High Courts where it was stated that a States interest must necessarily be taken into account, while shifting the registered office. One reason for this stand could be that the State of Orissa, was at that time a relatively under-developed state, compared to the other surrounding states, and so the judges were concerned that if Companies keep on shifting their registered offices, then the people of the state would be deprived of their employment, and loss with respect to income tax, sales tax would be incurred by Orissa. But this reasoning, as was pointed out correctly in the later cases was flawed. This is because, the question of loss of revenue, has to be considered based on the integrity of the Republic of India and not in a sectional and parochial manner. Also any possibility of loss of revenue to one State would be balanced by the gain of revenue to another State. Therefore in conclusion it is for the members of the company and not for the State to decide whether the registered office should be transferred from one State. If the State is allowed
83

AIR 2008 SC 789

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to have a say in the matter on the ground that its revenue will be affected, then the State will have a voice in the working of the Company. This is something which is absolutely not warranted by the Companies Act, 1956. However with evolution of in public interest the state can oppose the shift of any office irrespective of any statue protecting it. Public Interest is the most widest ground when any violation made upon it can allow state to make laws and oppose. The constitution of India buy Virtue of Art 305(2 ) lies a similar mandate where state can legislate and oppose the shift when it is violate of any law . Thus it can be easily concluded that State has no locus standi to oppose such shifts until it does not violate any law or create injustice to interest of public at large.

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List of Books refered

B.K Gokhale,The political Science, The state and its Nature Himalaya publication house, New Delhi,19th edition K.C Where : Federal Government Constitution J.N Pandey Constitution of India 33rd edition Ph 17 Constitutional Debates VOl VI Bowie Studies in Federalism Sk.Sahara,Campany Law,6th Edition Bangia Campany Law, Allahabad Publication House A.K Majumdar , Company law , Taxman List of Online Journals Pg27, Jennings-Some Characterizes of Indian

http://www.caclubindia.com/articles/procedure-to-change-the-registered-office-to-

another-state-9328.asp
1

http://www.caclubindia.com/forum/change-of-registered-office-from-one-state-to-

another-state-183332.asp
1

http://www.cse-

india.com/listing_guide/ADDRESS%20CHANGE/Chenge%20of%20registered%20offic e%20from%201%20state%20to%20another.doc
1

http://blog.abhyankarcs.com/company-formation-in-india/procedure-steps-for-shifting-

of-registered-office

List of Case
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1 1 1 1 1 1 1 1 1 1 1

Resim Industry v Union of India AIR 1987 SC5 Venus Industry v Ramson Mills Manik Chand Industries V State of Maharastra AIR1998 SC67 AIR 1957 Or 78 AIR 1999 A.P 45 AIR 2002 SC 45 Bharat COmmerece Industry Limited Vs Registrar of Company In Re dalmia Cement Lmt 1974 Mad 729 California, [1941] 86 L.Ed. 119 A.I.R. 1965 Cal. 16,

AIR 1961 Ori 62, 1962

1 1 1

AIR 1980 SC 1729 State of Bihar V Fishery trust AIR1976 SC5467 Duken Industry v state of Bihar AIR1983 SC

1 1 1

AIR1995 SC86 AIR1968 SC56 AIR 2008 SC 789

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