2019 (8) TMI 1737 - Tri - Companies Law

Reduction of its share capital - Section 66 of the Companies Act, 2013 read with National Company Law Tribunal (Procedure for Reduction of Share Capital of the Company) Rules, 2016 - HELD THAT - It is observed that while objections have not been received from Creditors, neither has any consent affidavits on their behalf been produced. In Re Panruti lndustrial Co. Private Ltd, 1959 (9) TMI 59 - MADRAS HIGH COURT , it was held that the Court s power to sanction any reduction is to be determined by whether such reduction is fair and equitable. It is the bounden duty of the Tribunal to ensure that no injustice is meted out to any class of shareholders and even to creditors. Section 52 provides utilisation of security premium Account for premium payable on redemption of redeemable preference shares or of any debentures of the company or for the purchase of its own shares or other securities under section 68 of the Companies Act, 2013 - The present petition moreover, also involves selective reduction in equity share capital to a particular group involving non-promoter shareholders and bring the petitioner company as wholly owned subsidiary of its current holding company and also return excess of capital to them. This is an arrangement between the company and shareholders or a class of them and hence it is also not covered under Section 66. The relief as sought in the instant Company Petition under Section 66 of the Companies Act, 2013 is not covered under this Section - the instant case may be covered under Sections 230232 of the Companies Act, 2013, wherein compromise or arrangement between the Company and its creditors or any class of them or between a Company and its members or any class of them is permissible - Petition dismissed.

Summary

Issues Involved:
1. Reduction of Share Capital under Section 66 of the Companies Act, 2013
2. Compliance with Articles of Association and Special Resolution
3. Valuation and Fairness of the Reduction Scheme
4. Impact on Creditors and Compliance with Regulatory Requirements
5. Selective Reduction and Treatment of Non-Promoter Shareholders
6. Utilization of Securities Premium Account
7. Jurisdiction and Authority of the Tribunal

Issue-wise Detailed Analysis:

1. Reduction of Share Capital under Section 66 of the Companies Act, 2013:
The Petitioner Company filed for the confirmation of the reduction of its share capital as per a Special Resolution dated 04th February 2019. The reduction aimed to make the company a wholly-owned subsidiary of its current holding company by selectively reducing the equity share capital held by non-promoter shareholders.

2. Compliance with Articles of Association and Special Resolution:
The Company’s Articles of Association, specifically Articles 45 and 47, allow for the reduction of capital by special resolution. The Board of Directors approved the reduction on 24th January 2019, and the shareholders passed the resolution with 100% approval at the Extraordinary General Meeting on 04th February 2019.

3. Valuation and Fairness of the Reduction Scheme:
The Petitioner Company obtained a valuation report from M/s BDO India LLP, which supported the valuation methodology. The Registrar of Companies (ROC) and Regional Director (RD) raised concerns about the lack of a filed valuation report and the fairness of the selective reduction. The Petitioner responded by providing the valuation report and clarifying the selective reduction's necessity to provide liquidity to non-promoter shareholders.

4. Impact on Creditors and Compliance with Regulatory Requirements:
The Petitioner Company asserted that the reduction would not prejudice creditors, as it did not involve unpaid share capital or compromise with creditors. The ROC and RD raised issues regarding compliance with Section 125 (IEPF), FEMA/RBI regulations, and the treatment of statutory dues. The Petitioner Company undertook to comply with all relevant regulations and provided necessary certificates and clarifications.

5. Selective Reduction and Treatment of Non-Promoter Shareholders:
The reduction targeted non-promoter shareholders to make the company a wholly-owned subsidiary. The ROC and RD questioned the fairness and legality of this selective approach. The Petitioner Company justified the selective reduction by citing past requests from non-promoter shareholders for liquidity and referenced similar cases where selective reduction was permitted.

6. Utilization of Securities Premium Account:
The Petitioner Company proposed to utilize the Securities Premium Account for the reduction, which the RD contested was not in compliance with Section 52 of the Companies Act, 2013. The Petitioner argued that the utilization was permissible under Section 66 when combined with Section 52, citing precedents from various High Courts and NCLT benches.

7. Jurisdiction and Authority of the Tribunal:
The Tribunal emphasized its duty to ensure fairness and equity in reduction schemes. It referred to several judgments, including Re Panruti Industrial Co. Private Ltd and Re Reckitt Benckiser (India) Ltd., which highlighted the Court's role in protecting minority shareholders and creditors. The Tribunal concluded that the present petition did not fall under Section 66 but rather under Sections 230-232, which pertain to compromises and arrangements.

Conclusion:
The Tribunal dismissed the petition under Section 66, granting liberty to the Petitioner to file a fresh application under the appropriate sections of the Companies Act, 2013, specifically Sections 230-232. The Tribunal underscored the necessity for the scheme to be fair, equitable, and compliant with all legal requirements, ensuring no prejudice to any class of shareholders or creditors.