P L D 1969 Karachi 71 (PLP)

(2) The alteration shall not take effect until and except in so far as it is confirmed by the Court on petition. (3) Before confirming the alteration, the Court must be satisfied‑ (a) that sufficient notice has been given to every holder of debentures of the company, and to any persons or class of persons whose interest will, in the opinion of the Court, be effected by the alteration ; and (b) that with respect to every creditor who in the opinion of the Court is entitled to object, and who signifies his objection in manner directed by the Court, either his consent to the alteration has been obtained or his debit or claim has been discharged or has determined, or has been secured to the satisfaction of the Court: Provided that the Court may, in the case of any person or class, for special reasons, dispense with the notice required by this section." In the instant case, there is no objection to the proposed amendments by any share‑holder or creditor. But in my opinion, the powers of a company to make alterations. In its memorandum, and the powers of the Court to sanction such alterations are still subject to the conditions contained in subsection (1) of section 12 quoted above. As the pro visions of section 12(1) quoted above are identical to the provisions of section 5 of the English Companies Act, 1948, it will be profitable to quote here the observations of Buckley in his commentary on the English Companies Act, 1948. At page 29 of the 12th edition of this commentary. Buckley has observed on the provisions of section 5 of the English Companies Act, 1948, as follows :‑ "The Act does not confer upon either the company or the Court a general power of alteration. Any alteration of the memorandum under this section must be an alteration of objects or of some provisions relating to the manner in which the company may carry out its objects, and must be within some one or more of paragraphs (a) to (g) of subsection (1) . . . . . It (the Court) will not however sanction alterations which would enable the company to carry on any business it might conceivably desire to carry on in the future . . . . . . . . . . The additional business must not be destructive of or inconsistent with the existing business. It must leave the business substantially what it was before with some such alterations or additions as the Act indicates." I agree with these observations, and I shall now examine the claim of the; applicant is the light of these observations.

4. The main purpose of the applicant was to carry on the business of re‑insurance and after the proposed amend ments are sanctioned, the main purpose of the company will be to carry on mercantile insurance. It is therefore clear, and learned counsel admitted, that the provisions of clauses (c), (f) and (g) of subsection (1) of section 12 quoted above have no relevance to this application. However learned counsel contended that his case was based on the provisions of clauses (a), (D) and (d).

5. Clause (a) permits such alterations in a Company's Memorandum as may enable it to carry on its business more economically or more efficiently. In my opinion, the word "business" in this clause refers to the existing business of a company, and not any additional or new business which it may carry on after alteration of its memorandum, because the conditions for the sanction of such new or additional business are contained in clause (d). I may, with advantage, here refer to a judgment of the English Courts reported in Re:Cyclists' Touring Club ((1907)1 Chancery 269). The facts of that case were that a company had applied to the Court for permission to alter its memorandum under the provisions of section 1 sub-section (5) clause (a) of the then English Companies Act which were identical to the provisions of clause (a) under consideration. In dismissing that application Warrington, J. stated at page 274 of the judgment as follows :‑ "It has been said by Mr. Eve that the alteration comes within either clause (a). First, with regard to clause (a) it is said that, by enlarging the membership of the club in the way proposed, it will be possible to carry on the business of the club as altered more economically or more efficiently. But with all respect to that argument, I do not think that it is sound. The alteration which is contemplated in that clause seems to me to be an alteration which will leave the business of the company substantially what it was before, with only such changes in the mode of conducting it as will enable it to be carried on more economically or more efficiently. But in the present case the proposed alteration would alter the business of the club completely." I am in respectful agreement with these observations and hold that clause (a) is not attracted to the applicant's case.

6. Clause (b) permits a company to alter its memorandum so as to enable it to attain its main purpose by new or improved means. In the instant case the applicant was carrying on the business of re‑insurance and now it wishes to carry on mercantile insurance. It cannot possibly be said that the alterations proposed are sought in order to enable the applicant to carry on its business by better or more efficient method. On the contrary, the object of the amendment is to enable it to change its main purpose from the business of re‑insurance to that of mercantile insurance. I hold therefore that the applicant cannot rely on the provisions of sub‑clause (b).

