2020 (5) TMI 660 - Tri - Companies Law

Reduction of share capital - Section 66(1) of the Companies Act, 2013 - Section 66(1) of the Companies Act, 2013 - HELD THAT - Section 66(3) of Companies Act, 2013 states that no application for reduction of share capital shall be sanctioned by the Tribunal unless the accounting treatment, proposed by the company for such reduction is in conformity with the accounting standards specified in Section 133 or any other provision of this Act and a certificate to that effect by the company's auditor has been filed with the Tribunal. We have perused the minutes of the Annual General Meeting of the company held on 19.08.2019 (page 123 to 126 of the paper book). Page 123 of the Paper book records that With the consent of the Members present, Mr. Balvinder Sahrawat was elected to chair the meeting. On Page 124 of the paper book, it is recorded that the meeting has passed the resolution for reduction of capital as an ordinary resolution . The minutes of the meeting have been signed by the Chairman of the meeting on pg 126 of the paper book - thus, the company has not met the specific requirement of Section 66 of the Companies Act by passing 'Special Resolution' for reduction of share capital. The Company has also not complied with the requirements of its own Articles of Association. Petition dismissed.

Summary

Issues:
Application for confirming reduction of share capital under Section 66(1) of the Companies Act, 2013.

Analysis:
1. The Applicant Company sought confirmation for the reduction of its share capital, following resolutions passed by its members. The Company's background, including its incorporation details and business objectives, were presented in the application.

2. The financial status of the Company was outlined, showing the authorized, issued, subscribed, and paid-up share capital as of specific dates. The rationale behind the proposed reduction was explained, emphasizing the need to realign the equity share capital structure due to accumulated losses.

3. The application detailed the method of reduction, involving adjustments against accumulated losses, payments to shareholders, and the impact on the Company's financial accounts. Declarations regarding the Company's shareholders, creditors, and financial statements were provided to support the application.

4. Legal provisions under Section 66(3) of the Companies Act, 2013 were highlighted, requiring conformity with accounting standards and submission of a certificate from the company's auditor. The auditor's certificate confirmed compliance with accounting principles, although specific reference to Section 133 of the Act was lacking.

5. The judgment pointed out discrepancies in the Company's compliance with the Companies Act and its own Articles of Association. The absence of a special resolution for share capital reduction, as mandated by Section 66, led to the rejection of the application.

6. The Tribunal emphasized the importance of meeting statutory requirements, specifically the need for a special resolution for share capital reduction. Despite rejecting the current petition, the petitioner was granted the liberty to reapply after fulfilling all necessary statutory obligations under Section 66 of the Companies Act.

This comprehensive analysis covers the key aspects of the judgment, addressing the issues raised in the application for the reduction of share capital under the relevant legal framework.