2010 (6) TMI 325 - HC - Companies Law

Sanction and confirmation with regard to the special resolution passed by the Petitioner s shareholders in its Extraordinary General Meeting ( EGM ) held on 15-10-2009, for the reduction of its equity share capital seeked Held that - In the present case, the Petitioner-Company does not have any secured creditors as set out hereinabove. Not a single unsecured creditor has raised objection qua the reduction in capital proposed by the Petitioner-Company. The hearing of the petition was advertised by the Petitioner-Company as directed by this Court in two local newspapers and in the Maharashtra Gazette. However, except for Mr. Lakhani, none of the public shareholders have come forward to oppose the petition. I find that the valuation of the shares by the Petitioner-Company is therefore also accepted by all the shareholders and creditors with the single exception of Mr. Lakhani. Mr. Lakhani himself has also not attributed any motives to Grant Thornton nor commented on its independent professional status or competency. In fact, the Petitioner-Company has taken the pains of getting a response of Grant Thornton to every objection raised by Mr. Lakhani pertaining to the valuation carried out by Grant Thornton. The report of Grant Thornton sets out the basis for arriving at the final opinion. The report clearly mentions that valuation is done by giving predominant weightage to the value computed under the Market Multiple Method and Discounted Cash Flow Method, with a lower weight being given to the value computed under the NAV method. Thus Company Scheme Petition is allowed

Issues Involved:
1. Reduction of equity share capital.
2. Compliance with the Companies Act, 1956.
3. Fairness and equity of the proposed reduction.
4. Voting procedures and proxy voting.
5. Objections regarding the valuation of shares.

Issue-wise Detailed Analysis:

1. Reduction of Equity Share Capital:
The Petitioner Company sought the Court's sanction for a special resolution passed at its Extraordinary General Meeting (EGM) on 15-10-2009, to reduce its equity share capital by paying off non-promoter shareholders Rs. 425 per share, which includes a premium of Rs. 415 per share. The rationale was that the company's securities were delisted, preventing shareholders from realizing optimal value and returns on their investments.

2. Compliance with the Companies Act, 1956:
The reduction of share capital was proposed under Section 100 of the Companies Act, 1956, and Article 50 of the Articles of Association of the Petitioner Company. The Court noted that the law permits a company to reduce its share capital if it is authorized by its Articles of Association, has passed a special resolution, and the resolution is sanctioned by the Court.

3. Fairness and Equity of the Proposed Reduction:
The Court examined whether the reduction was fair and equitable. The Petitioner Company argued that the reduction offered an opportunity for shareholders to liquidate their shares at an attractive price. The Court referred to precedents, including the British & American Trustee & Finance Corpn. v. Couper case, which established that a company could extinguish some of its shares without dealing in the same manner with all other shares, provided the transaction was fair and equitable.

4. Voting Procedures and Proxy Voting:
An objection was raised regarding the voting procedures at the EGM, particularly that proxies were allowed to vote by show of hands. The Court clarified that as per the Proviso to Section 176(1) of the Act, a proxy is to vote only on poll unless the Articles of Association provide otherwise. Since the Articles of the Petitioner Company allowed proxies to vote by show of hands, the objection was rejected.

5. Objections Regarding the Valuation of Shares:
An objector contended that the valuation method used by the Petitioner Company was inconsistent with the method used during the open offer in 2001. The valuation was conducted by M/s. Grant Thornton, which applied generally accepted valuation methodologies. The Court found that the valuation was fair, reasonable, and based on cogent reasoning, and noted that the valuation was accepted by all non-promoter shareholders except the objector. The Court also referred to several precedents, including Miheer H. Mafatlal v. Mafatlal Industries Ltd., which emphasized that valuation is a complex problem best left to experts.

Conclusion:
The Court concluded that the reduction of equity share capital was fair and equitable, complied with the Companies Act, 1956, and was approved by an overwhelming majority of shareholders. The objections raised were found to be without merit, and the Company Scheme Petition was allowed in terms of prayer clauses (a) and (b).

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