7. Clause (d) permits such alterations in a Company's memo randum as would enable a company to carry on some new business which "may conveniently or advantageously be combined with the business of the company." This means that before a company can invoke the provisions of this clause, it must be carrying on some business with which it seeks to combine additional business. In my opinion these provisions will not be attracted to the instant case, because the applicant is not carrying on any business, therefore, it cannot contend that the alteration in its memorandum is sought in order to enable it to combine its proposed business with its existing business. I am fortified in my opinion by a Judgment reported in Re : Drages Ltd. ((1942)1 A E L R 194). The facts of that case were that a company had been formed with the principal object of carrying on the business of house furnishers which it carried on a hire‑purchase basis. However, as this business was not successful it had ceased to carry on any business, and, at the relevant date, it was merely collect ing the outstanding instalments due to it under its hire purchase agreements. In these circumstances it petitioned the Court to confirm an alteration in its memorandum so as to enable it to carry on an investment business on the ground that this business could be combined with its present business within the meaning of section 5(1)(d) of the English Companies Act (which corresponds to clause (d) under consideration). In dismissing the petition of the company Mr. Justice Bennett stated at page 195 as follows:- "The company relies on par&. (d) of section 5(1), and says that the case is one in which it can carry on advan tageously or conveniently a trust investment business with the business which it is now carrying on. The answer to the argument seems to be this. At the moment the company is not carrying on any business at all. It is not trading. It is suggested that the collection of outstanding book debts in respect of its past trade is a business which the company is carrying on. I do not take that view of the matter . . . . . . I do not think that there is any business being carried on by the company with which the business of a trust investment company could either conveniently or advantageously be combined. For these reasons, I think that the company has not brought itself within the provisions of the section, and the petition is, therefore, dismissed." In this view of the matter it appears to me that the applicant has failed to make out any case under section 12 of the said Act.

8. However, learned counsel submitted that the applicant was entitled to file this application because the proposed amendments in its memorandum had been unanimously approved by its shareholders. Even if this is correct, the power of the company and of this Court to permit alterations is limited to the conditions specified in section 12, subsection (1) which I have quoted. Unless therefore the applicant can establish case under this section the question whether the alterations proposed have been approved unanimously by its share‑holders or not is totally irrelevant.

9. As I have observed, in support of his arguments, learned counsel has referred me to certain English Judgments, which I shall now consider. In Re : Alliance Marine Assurance Company ((1892) 1 Ch. D 300) a company which was carrying on the business of Marine Insurance, sought permission to combine with that business the business of life, fire and accident insurance. Evidence was given to show that Marine Insurance Companies frequently carried on such other insurance business with profit to their marine business, therefore the Court sanctioned the alteration in the Company's memorandum. Similarly, in Re : Anglo American Telegraph Company Ltd. (105 L T R 947) a company which had been formed for the construction of laying down and working of submarine and land telegraphs between Great Britain and America and the territories of these respective countries was permitted to alter its memorandum of association so as to enable it to purchase the undertaking of another Telegraph Company on the grounds that the two business could be combined advantageously. The same view was taken in Re : Parent Tyre Company Ltd. ((1923)2 Ch. D. 222) where a Company, which was carrying on largely the business of holding and managing investments in two other companies, was permitted by the Court to alter its memorandum so as to carry on the business of bankers and financiers. None of these Judgments cited by learned counsel support his case, because in all these Judgments the companies petitioning the Court for sanction to alter their memorandum were carrying on business, and sanction was given only to enable these companies to carry on such other business as could be advantageously combined with the existing business of the companies concerned. Thus in Parent Tyre Company Ltd. Mr. Justice Lawrence stated at page 228 :‑ "The additional business, of course, must not be destruc tive of or inconsistent with the existing business ; it must leave the existing business substantially what it was before ; but the additional business may be one which is different from the original business and yet may well be capable of being conveniently and advantageously combined with the business which is being carried on." I am in respectful agreement with these observations, but it seems to me that the principles stated in the observations quoted go against the applicant's claim in the instant case. As the applicant was carrying on the business of re‑insurance, learned counsel admitted that it could not have simultaneously carried on the business of mercantile insurance, which it seeks to do by the proposed alteration in the memorandum because the proposed business of mercantile insurance would have been inconsistent with the business of re‑insurance. There can be no doubt that if the applicant had applied for sanction of the proposed alteration in its memorandum whilst it was carrying on the business of re‑insurance sanction would have been refused. Can the applicant then be allowed to commence the business of mercantile insurance by first winding up the business of re‑insurance, which was the main purpose for which it was incorporated ? If the application is allowed it would enable the applicant to do indirectly what it could not do directly, and thus defeat the provisions of section 12 of the said Act. I would, therefore, not be inclined to grant such application on this ground also, unless the applicant established a clear case under the provisions of section

12. Having examined section 12 of the said Act, I have no doubt that the proposed alterations do not fall within any of the provisions of the said section and cannot therefore be allowed.

10. In this view of the matter sanction cannot be given to the alterations of the memorandum proposed by the applicant and the application is hereby dismissed. Application dismissed.