2016 (7) TMI 1656 - HC - Companies Law

Reduction of Share Capital - Section 100 to 105 of the Companies Act, 1956 - HELD THAT - In view of the averments made in paragraph 20 to 24 of the Affidavit in Support of Company Summons for Direction, inter-alia stating that there are no Secured Creditors in the Applicant Company and that the unsecured creditor has given its consent in writing for the proposed reduction which is attached to the Affidavit in Support of Company Summons for Direction as Exhibit L and that the proposed reduction would not in any way adversely affect the interest of any of the Applicant Company s creditors or the ordinary operations of the Applicant Company in the ordinary course of its business and that there is no compromise or arrangement 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. In view of above, the procedure prescribed under Section 101(2) of the Companies Act, 1956 is dispensed with.

Summary

Issues:
Reduction of share capital through special resolution under Companies Act, 1956.

Analysis:
The judgment deals with an application by a company seeking directions for reducing its share capital as per Clause 4(B) of its Articles of Association, which allows reduction by passing a Special Resolution in accordance with Sections 100 to 105 of the Companies Act, 1956. The company had already passed a Special Resolution at an Extra Ordinary General Meeting for reducing its share capital from Rs. 285,00,00,000 to Rs. 41,83,39,250. This reduction involved cancelling a specific number of equity shares and preference shares, adjusting against the debit balance of Profit & Loss Account, and paying a cash consideration to shareholders. The judgment also noted that there were no secured creditors, the unsecured creditor had consented in writing, and the proposed reduction would not adversely affect any creditors or the company's ordinary operations.

The court, after considering the application and the supporting affidavit, approved the reduction of share capital as per the company's proposal. It was highlighted that the procedure under Section 101(2) of the Companies Act, 1956 was dispensed with due to the absence of any compromise or arrangement with creditors, ensuring that the reduction would not impact the interests of creditors or the company's regular business operations. The judgment emphasized the compliance with the statutory provisions and the company's internal regulations, ensuring a lawful and transparent process for the reduction of share capital. By granting the approval for the reduction, the court validated the company's actions in line with the legal framework governing such corporate decisions.