2016 (11) TMI 1134 - HC - Companies Law

Reduction of the share premium account - special resolution passed by the requisite majority of its equity shareholders - Held that - From the facts of the case on record it is quite clear that the adjustment of the consolidated loss of the petitioner company as on 31-3-2015 as against the surplus in its Securities Premium Account also as on 31-3-2015 will not cause any prejudice to any creditor of the company or entail reduction in the value of its shares. The decision to adjust the consolidated loss with surplus/ (deficit) in Securities Premium Account is purely a commercial decision with the approval by the Shareholders with the required majority by way of a special resolution. It is in consonance with the Articles of Association of the petitioner company. There is no outflow of any fund or assets of the petitioner company nor any disability resultantly obtains to the company s working in its day to day business, or otherwise, from the reduction of the share capital) (securities premium account). The adjustment sought by the petitioner company only facilitates reflecting of the correct financial statement of the affairs of the company to its benefit in the market place. Consequently, we allow this petition and confirm the reduction of the petitioner company s share capital (Securities Premium Account) against the accumulated losses in the surplus/ (deficit) head of Reserves & Surplus of the petitioner company in terms of the special resolution passed by the requisite majority of the equity shareholders of the petitioner company through postal ballot and e-voting on 16-1-2016. I would also approve the form of Minutes under Section 103(1) of the Act of 1956 as set out in para 20 of the petition which is proposed to file with the ROC (Jaipur). The procedure prescribed in Section 101(2) of the Act of 1956 is dispensed with as also is dispensed with is the formalities of the words And Reduced while describing capital structure of petitioner company while confirming the approved reduction of share capital (Securities Premium Account).

Summary

Issues Involved:
1. Approval for reduction of share premium account.
2. Compliance with statutory provisions.
3. Objections raised by the Registrar of Companies (ROC).
4. Validity of investments in subsidiaries.
5. Applicability of Section 52 of the Companies Act, 2013.
6. Impact on creditors and shareholders.
7. Procedural compliance and publication of the order.

Detailed Analysis:

1. Approval for Reduction of Share Premium Account:
The petitioner company sought court approval under Section 52 of the Companies Act, 2013, corresponding to Section 78 of the Companies Act, 1956, to reduce its share premium account. The reduction aimed to offset accumulated losses of ?264,27,18,509 against a surplus in the Securities Premium Account of ?589,72,28,735 as of 31-3-2015. The scheme was approved by the Board of Directors and passed by the equity shareholders through a special resolution on 16-1-2016.

2. Compliance with Statutory Provisions:
The petitioner company adhered to the necessary statutory provisions, including SEBI Circulars and the Listing Agreement. The reduction was subject to the sanction and approval of all relevant laws and authorities, including the High Court. The special resolution was filed with the Registrar of Companies in compliance with the Act of 2013.

3. Objections Raised by the Registrar of Companies (ROC):
The ROC objected to the reduction, arguing that the accumulated losses were due to investments in subsidiaries, which allegedly did not comply with Section 149(2A) and Section 372A of the Act of 1956. The ROC also contended that the reduction did not fall under the permissible purposes of Section 52(2) of the Act of 2013 and was ultra vires.

4. Validity of Investments in Subsidiaries:
The petitioner countered the ROC's objections, stating that the investments were within the incidental and ancillary objects of the company and did not require additional approvals under Section 149(2A). The company had obtained shareholder approval for investments under Section 372A in an EGM held on 5-9-2005.

5. Applicability of Section 52 of the Companies Act, 2013:
Section 52(1) equates the Securities Premium Account to paid-up share capital, allowing its reduction under Sections 100-104 of the Act of 1956 for purposes beyond those listed in Section 52(2). The court found that the reduction was permissible and supported by precedent cases, including judgments from the Andhra Pradesh, Madras, Karnataka, and Punjab & Haryana High Courts.

6. Impact on Creditors and Shareholders:
The court determined that the reduction did not prejudice creditors or shareholders, as it did not involve any financial outlay or outflow from the company. The reduction was a commercial decision approved by the requisite majority of shareholders and was in accordance with the Articles of Association.

7. Procedural Compliance and Publication of the Order:
The court confirmed the reduction of the share premium account and approved the form of minutes under Section 103(1) of the Act of 1956. The formalities of the words "And Reduced" were dispensed with. The petitioner was directed to deliver a certified copy of the order to the Registrar of Companies within six weeks and to publish the notice of registration in specified newspapers.

Conclusion:
The petition for the reduction of the share premium account was allowed, confirming the adjustment of accumulated losses against the Securities Premium Account. The court found the reduction just, fair, and not prejudicial to any stakeholders, dismissing the objections raised by the ROC. The procedural requirements for registration and publication were outlined for compliance.