2003 (9) TMI 565 - HC - Companies Law

Summary

Issues Involved: Reduction of share premium account, compliance with sections 78 and 101(1) of the Companies Act, 1956, and the applicability of sections 100 to 104, the necessity of following procedures prescribed under section 102, and the requirement of adding the words "and reduced" to the company name.

Detailed Analysis:

1. Reduction of Share Premium Account:
The Petitioner Company sought the Court's confirmation for reducing its share premium account under sections 78 and 101(1) of the Companies Act, 1956. The Petitioner had a significant credit balance in its Securities Premium Account and proposed to utilize an amount not exceeding Rs. 2500 lakhs to set off accumulated losses and expenditures. This proposal was unanimously approved by the shareholders in an Extraordinary General Meeting.

2. Compliance with Sections 78 and 101(1) of the Companies Act, 1956:
The Assistant Registrar of Companies contended that the Securities Premium Account could only be used for specific purposes as outlined in section 78(2). However, the Petitioner argued that section 78(1) allows the application of the Securities Premium Account as if it were paid-up share capital, and the reduction procedure must be followed if the application is not within the scope of section 78(2). The Court agreed with the Petitioner, stating that the proposed adjustment is permissible under section 78 and the reduction procedure must be followed.

3. Applicability of Sections 100 to 104:
The Court noted that section 100 empowers a company to reduce its share capital by special resolution if authorized by its articles. The Petitioner's Articles of Association empowered it to reduce its Securities Premium Account, and the special resolution was passed unanimously. The Court held that the circumstances mentioned in section 100(1) are illustrative, not exhaustive, allowing the reduction of the Securities Premium Account.

4. Necessity of Following Procedures Prescribed Under Section 102:
Section 101(2)(b) requires the Court to settle a list of creditors entitled to object to the reduction. Since all secured creditors consented to the proposed reduction, the Court dispensed with the drawing up of a list of creditors and notices to them. The Court also ruled that it was unnecessary to follow the procedures in rules 49 to 60 of the Companies (Court) Rules, 1959.

5. Requirement of Adding the Words "and reduced" to the Company Name:
The Court considered whether the words "and reduced" should be added to the company's name. Since there was no cash flow to shareholders and secured creditors consented to the reduction, the Court dispensed with this requirement. The Court concluded that the adjustment would not adversely affect the company's operations or its ability to honor commitments and pay debts.

Conclusion:
The Court approved the special resolution dated 23-6-2003, confirming the proposed reduction of the Petitioner's Securities Premium Account. The form of minute set out by the Petitioner was also approved. The requirement to add "and reduced" to the company name was dispensed with. The Petitioner was directed to advertise the notice of Registration Order and the approved minutes in the same newspapers within four weeks. The Company Petition was allowed, and the Additional Central Government Standing Counsel was entitled to fees of Rs. 5,000.