2007 (9) TMI 426 - HC - Companies Law

Reduction of share capital - Held that - In the present case the shareholders and the creditors of the petitioner-company have unanimously approved the scheme including the reduction of share capital and none are stated to be affected by such reduction. Considering the facts and circumstances it cannot be said that there has been any unfair or inequitable transaction so as not to permit the petitioner to reduce its share capital. Consequently, there are no legal impediments or any valid reason for not accepting the proposed scheme of cancellation and reduction of share capital. The petition is allowed accordingly. The resolution and the form of minutes proposed to be registered under section 103(1)(b) of the Act as mentioned above for reduction of share capital of the petitioner-company is approved from the date of this order and the same is disposed of. A copy of the approved minutes be filed with the Registrar of Companies within six weeks.

Summary

Issues Involved:
1. Reduction of share capital under sections 101, 102, and 103 of the Companies Act, 1956.
2. Approval and confirmation of the scheme of amalgamation and arrangement.
3. Compliance with legal requirements and creditors' consent.
4. Judicial precedents and principles applicable to reduction of share capital.

Detailed Analysis:

1. Reduction of Share Capital:
The petitioner-company sought reduction of its share capital from Rs. 73,95,08,080 to Rs. 24,63,86,251 by canceling equity share capital of Rs. 49,31,21,830, which would be credited to the general reserve account. This reduction was approved by a special resolution passed in an extraordinary general meeting held on 11-6-2007, per section 189 of the Companies Act, 1956.

2. Approval and Confirmation of the Scheme:
The scheme of amalgamation and arrangement between Mawana Sugar Ltd. and the petitioner-company included the cancellation and reduction of share capital. The scheme was unanimously approved by the board of directors and shareholders of the petitioner-company. The specific provisions of the scheme detailed the exchange and cancellation of shares, the reduction of share capital, and the issuance of new equity shares.

3. Compliance with Legal Requirements and Creditors' Consent:
The reduction of share capital did not involve diminution of any liability in respect of unpaid capital or payment to any shareholder of any paid-up capital. Therefore, none of the creditors would suffer any loss or object to the reduction. The court had directed the petitioner-company to hold separate meetings of its shareholders and creditors, which were held on 11-6-2007, and the resolution for reduction of share capital was passed as a special resolution. The Regional Director filed an affidavit stating that the Central Government had no objection to the proposed reduction.

4. Judicial Precedents and Principles:
The judgment referenced several judicial pronouncements summarizing the principles for reduction of share capital:
- The decision of the majority prevails, and they have the right to decide how the reduction should be carried out.
- Selective reduction of share capital is permissible.
- The court must be satisfied that there is no unfair or inequitable transaction and that all creditors entitled to object have either consented or been paid or secured.

In the case of Novopan India Ltd., In re [1997] 14 SCL 233 (AP), it was held that since the reduction had been approved unanimously by the shareholders and creditors, and no objections were raised, the requirements of section 102 of the Act were deemed satisfied.

Conclusion:
The court found no legal impediments or valid reasons to reject the proposed scheme of cancellation and reduction of share capital. The petition was allowed, and the resolution and form of minutes proposed to be registered under section 103(1)(b) of the Companies Act, 1956, were approved. A copy of the approved minutes was to be filed with the Registrar of Companies within six weeks.