2021 (3) TMI 1374 - Tri - Companies Law

Reduction of Share Capital - section 66 read with section 52 of the Companies Act, 2013 - HELD THAT - The Petitioner Company submitted that the Company has complied with all statutory requirements as per the directions of the Tribunal vide its order dated 22.01.2020 and has filed necessary affidavits to that effect with the Tribunal. Moreover, the Company also undertakes to comply with statutory requirements, if any, under the Act and the Rules made thereunder, as would be applicable. The undertaking given by the Petitioner Company is accepted. Since the requisite statutory procedure has been fulfilled, the Company Petition is made absolute in terms of prayer made in the Petition - Application allowed.

Summary

Issues Involved:
1. Petition for reduction of share capital under Section 66 read with Section 52 of the Companies Act, 2013.
2. Compliance with statutory requirements and protection of stakeholders' interests.
3. Objections raised by the Regional Director and their resolution.
4. Pending inquiries and their impact on the petition.
5. Legal precedents supporting the reduction of share capital.

Detailed Analysis:

1. Petition for Reduction of Share Capital:
The Petitioner Company filed a petition dated 12th December 2019 under Section 66 read with Section 52 of the Companies Act, 2013, seeking approval for the reduction of its share capital. Article 38 of the Articles of Association empowers the company to reduce its share capital by passing a Special Resolution, which was passed on 7th December 2019. The resolution approved the reduction of equity share capital by returning capital to shareholders amounting to INR 0.10 per share, aggregating to INR 3,20,00,000.

2. Compliance with Statutory Requirements and Protection of Stakeholders' Interests:
The Petitioner Company affirmed that the interests of creditors, stakeholders, and government revenue would be protected, and statutory dues would be paid off. The company also stated that tax implications arising from the reduction would be subject to the final decision of the Income Tax Authorities. The company undertook to comply with all statutory requirements under the Act and the Rules made thereunder.

3. Objections Raised by the Regional Director and Their Resolution:
The Regional Director raised several objections:
- Pending Complaints: The Regional Director noted a pending complaint on the MCA portal. The Petitioner Company clarified that the complaint was unrelated to the reduction of capital.
- Protection of Interests: The company submitted an affidavit ensuring the protection of creditors' interests and payment of statutory dues.
- Tax Implications: The company acknowledged that tax issues would be subject to the Income Tax Authorities' scrutiny.
- Section 66 Compliance: The Regional Director argued that the scheme resembled a buy-back rather than a reduction of capital. The Petitioner Company cited legal precedents supporting the reduction of capital even with accumulated losses and demonstrated sufficient liquidity to discharge the consideration.

4. Pending Inquiries and Their Impact on the Petition:
The Regional Director mentioned an ongoing inquiry under Section 206 of the Companies Act, 2013, regarding the booking of significant losses by the company. The Petitioner Company argued that the inquiry and the application for reduction of share capital were independent matters and should not affect the approval of the reduction scheme.

5. Legal Precedents Supporting the Reduction of Share Capital:
The Petitioner Company cited several legal precedents where courts allowed the reduction of share capital despite accumulated losses, provided the company demonstrated sufficient liquidity. Notable cases included:
- Times Global Broadcasting Company Limited
- Atlas Copco (India) Limited
- Raymond UCO Denim Private Limited
- KSH Infra Private Limited
- GMR Highways Limited

The company also referenced the Madras High Court's decision in Re. Panruti Industrial Company (Private) Ltd., which treated the reduction of capital as a matter of domestic concern, primarily decided by the majority of shareholders. The principles distilled from these precedents emphasized that the reduction of share capital is a domestic affair and that the majority decision prevails.

Conclusion:
The Tribunal, after considering the statutory compliance and the legal precedents, allowed the petition for the reduction of share capital. The Special Resolution passed by the shareholders was confirmed, and the minutes of the reduction were approved. The Petitioner Company was directed to file the order with the Registrar of Companies and publish notices about the registration of the order in specified newspapers.

Order:
1. The Special Resolution approved by the shareholders on 7th December 2019 is confirmed.
2. The minutes of reduction are approved.
3. All regulatory authorities are to act on a certified copy of the order.
4. The Petitioner Company is to publish notices about the registration of the order in the specified newspapers within 30 days.

Form of Minutes:
"The Issued, Subscribed & Paid-up Equity Share Capital of Lily Realty Private Limited, the Petitioner Company, is henceforth INR 1,00,000 divided into 10,000 equity shares of INR 10 each, fully paid up, reduced from INR 320,01,00,000 divided into 32,00,10,000 equity shares of INR 10 each, fully paid up."