Judgement JUDGMENT :- This is an application by Sri Natesar Spinning and Weaving Mills Private Ltd., for an alteration of the Memorandum of Association to permit the company to make donation to political parties funds. The same has been embodied in a special resolution of the company duly passed in accordance with S. 189 of the Companies Act, I of 1956, at the Annual General meeting of the company held on 22-1-1958 to be added as a sub-cl. 16(a) in para III of the Memorandum of Association of the company. 2. The grounds on which this application is made are set out in paragraph 7 as follows : In the course of its business, the company has accumulated reserves of about Rs. 75,000, besides its original capital. The company has now a large and continuously extending business and it finds it necessary and advisable for efficiently and profitably carrying on its business to contribute to political funds and objects from time to time. The company finds that the making of contributions to political institutions and objects would prove beneficial and advantageous in several ways. The petitioner company is engaged in the business of producing and selling cotton and other yarn. The textile industry is to a large extent controlled and regulated by the Government. As such, the progress and development of the Industry on proper lines depends on several measures which Government might take for regulating the industry and adding it in the matter of expansion etc. The petitioner company is not contemplating, taking part in any political activities. But the petitioner finds it advantageous in the interests of the textile industry in general and of itself, to contribute to the funds of such party or parties whose policies are in its opinion likely to protect and advance the legitimate interests of the industry and also ensure sound relationship between labour and management. 3. The following additional information regarding the financial position of the company are relevant. On the date of the application the secured loans amounted to Rs. 66,000 and unsecured loans to Rs. 7,00,000 and indebtedness to the general creditors for wages, salaries, purchases etc. would extend to Rs. 77000. It is stated that this company made a profit in five figures four years ago, but subsequent two years profits got reduced to four figures, and last year it seems to have incurred a loss. 4. 66,000 and unsecured loans to Rs. 7,00,000 and indebtedness to the general creditors for wages, salaries, purchases etc. would extend to Rs. 77000. It is stated that this company made a profit in five figures four years ago, but subsequent two years profits got reduced to four figures, and last year it seems to have incurred a loss. 4. Section 293 (e) of the Indian Companies Act runs as follows : "The Board of Directors of a public company, or of a private company which is a subsidiary of a public company, shall not, except with the consent of such public company or subsidiary in general meeting contribute, after the commencement of this Act, to charitable and other funds not directly relating to the business of the company or the welfare of its employees, any amounts the aggregate of which will, in any financial year, exceed, Rs. 25,000, or five per cent of its average net profits as determined in accordance with the provisions of Ss. 349 and 350 during the three financial years immediately preceding, whichever is greater. Explanation : Where a portion of a financial year of the company falls before the commencement of this Act, and a portion falls after such commencement, the latter portion shall be deemed to be a financial year within the meaning, and for the purposes of cl. (e)." 5. That contributions to the fund of political parties will fall within the ambit of this provision 293 (e) is now settled law. 6. The only controversy has been regarding the propriety of public or private companies which are subsidiaries of public companies contributing moneys to the political parties. This controversy is reflected in two recent judgments In re Indian Iron and Steel Co. Ltd. (S) AIR 1957 Cal 234 and Jayantilal v. Tata Iron and Steel Co. Ltd., AIR 1958 Bom 155 . 7. The Government of India in the Ministry of Finance recently appointed a Committee to report on the amendments which might be made to the Indian Companies Act to ensure better fulfilment of the purpose underlying the Act and which was presided over by a former Judge of this Court, Sri A. V. Viswanatha Sastry. 8. That Committee had the following remarks to make : "Different views have been held on the propriety or expediency of allowing companies to contribute to the funds of political parties. 8. That Committee had the following remarks to make : "Different views have been held on the propriety or expediency of allowing companies to contribute to the funds of political parties. On the one hand, it has been said that such contributions are an offer of a monetary temptation to the Government of the day run by the party in power to adopt policies that should help the donors in their business. It is pointed out in this connection that companies have been the recipients of financial assistance in the shape of loans or guarantees for the loans given by Government. On the other hand, it is said that there is no wrong-doing, moral or legal, in a company financially supporting a party whose economic and industrial policies the company considers to be or likely to be beneficial or profitable to it. Before the present Act, it was open to the Board of Directors, if the memorandum allowed it, to make contributions without limit out of its funds, to charitable purposes or political parties. Section 293(1)(e) places a limit on the amount upto which the Board may, on its own authority, make such contributions. As a result of full discussion in the legislature, S. 293(1) (e) was enacted in terms wide enough to include contributions to political bodies, the expression "charitable and other funds not directly relating to the business of the company" being comprehensive enough for that purpose. This was also the view taken by the learned Judges of the Bombay and the Calcutta High Courts. The position, as it stands today, may thus be stated. If contributions to the funds of political parties are covered by the objects as specified in the memorandum, or if not so directly covered fall within the category of transactions conducive or incidental to the profitable working of the company, it would be open to the Board of Directors to contribute any amounts to the funds of political parties not exceeding Rs. 25000 or 5 per cent of the average annual net profits of the company, whichever is greater. This pecuniary limit for contributions may be exceeded only with the consent of a general meeting in the case of a public company or of a private company which is a subsidiary of a public company. 