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2019 (9) TMI 1427 - Tri - Companies LawReduction of share capital - Section 66 of the Companies Act, 2013 (Act) read with Rule 2 of the National Company Law Tribunal (Procedure for Reduction of Share Capital) Rules, 2016 - HELD THAT - The proposal for reduction of share capital involves exit of only the identified shareholders on the ground that the capital reduction will give an opportunity to the identified shareholders to exit at a fair valuation, as the shares held by them are otherwise not marketable or tradeable, since the shares of BTL were delisted in 1999-2000. It is also stated that BTL has adequate reserves/funds to carry out the proposed capital reduction and such capital reduction will also enable BTL to save administrative and other costs associated with servicing a very small percentage of its shareholding held by a large number of shareholders dispersed across the country and overseas. The provision regarding purchase of its own shares by a company is contained in Section 68 of the Act. The petition presently under consideration is filed under Section 66 of the Act for confirmation of reduction of share capital. Therefore, the satisfaction of the conditions provided for under Section 68 of the Act are irrelevant in the present proceeding. We may also add here that Section 66(6) of the Act provides that nothing in Section 66 shall apply to 'buy back' of its own securities by a company under Section 68 of the Act and therefore, the Sections are regarded as independent. The contention raised is not accepted. It has been pleaded by the authorized representative/counsel of the intervention applicants that passing of resolution through postal ballot and e-voting without conducting personal/physical voting is violative of the rights of the identified shareholders to avoid free exchange of views and ideas amongst the identified shareholders. The Learned Senior Counsel for BTL has referred to Section 110 of the Act in which some types of business are not to be undertaken by postal ballot. It is pleaded that the present business is not covered by the exceptions and that holding of Extraordinary General Meeting at one location is burdensome for the shareholders since they find it difficult to travel long distance for attending the meeting and therefore, postal ballot helps increase voter participation. The plea raised is therefore, not accepted. The prejudice is caused to the identified shareholders by the proposal in the explanatory statement that the dividend distribution tax of ₹ 33.55 per share will be further reduced from the value per share of ₹ 196.8 given by the valuer and the fairness opinion. The prejudice is a concerted attempt to force a class of shareholders to divest themselves of their holdings at a rate far below what is reasonable, fair and just and connotes a form of discrimination. In the present case, we have found no patent unfairness in the valuation report dated 19.06.2018. We have however held that the deduction of DDT from the value per share as per the valuation report dated 19.06.2018, causes prejudice to the identified shareholders and is a concerted attempt to force a class of shareholders to divest themselves of their holdings at a rate far below what is reasonable, fair and just and connotes a form of discrimination. We note that 76.35% of the identified shareholders voting on the special resolution accepted even the reduced value of ₹ 163.25 per equity share after deduction of DDT from the value per share as per the valuation report dated 19.06.2018. We note that there are no objections to the scheme from the creditors - as per Section 66(3) of the Act, the Tribunal can make an order confirming the reduction of share capital on such terms and conditions as it deems fit. As per Rule 6(2) of the Rules, the order confirming the reduction of share capital be issued by the Registrar in Form No. RSC-6. Application disposed off.
Issues Involved:
1. Reduction of share capital under Section 66 of the Companies Act, 2013. 2. Fairness and equity of the proposed capital reduction. 3. Methodology adopted by the valuers for determining share value. 4. Objections raised by shareholders and creditors. 5. Compliance with statutory requirements and procedural aspects. Issue-wise Detailed Analysis: 1. Reduction of Share Capital under Section 66 of the Companies Act, 2013: The petition was filed by Bharti Telecom Ltd. (BTL) for confirming the reduction of share capital under Section 66 of the Companies Act, 2013, read with Rule 2 of the National Company Law Tribunal (Procedure for Reduction of Share Capital) Rules, 2016. BTL proposed to reduce its paid-up equity share capital by cancelling and extinguishing shares held by identified shareholders, offering them a fair valuation for their shares. 2. Fairness and Equity of the Proposed Capital Reduction: The Tribunal examined whether the proposed reduction was fair, equitable, and just. It was noted that the reduction aimed to provide an exit route for identified shareholders whose shares had lost marketability post-delisting. The Tribunal referenced judicial precedents, including Reckitt Benckiser (India) Ltd. and R.S. Live Media Pvt. Ltd., which upheld selective reduction of share capital as permissible within the framework of law, provided it was not unfair or inequitable. 3. Methodology Adopted by the Valuers for Determining Share Value: BTL appointed Ernst & Young Merchant Banking Services Pvt. Ltd. as the independent valuer, and the valuation report was submitted on 19.06.2018. The valuation considered the market value of Bharti Airtel Ltd. (BAL) shares, other assets/liabilities, and applied a 25% Discount for Lack of Marketability (DLOM). The final value per equity share was determined to be ?196.80, including ?33.55 per share as Dividend Distribution Tax (DDT). The Tribunal found the valuation methodology reasonable and in line with judicial precedents, rejecting objections regarding the DLOM and the comparison with preferential allotment prices to SingTel. 4. Objections Raised by Shareholders and Creditors: Several objections were raised, including claims that selective capital reduction was impermissible, the valuation methodology was flawed, and the DDT should not be deducted from the share value. The Tribunal addressed each objection, finding that selective reduction was permissible under Section 66(1) and that the valuation methodology, including DLOM, was reasonable. The Tribunal also noted that the DDT liability should not be deducted from the share value, as it would prejudice the identified shareholders. 5. Compliance with Statutory Requirements and Procedural Aspects: The Tribunal confirmed that BTL had complied with all statutory requirements, including obtaining consents from creditors, issuing notices, and publishing advertisements. The special resolution for capital reduction was passed with 99.9% of shareholders voting in favor. The Tribunal directed that the consideration offered to identified shareholders should be ?196.80 per share, without deducting the DDT. Conclusion: The Tribunal approved the reduction of BTL's share capital, confirming that the process was fair, equitable, and in compliance with legal requirements. The reduction was to be effected by cancelling and extinguishing shares held by identified shareholders, offering them ?196.80 per share without deducting DDT. The Tribunal also dispensed with the requirement of adding "and reduced" to the capital structure description of BTL.
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