2020 (2) TMI 1408 - Tri - Companies Law

Reduction in Share Capital - Selective Reduction of shares - HELD THAT - In view of the fact that all the shareholders have approved the reduction including shareholders whose shares are being cancelled and as per the law as laid down and as stated hereinabove, Petition for reduction of share capital is allowed - Since the requisite statutory procedure has been fulfilled, the company petition is made absolute in terms of the prayer clause of the Petition. The petitioner company undertakes to file certified copy of the order duly certified by the Assistant Registrar/Deputy Registrar, National Company Law Tribunal, Mumbai Bench with the Registrar of Companies within 30 days of receipt of this order - All concerned regulatory authorities to act on production of certified copy of this order to be issued on demand by the Assistant Registrar/Deputy Registrar, National Company Law Tribunal, Mumbai Bench - The minutes set forth hereto be and is hereby approved.

Summary

Issues Involved:
1. Confirmation of special resolution for reduction of share capital.
2. Compliance with legal provisions under Companies Act, 2013.
3. Selective reduction of share capital and its fairness.
4. Observations and objections raised by the Regional Director.
5. Compliance with tax and foreign exchange regulations.

Issue-Wise Detailed Analysis:

1. Confirmation of Special Resolution for Reduction of Share Capital:
The petitioner Company sought confirmation of a special resolution passed by its shareholders for the reduction of the paid-up equity share capital. The resolution was unanimously approved in the Extra Ordinary General Meeting held on 11th January 2019. The reduction involved canceling 58,80,000 equity shares held by specific shareholders and reducing the securities premium account by ?5,12,00,000.

2. Compliance with Legal Provisions under Companies Act, 2013:
The Company’s Articles of Association empowered it to reduce its share capital by passing a special resolution. The reduction was carried out in accordance with Section 66 read with Section 52 of the Companies Act, 2013, and the National Company Law Tribunal (Procedure for Reduction of Share Capital of Company) Rules, 2016. The accounting treatment for the reduction was certified by the statutory auditor and complied with Generally Accepted Accounting Principles in India.

3. Selective Reduction of Share Capital and Its Fairness:
The reduction was selective, targeting shares held by Essentialentropy Technology LLP and Mr. Ramkrishna Gaddipati, who desired to exit the Company. The rationale was to provide an exit to these shareholders. The Regional Director raised concerns about the fairness of the selective reduction. However, it was clarified that the reduction was initiated at the request of the exiting shareholders and was unanimously approved by all shareholders. The Tribunal referred to precedents affirming that selective reduction is permissible and a matter of domestic concern.

4. Observations and Objections Raised by the Regional Director:
The Regional Director’s report highlighted that the selective reduction might be unfair to other shareholders and did not fall under specific provisions of Section 66(1) of the Companies Act, 2013. The petitioner Company responded that the reduction was requested by the exiting shareholders and was approved by all shareholders. The Tribunal found the petitioner’s clarifications satisfactory and noted that the reduction was a domestic matter decided by the majority.

5. Compliance with Tax and Foreign Exchange Regulations:
The Regional Director also raised concerns about compliance with RBI regulations, assuming the shareholders were foreign entities. The petitioner clarified that the exiting shareholders were Indian residents, thus no foreign exchange compliance was required. Additionally, the Company undertook to comply with all applicable provisions of the Income-tax Act, 1961.

Conclusion:
The Tribunal allowed the petition for reduction of share capital, noting that all shareholders, including those whose shares were being canceled, had approved the reduction. The statutory procedure was fulfilled, and the reduction was deemed compliant with legal provisions. The petitioner was directed to file a certified copy of the order with the Registrar of Companies and ensure compliance with regulatory authorities. The minutes of the reduction were approved, reflecting the new paid-up share capital and securities premium account.