25000 or 5 per cent of the average annual net profits of the company, whichever is greater. This pecuniary limit for contributions may be exceeded only with the consent of a general meeting in the case of a public company or of a private company which is a subsidiary of a public company. It has been pointed out that in the case of some big companies and Corporations, a limit of five per cent of the net profits would be quite an enormous sum, running, in some cases, to many lakhs of rupees. It has also been stated that due publicity should be given to the fact that contributions have been made by a company to the funds of all or any of the political parties. In our opinion, a general resolution of the company authorising the Board of Directors to contribute to charitable and other funds in excess of the limits prescribed by S. 293(1) (e) would be sufficient and a separate resolution is not required in respect of each contribution. In the judgment of the High Courts referred to above the alteration in the memorandum was sanctioned by the courts subject to condition that the company should make full disclosure in its profit and loss account of every single contribution made, directly or indirectly to any political party. To this extent, the learned Judges of both the High Courts agreed. In one of the cases, the alteration was directed to be effective only for a period of six years unless an extension of the period was agreed to by the court. In the other case, a condition was imposed that at the end of every financial year the company should publish in two leading papers in India a complete statement of all contributions and donations made by the company to the funds of any political party or institution or for any political cause. Whether lobbying and financing of political parties or candidates for elections should be prohibited in the interests of the public, is a broad question of public policy. It has been the subject of special legislation in America. The case of companies could not be considered in isolation and contributions from other sources, such as bodies corporate, partnerships, societies, trusts, trade unions and even from individuals might have to be regulated or prohibited by a comprehensive enactment. It has been the subject of special legislation in America. The case of companies could not be considered in isolation and contributions from other sources, such as bodies corporate, partnerships, societies, trusts, trade unions and even from individuals might have to be regulated or prohibited by a comprehensive enactment. This, however, is a matter which falls outside the scope of the companies Act. With all respect to the observations of the High Court in one of the recent cases, we consider that it is not desirable that companies should be called upon to seek the prior approval of the courts to any contributions which they may like to make to the funds of any political party. Such applications would be a source of embarrassment to the judges and it is also not desirable that courts should get involved in political or quasi-political controversies. In support of the suggestion that such contributions should be promptly published in newspapers immediately after they are made, the reason put forward was that if the information regarding such contribution was given to the shareholders long after the event, it would be too late for them to take any effective action. Even if the publication in the newspapers were made immediately after the making of such contribution, the share-holders would hardly be in a position to recall the contributions already made. In view of the strongly expressed views of the High Courts, we recommend that full information relating to such contributions, with particulars as regards the parties or organisations to which such contributions are made and the amounts of such contributions should be incorporated in the accounts and circulated to the members before that next annual general meeting. If the shareholders so decide at that meeting, they may give appropriate directions to the Board of Directors in regard to such contributions in the future. A further provision may be added as sub-sec. (6) to S. 293 in these terms : Every company shall disclose in its profits and loss account every donation made by it during the year of account to any political party, giving particulars of the amounts given and the name or the person or persons, association or party to whom or to which such donation is made. It is to be hoped that this suggestion made would safeguard further any abuse of the provision embodied under S. 293 (e)." 9. It is to be hoped that this suggestion made would safeguard further any abuse of the provision embodied under S. 293 (e)." 9. But there is another aspect of the matter of which also we cannot lose sight of. Modern democracies require for its successful working stable political parties and stable parties require whether they are in or out of the government a costly machinery for strengthening and intensifying its hold on the electorate. This calls for legitimate unceasing expenditure of funds for the maintenance and widening of the partys organisation and activities. The time when the leaders in democracies were men of substance and could dispense with any extraneous aid for funds is a thing of the past. The present leaders in all democratic countries most often come up from scratch. The methods of appealing to the masses and the necessary contacts which have to be maintained with the masses are now far more intensified and require a continuous supply of funds. It is better on the balance that these funds should come from regular sources. The Labour Party in England is sustained and nourished by the regular levies made by the wealthy and powerful and ubiquitous trade unions rather than degenerate into secret funds collected by questionable methods. It is enough to recall how the late Mr. Llyod George recruited funds for the Liberal Party by the sale of honours which necessitated drastic changes in the procedure for the conferment of honours in England. In America party funds are being collected by bizarre methods like holding dinners at 200 or 300 dollars a plate. In other countries where democracies are less advanced and more corrupt party funds are collected by sale of favours, permits, offices etc. Therefore, on the balance, this becomes only a choice of evils and it is far better that political parties should depend upon regular sources under S. 293 of the Indian Companies Act than degenerate into adopting corrupt methods for securing funds. The price of democracy is the maintenance of stable political parties and the price of stable political parties is the existence of regular sources of subvention. 