2007 (12) TMI 293 - HC - Companies Law

Share capital Reduction - seeking confirmation to the proposal of capital reduction of the company in the form of utilizing its securities premium account as well as general reserve - Held that - Having perused the petition and more particularly the reasons given in support of the proposed reduction in my view there is no reason not to confirm the proposed action of the petitioner to reduce its capital. The said proposal does not prejudicially affect anyone as it does not involve extinguishment or diminution of the capital of the company nor does it involve pay off of any capital received by the company. Accordingly, the resolution dated 30-8-2007, is hereby confirmed.

Summary

Issues:
Petition filed under sections 78 and 100 to 103 of the Companies Act, 1956 for confirmation of capital reduction utilizing securities premium account and general reserve.

Analysis:
1. The petitioner, a listed public limited company engaged in pharmaceutical products, sought confirmation for a capital reduction proposal involving adjustment of intangible assets against share premium account and general reserve. The company's substantial reserves and turnover of Rs. 721.83 crores supported its profitability and growth efforts, including acquisition of intangible assets worth Rs. 176.83 crores. The restructuring aimed to streamline the financial structure without impacting tangible net worth or book value of shares, although apparent net worth and book value would decrease.

2. A special resolution passed by the company in accordance with section 189 of the Companies Act, 1956, authorized reduction of amounts from share premium and general reserve accounts to be utilized against intangible assets debit balance. The resolution empowered the Board to make necessary modifications, settle doubts, and perform actions to implement the reduction.

3. The petition, admitted by the court, was advertised, and no objections were raised against the proposed capital reduction. Approval from Bombay Stock Exchange and National Stock Exchange was obtained as required by the listing agreement. The reduction did not involve liability diminution or share capital repayment, and the court dispensed with certain procedural requirements considering the share premium account's capital nature.

4. After hearing arguments, the court found no reason to deny the proposed capital reduction, confirming the resolution dated 30-8-2007. The court approved the minute for registration under section 103(1)(b) reflecting the reduction in share premium and general reserve accounts.

5. The court granted the requested prayers and directed the petitioner to publish the confirmation of capital reduction in specified newspapers within 14 days of order registration with the Registrar of Companies. The petition was disposed of with no costs awarded.