9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2005 (5) TMI 665 - HC - Companies LawShare capital - Seeking reduction of share capital - mandatorily de-listed from the Stock Exchange - market value of the shares of the company, immediately prior to de-listing - whether the proposed reduction is unfair or inequitable - HELD THAT - In the instant case, the petitioner has given its own justification for its move to reduce the share capital and that too in a specific manner. Admittedly, the effect of the reduction of share capital in the manner contemplated in the scheme is to extinguish the public shareholding and reduce the shareholding of the Lancaster and not affecting shareholding of the promoter. The result would be that the promoter and its subsidiary, namely, Lancaster would hold 100% equity after the proposed reduction. Further, the act of Lancaster in making exit offers three times before the proposed reduction would show that the idea was to acquire the entire shareholding held by public at large. As far as valuation of shares is concerned, it may be noted that this task was assigned to M/s. T.R. Chadha and Co., Chartered Accountants. They submitted their valuation report which reflects that 'Net Asset Valuation Method' (Asset approach) and 'Earning Per Share Method' (Income method) was adopted. Using the 'Net Valuation Method' value per share works out to ₹ 61 73p. per share. Under the 'Earning Per Share Method' the earning per share was computed at ₹ 18 90p. The Chartered Accountants accordingly determined the value per share of the petitioner company using PE multiple, which is based on the PE multiples of comparable companies in the faster moving consumer goods sector. Based on this methodology the value per share of the petitioner company was ascertained at ₹ 231 62p. From the report it is clarified that the valuer has assigned a greater weight to the earnings per share method and accordingly the fair value per share, based on a weighted average of the aforementioned two methods was determined at ₹ 174.99 per share, which amount is 43% lower than the price of ₹ 250/- per share being offered by the petitioner company to its shareholders whose shareholding is proposed to be reduced. In view of the aforesaid, it is submitted that the valuation of the shares of the petitioner company has not been undertaken on a book value basis alone as alleged. The independent valuer has compared values on net asset value, earnings per share and has determined the fair value in accordance with accepted valuation principles. To summarise, when in the instant case 99.97% shareholders have supported the resolution of reduction of share capital; the valuation of the share is arrived at in a reasonable manner and lucrative price for the share is offered; and above all the petitioner has agreed that the objectors may retain their shares, I do not find any legal impediment or any valid reason for not accepting the proposed scheme of reduction of share capital. It is allowed accordingly. The resolution and the Form of Minutes proposed to be registered u/s 103(i)(b) of the Act of the petition respectively, for reduction of paidup equity share capital of the petitioner company, are approved with the modification that the share capital shall be reduced from ₹ 32,91,31,880/- divided into 3,29,13,188 fully paidup equity shares of ₹ 10/- each to ₹ 26,27,96,120/- divided into 2,62,79,612 fully paid up equity share of ₹ 10/- each and these changes shall be incorporated in the Minutes. Amended Minutes be registered u/s 103(i)(b) of the Companies Act. Petition stands disposed of.
Issues Involved:
1. Reduction of Share Capital 2. Compliance with Section 100 of the Companies Act 3. Valuation of Shares 4. Allegations of Discrimination and Mala Fide Intentions 5. Compliance with Section 77A and Section 391 of the Companies Act 6. Protection of Minority Shareholders' Interests Issue-wise Detailed Analysis: 1. Reduction of Share Capital: The petitioner company proposed to reduce its share capital from Rs. 32,91,31,880 to Rs. 26,27,96,120, constituting about 20.15% of its issued and paid-up share capital. This reduction was approved by the Board of Directors and later by the shareholders in an Extraordinary General Meeting. The reduction was sought under Sections 101-105 of the Companies Act, citing excess capital resources and reserves that the company could not profitably employ. 2. Compliance with Section 100 of the Companies Act: Section 100 of the Companies Act allows a company to reduce its share capital if authorized by its articles and approved by a special resolution. The petitioner company fulfilled these requirements, including passing a special resolution and obtaining approval from the shareholders. The court noted that the reduction of share capital is a matter of domestic concern, typically decided by the majority shareholders. 3. Valuation of Shares: The valuation of shares was conducted by M/s. T.R. Chadha and Company, Chartered Accountants. They used the 'Net Asset Valuation Method' and 'Earning Per Share Method,' determining the fair value per share at Rs. 174.99. The company offered Rs. 250 per share, which was significantly higher than the fair value. The court referenced the Supreme Court's observation that valuation is a technical matter and should be carried out by an independent body. 4. Allegations of Discrimination and Mala Fide Intentions: The objector argued that the reduction was discriminatory and aimed to extinguish the class of public shareholders, benefiting the promoter and its subsidiary, Lancaster. The court acknowledged that the reduction would result in the promoter and Lancaster holding 100% equity. However, the court found no unfair or inequitable transaction, especially since the petitioner agreed to allow objectors to retain their shares. 5. Compliance with Section 77A and Section 391 of the Companies Act: The objector argued that the reduction amounted to a buyback of shares, requiring compliance with Section 77A, and that the procedure under Section 391 should be followed. The court disagreed, stating that the reduction of share capital is a separate process under Section 100 and does not attract the provisions of Section 77A or Section 391. 6. Protection of Minority Shareholders' Interests: The court emphasized the need to protect minority shareholders' interests. It noted that the petitioner company had taken steps to ensure that the reduction was fair, including offering a higher price for the shares and allowing objectors to retain their shares. The court found that the majority of shareholders supported the reduction, and the valuation was reasonable. Conclusion: The court approved the proposed reduction of share capital, finding no legal impediment or valid reason to reject the scheme. The resolution and the form of minutes for the reduction were approved with modifications, and the petitioner was directed to file the approved minutes with the Registrar of Companies and publish the notice of registration. The petition was disposed of accordingly.
|
