2015 (11) TMI 384 - HC - Companies Law

Reduction of paid up share capital seeked - Held that - As stated in the petition and as seen from the financial statements filed, the decision taken to have a true reflection of the financial position of the company is purely a commercial decision. Considering the fact that such move has been approved by the overwhelming majority of the shareholders, apart from the facts that such reduction does not involve the diminution of any liability in respect of unpaid share capital or the payment to any shareholder of any paid-up capital, and there is no outflow of funds or assets from the petitioner or any reduction in the amount payable to any of the creditors and the reduction will not affect the normal operations of the petitioner or its ability to honour its commitment and to pay its debts in the ordinary course of business, this Court does not find any impediment in granting the reliefs prayed for herein. In the light of the above said facts, the procedure stipulated in Section 101(2) and (3) of the Companies Act, 1956, for the settlement of list of creditors will not apply. The prayers sought for in this petition are granted and the petition is allowed. A certified copy of the order including the minutes as approved be delivered to the Registrar of Companies within twenty one days and the notice of the registration order by the Registrar of Companies and of the said minutes as approved by this Court be published in one issue of English daily The New Indian Express and also in one issue of Tamil Daily Dinamani within four weeks from the date of receipt of copy of the order. Direction to petitioner company to pay a sum of ₹ 5,000/- (Rupees five thousand only) towards fee to the Central Government Counsel for Regional Director.

Issues:
1. Reduction of paid-up share capital under Sections 100 and 101 of the Companies Act, 1956, Section 52 of the Companies Act, 2013, and related rules.
2. Validity of the resolution passed by the shareholders for the reduction of share capital, share premium, and capital reserves.
3. Compliance with necessary procedures and approvals for the reduction of capital.
4. Consent of the Regional Director and absence of objections for the proposed reduction.
5. Publication and advertisement of the petition for reduction of capital.
6. Financial position and commercial decision for the reduction of capital.
7. Discharge of liabilities, impact on creditors, and ability to meet obligations post-reduction.
8. Grant of reliefs sought in the petition and approval by the Court.
9. Directions for registration and publication of the order and payment of fees to the Central Government Counsel.

Analysis:

1. The petition sought confirmation for the reduction of paid-up share capital under relevant provisions. The proposed reduction involved adjusting the share capital, share premium, and capital reserves to reflect a new structure. The petitioner company, engaged in the business of converting cotton into yarn, presented detailed financial accounts and resolutions for the reduction.

2. The shareholders, in an Extraordinary General Meeting, unanimously passed a special resolution approving the reduction of share capital, share premium, and capital reserves. The resolution complied with legal requirements and sought consent for the reduction from members, subject to necessary approvals and confirmation by the High Court.

3. The petition demonstrated compliance with procedural requirements, including shareholder consent, notice convening the meeting, and submission of necessary documents. The Court noted the absence of objections from the Regional Director and the petitioner's compliance with statutory procedures for the reduction.

4. Publication of the petition's advertisement in local newspapers ensured transparency and compliance with notification requirements. The Regional Director's report indicated no objections to the proposed reduction, further supporting the validity of the petition.

5. The Court considered the commercial rationale behind the reduction, emphasizing that it did not impact creditors' rights or the company's ability to meet its obligations. The reduction was viewed as a strategic decision approved by the majority of shareholders, aligning with the company's financial position and operational continuity.

6. Given the absence of liabilities related to unpaid share capital and the petition's alignment with legal provisions, the Court granted the reliefs sought. The order directed the company to register the approved minutes and publish the Court's decision in specified newspapers.

7. Additionally, the Court instructed the petitioner company to pay fees to the Central Government Counsel for the Regional Director, concluding the judgment with directions for compliance with the approved reduction and publication requirements.

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