10. The question is whether before confirming alteration the court should be satisfied that the alteration is not inconsistent with public interest. The price of democracy is the maintenance of stable political parties and the price of stable political parties is the existence of regular sources of subvention. 10. The question is whether before confirming alteration the court should be satisfied that the alteration is not inconsistent with public interest. On this aspect, namely, the scope of S. 17 (1) I find myself in entire agreement with the following observations of Subrahmanyam, J., in O. P. No. 152 etc. of 1958 : "Section 17(1) authorises a company to alter the provisions of its memorandum with respect to the objects of the company so far as may be required to enable it to carry on its business more economically or more efficiently. The companies which are the petitioners in these petitions consider that their business could be carried on more economically and more efficiently, if by making contributions to the funds of political parties, these companies were unable to place in power Governments whose policies would be consistent with the survival and prosperity of these companies. There can be no doubt that it would be so. If the companies fully succeeded in their objectives and if we had in our country in consequence both at the Centre and in the States, Governments which owed their positions directly and indubitably to the financial support received from these companies, then we would have a Government of the people, by industrialists for industrialists. That would not be democracy not, at any rate, as Lincoln defined it; but so long as such Government lasted - and that would not be very long - there would be a state of affairs in which the companies could carry on their business more economically and more efficiently than they otherwise could. Therefore since these companies say that contributions of funds to political parties would enable them to carry on their business more economically and more efficiently, I am unable to see any reason why I should differ from them in their opinion. The special resolution is, therefore, within the competence of the companies under S. 17(1) of the Companies Act (Central Act I of 1956). Sub-section (3) of S. 17 lays down the matters of which the court should have regard before confirming the alteration. The special resolution is, therefore, within the competence of the companies under S. 17(1) of the Companies Act (Central Act I of 1956). Sub-section (3) of S. 17 lays down the matters of which the court should have regard before confirming the alteration. Put in a nutshell, the court is required by that sub-section to be satisfied that the alteration is not intended to oppress any section of share-holders or deprive them of their legitimate rights and expectations and that the alteration is not intended to defraud creditors or otherwise defeat the purposes of the Companies Act. No question of general welfare or public interest enters into any part of sub-sec. (3) of S. 17. So far as S. 17 of the Companies Act is concerned, general welfare or public interest is for the legislature and not for the court. Provided the alteration is within the ambit of the companys power under S. 17(1) and does not prejudice any of the interests which the court is required to safeguard by S. 17 (3), the court has no power under S. 17(2) to refuse to confirm the alteration. It follows that the courts power under S. 17(5) to impose terms and conditions is also limited to such terms and conditions as may be called for in the interests of share-holders or creditors or other persons who might be prejudiced by the alteration. Where the alteration would not prejudice any such interest the court has no power to impose terms and conditions." 11. Buckley, whose text book on company law is a well known classic, in considering this section points out in his 12th Edn. at page 29 that a liberal construction is placed upon these paragraphs and upon paragraph (e) in particular, which corresponds to our S. 17(1)(a) and at page 30 he points out that courts have acceded to applications for amendment, although strictly falling outside the ambit of clause (a) upon the court being satisfied that this was required to place the company on an equality as regards the efficient or economical carrying on of its business with more recently formed companies. 12. It is not disputed that similar companies in Coimbatore District have subscribed funds to political parties. 12. It is not disputed that similar companies in Coimbatore District have subscribed funds to political parties. Therefore, when we have this important factor before us, namely, that the shareholders of the company after considering the pros and cons of the matter have agreed that the funds of the company may be utilised for contribution to the funds of a political party it does not seem to be right to me to take a view with regard to the companys activities different from the view taken by the share-holders, when that view is not opposed to law and falls within the provisions of the Companies Act. 13. The Registrar of Companies to whom notice was taken has no objections or suggestions to make (vide 20215 - L.C. 59 dated 21-7-1959). 14. This application is therefore allowed and the company will take its costs from out of its funds. Application allowed.