2011 (10) TMI 510 - HC - Companies Law

Reduction of share capital - buy-back of the shares under Section 77A of the Act - reduction of share capital has to be done on proportionate basis in accordance with Section 77A(5) of the Act Held that - conditions precedent in Section 77A (5) of the Act are applicable only to buy-back of shares under Section 77A of the Act. Consequently, Section 77A(5) of the Act does not apply to a Scheme of Reduction under Section 100 of the Act, as the two operate in entirely different fields - reduction of share capital is a commercial and business decision, which has been approved by 99.999% of equity shareholders of petitioner-company and only 0.0020% of shareholders are opposing - no valid reason for not accepting the proposed scheme of reduction of share capital.

Summary

Issues Involved:
1. Confirmation of reduction of share capital under Sections 100 to 105 of the Companies Act, 1956.
2. Validity of the reduction scheme and valuation of shares.
3. Objections raised by minority shareholders regarding the reduction scheme.
4. Applicability of res judicata.
5. Compliance with Section 77A of the Companies Act, 1956.
6. Legality of economic policies affecting the reduction scheme.

Detailed Analysis:

1. Confirmation of Reduction of Share Capital:
The petitioner-company filed a petition under Sections 100 to 105 of the Companies Act, 1956, seeking confirmation of the reduction of its share capital. The company proposed to reduce its paid-up equity share capital from Rs. 26,27,96,120 to Rs. 25,87,24,670 by canceling and extinguishing 407,145 equity shares held by Lancaster Square Holdings SL and public shareholders. The reduction was approved by the Board of Directors and the largest shareholder, Reckitt Benckiser Plc.

2. Validity of the Reduction Scheme and Valuation of Shares:
The reduction scheme was approved by a special majority of equity shareholders at an EOGM held on 24th April 2010. The valuation of shares was conducted by M/s. T.R. Chadha & Co., which recommended a value of Rs. 836 per share, but the Board approved a payment of Rs. 940 per share. Later, the petitioner offered Rs. 1500 per share to public shareholders, which was accepted by all except Mr. Chander Bhan Gandhi. The court found the valuation fair and reasonable, noting that the valuation report of M/s. J.C. Desai & Co. was withdrawn and could not be relied upon.

3. Objections Raised by Minority Shareholders:
Mr. Chander Bhan Gandhi, the only remaining objector, argued that the reduction amounted to 'forcible acquisition' of shares and was discriminatory. He contended that the scheme's intent was to eliminate minority shareholders and was unfair. The court rejected these objections, citing precedents that upheld similar reduction schemes, emphasizing that the reduction did not require equal treatment of all shareholders and that the principle of 'first in last out' was well established.

4. Applicability of Res Judicata:
Mr. Gandhi argued that the petitioner should not be allowed to go back on its statement recorded in a previous judgment dated 31st May 2005, where the company allowed objectors to retain their shares. The court held that the previous judgment did not create a perpetual bar against presenting another reduction scheme and that the concept of res judicata was not applicable as there was no final determination of the same issue.

5. Compliance with Section 77A of the Companies Act, 1956:
Mr. Gandhi contended that the reduction scheme was effectively a buy-back under Section 77A and should comply with its provisions. The court clarified that Sections 77A and 100 operate in different fields, with Section 77A being an enabling provision for buy-back without court intervention, while Section 100 deals with court-sanctioned reduction schemes. Therefore, the conditions of Section 77A(5) were not applicable to the reduction scheme under Section 100.

6. Legality of Economic Policies Affecting the Reduction Scheme:
Mr. Gandhi challenged the government's policy of removing sectoral caps in the personal care and health sector, arguing it was illegal. The court held that it was not within its domain to question the wisdom of economic policies unless they were capricious, arbitrary, illegal, or uninformed. The court emphasized that economic policy decisions are best left to expert bodies and are not for judicial review.

Conclusion:
The court concluded that the reduction of share capital was a commercial decision approved by an overwhelming majority of shareholders. The objections raised by Mr. Gandhi were found to be without merit. The court approved the reduction scheme, directing the petitioner to file the approved minutes with the Registrar of Companies and publish the notice of registration in specified newspapers. The petition and pending applications were disposed of accordingly.