2009 (1) TMI 490 - HC - Companies Law

Reduction of paid-up equity share capital and securities premium account - Held that - As the action of the company is approved in the general meeting of the shareholders and no one has opposed the said action, hence, the resolution passed by the company is for the benefit of the company, its shareholders and creditors and is not contrary to law. Reduction of the securities premium account and paid-up equity share capital of the petitioner-company allowed.

Summary

Issues:
Confirmation of reduction of paid-up equity share capital and securities premium account by the petitioner-company.

Analysis:

Issue 1: Reduction of Paid-up Equity Share Capital and Securities Premium Account
The petitioner-company sought confirmation for the reduction of its paid-up equity share capital and securities premium account through a special resolution dated 4-12-2008. The company had accumulated losses and aimed to rationalize its balance sheet to reflect the actual position of its assets and liabilities accurately. The proposal included reducing the paid-up equity share capital by Rs. 3,71,77,440 and the securities premium account by Rs. 44,64,70,634. The extraordinary meeting of the company approved this proposal through a special resolution, indicating acceptance by the shareholders. The reduction was intended to enhance shareholder value, improve future profits, and increase earnings per share and return on capital employed.

Issue 2: Legal Compliance and Procedure
The reduction of the securities premium account and paid-up equity share capital required compliance with Section 78 of the Companies Act, 1956. The securities premium account was not utilized for the prescribed purpose, necessitating adherence to the procedures outlined in Sections 100 and 101 of the Act. The petitioner filed an application seeking permission for the reduction under Section 101 of the Act. The court permitted paper publication for objections, but no objections were raised. The court noted that the reduction would not prejudice the rights of any creditors and that the proposal was beneficial for the company, its shareholders, and creditors. The resolution passed in the general meeting was deemed lawful and in the best interest of the company.

Final Order
The court confirmed the reduction of the securities premium account and paid-up equity share capital as per the special resolution passed by the company. The court approved the resolution and ordered the delivery of a certified copy of the order to the Registrar of Companies for registration. Additionally, the court directed the publication of the registration notice in specified newspapers within a specific timeframe. The court's decision upheld the validity of the reduction and ensured compliance with legal requirements, safeguarding the interests of the company and its stakeholders.