2012 (4) TMI 46 - HC - Companies Law

Petition u/s 100 to 105 - Rule 46 of the Companies (Court) Rules, 1959 - Reduction of share capital - Upon the respondent Company thereafter filing the petition aforesaid for approval of its action of reduction of share capital, initially 24 shareholders including the appellant filed objections - Held that the valuation of the shares, since the Board of Directors of the respondent Company itself had not accepted the valuation at Rs. 836/- per share of the Accountants engaged by the respondent Company and had increased the valuation to Rs. 940/- and further since the respondent Company when faced with the objections had further increased the said valuation to Rs. 1,500/- but nevertheless find that there can be no better indice of valuation than the market forces - The acceptance by all the other public shareholders except the appellant of the price of Rs. 1,500/- clearly establishes that though the price of Rs. 940/- offered may not have been the correct price but the price of Rs. 1,500/- clearly was - Appeal is dismissed

Summary

Issues:
- Dismissal of objections to the petition for reducing share capital under Companies Act, 1956.
- Valuation of shares for reduction of share capital.
- Compliance with legal procedures for reduction of share capital.
- Fair treatment of minority public shareholders during reduction process.

Analysis:
1. Dismissal of Objections: The appellant challenged the reduction of share capital by the respondent company, alleging unfair treatment of minority public shareholders. The appellant's objections included concerns about economic policies, forcible acquisition of shares, discrimination, valuation of shares, and procedural irregularities. However, the court upheld the respondent company's actions, emphasizing that the reduction was approved by a special majority of shareholders, including the majority promoter shareholders. The court also noted that the appellant's objections lacked merit, especially after other objectors accepted the revised valuation of Rs. 1,500 per share.

2. Valuation of Shares: The appellant raised issues regarding the valuation of shares, arguing that the price offered was inadequate. Despite the appellant's contentions, the court found that the valuation process was fair and reasonable. The court highlighted that the valuation report, although contested by the appellant, was acceptable as it had been withdrawn by other objectors. The court concluded that the price of Rs. 1,500 per share, accepted by the majority of shareholders, was just and reflective of market forces.

3. Compliance with Legal Procedures: The court emphasized that the reduction of share capital was carried out in compliance with Section 100 of the Companies Act, 1956 and the Articles of Association of the respondent company. It clarified that the procedure for reduction did not require a separate class resolution, as in the case of a Scheme of Arrangement. The court rejected the appellant's arguments related to the application of Section 391 and upheld the validity of the reduction process followed by the respondent company.

4. Fair Treatment of Minority Shareholders: The appellant contended that the reduction unfairly targeted minority public shareholders, while favoring the promoter group. However, the court ruled that the reduction was a legitimate commercial decision approved by the majority of equity shareholders. The court highlighted previous judgments that supported the fair treatment of non-promoter shareholders, as long as they received fair value for their shares. The court dismissed the appellant's claims of discrimination and forcible acquisition, emphasizing the legality and fairness of the reduction process.

In conclusion, the court dismissed the appeal, affirming the legality and fairness of the respondent company's reduction of share capital. The judgment highlighted the importance of compliance with legal procedures, fair valuation of shares, and equitable treatment of shareholders in such corporate actions.