2016 (7) TMI 1615 - HC - Companies Law

Reduction of share capital - Section 101(2) of the Companies Act, 1956 - HELD THAT - In view of the averment made in Paragraph 12 to 15 of the Affidavit in support of Summons for Direction, inter-alia stating that there are no Secured Creditors and that the proposed reduction of equity share capital would not in any way adversely affect the interests of any of the Applicant Company s creditors or the ordinary operations of the Applicant Company or the ability of the Applicant Company to honour its debts in the ordinary course of business , and no compromise or arrangement is called for with any of the creditors of the Applicant Company as there is no reduction in the amount payable to any of the creditors of the Applicant Company. The procedure prescribed under Section 101(2) of the Companies Act, 1956 is dispensed with.

Summary

Issues Involved:
Reduction of Share Capital, Special Resolution, Company Scheme Petition, Compliance with Companies Act, 1956

Reduction of Share Capital:
The judgment pertains to an application by a company for direction to reduce its share capital. The company had passed a special resolution at an Extraordinary General Meeting to reduce its equity share capital by canceling shares held by an individual. The consideration for this reduction was set at a price of ?1 per share, totaling ?4,19,083. The affidavit submitted confirmed that the reduction of capital would not adversely affect the company's creditors or its ability to honor debts, as there were no secured creditors and no compromise with any creditors was necessary. The court dispensed with the procedure under Section 101(2) of the Companies Act, 1956, based on the averments made in the affidavit.

Special Resolution:
The judgment highlighted the importance of passing a special resolution for the reduction of share capital, as per Article 4 of the company's Articles of Association. The company successfully obtained the requisite majority at the Extraordinary General Meeting, as evidenced by Exhibit 'G-1' to the Company Scheme Petition. This resolution was a crucial step in the process of reducing the equity share capital, and it was duly followed by the company.

Company Scheme Petition:
The Company Scheme Petition included the details of the reduction of equity share capital, specifying the amount by which it was to be reduced and the consideration to be paid for the cancellation of shares. The approval of this scheme through a special resolution was a significant aspect of the overall process, demonstrating compliance with the legal requirements and ensuring transparency in the company's actions.

Compliance with Companies Act, 1956:
The judgment emphasized the need for compliance with the Companies Act, 1956, particularly in matters concerning the reduction of share capital. By following the prescribed procedures, obtaining the necessary approvals, and providing assurances regarding the impact on creditors and the company's operations, the applicant company demonstrated its commitment to adhering to the regulatory framework governing such corporate actions. The court's decision to dispense with certain procedural requirements was based on the company's fulfillment of these legal obligations.