2009 (1) TMI 491 - HC - Companies Law

Reduction of Share capital - Held that - The resolution passed by the board of directors is for the benefit of the company its shareholders and the same is not contrary to law. Hence the order passed - The reduction of share capital of the petitioner-company resolved on and effected by a special resolution passed in the extraordinary general meeting of the company held on December 16 2008 at the registered office of the petitioner-company is hereby confirmed. A certified copy of this order including the minutes as approved be delivered to the Registrar of Companies within 21 days from the date of receipt of this order.The notice of the registration by the Registrar of Companies of this order and the said minutes be published once each in The Hindu and Kannada Prabha daily newspapers within 14 days of the registration aforesaid.

Summary

Issues:
Reduction of share capital by a company due to accumulated losses.

Analysis:
The petitioner-company, incorporated under the Companies Act, 1956, decided to reduce its paid-up equity share capital due to accumulated losses eroding its financial position. The board of directors passed a resolution to adjust a significant portion of the accumulated losses against the subscribed and paid-up equity share capital. This reduction involved canceling a portion of the paid-up value of each equity share and consolidating multiple shares into one fully paid-up share. The company followed the necessary legal procedures, including obtaining approval through a special resolution in an extraordinary general meeting and seeking confirmation from the High Court of Karnataka.

The decision to reduce the share capital was deemed necessary to align the balance-sheet with the company's financial reality and remove impediments to its progress caused by the eroded capital base. The resolution passed by the board of directors and subsequently approved by the shareholders in the extraordinary general meeting was found to be in the best interest of the company and its shareholders. Despite the publication of notice, no opposition was raised against the resolution, indicating the shareholders' acceptance of the proposed reduction.

The High Court of Karnataka, after careful consideration of the facts and legal provisions, confirmed the reduction of the petitioner-company's share capital as outlined in the resolution passed by the extraordinary general meeting. The court order detailed the specific terms and conditions of the reduction, including the amount to be reduced, the consolidation process, and the subsequent actions to be taken by the board of directors. The court directed the company to deliver a certified copy of the order to the Registrar of Companies and publish the notice of registration in designated newspapers.

In conclusion, the judgment addressed the company's need to reduce its share capital to address accumulated losses, ensuring compliance with legal requirements and shareholder approval. The court's confirmation of the reduction provided a legal framework for the company to proceed with the necessary adjustments to its capital structure in line with the resolution passed.