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2018 (8) TMI 1613 - AT - Companies LawScheme of Arrangement - reduction of Share Capital - Held that - Tribunal referred to Section 66, being the specific provision for rejecting the application under Section 230 as the Scheme and Arrangement related to reduction of share capital. From explanation below Section 230, it will be evident that for passing an order under Section 230 to compromise or make arrangements with the creditors and the members, the provision of Section 66 shall not apply for reduction of share capital. Such order can be passed by the Tribunal under Section 230 of the Act. In view of the aforesaid provisions, we hold that the Tribunal failed to notice the Explanation below Section 230, which makes it clear that even for reduction of share capital effected in pursuance of the order of the Tribunal under Section 230, the provision of Section 66 shall not apply. Having held that the Tribunal failed to notice the aforesaid observations, we have no other option but to set aside the order dated 8th December, 2017 passed in CA (CAA)-105(ND)/2017 which is accordingly set aside. The case is remitted to the Tribunal to decide the application under Section 230 in accordance with law after notice and hearing the parties.
Issues involved:
1. Application under Section 230 of the Companies Act, 2013 for reduction of Share Capital. 2. Rejection of the application by the National Company Law Tribunal (NCLT) on the grounds of maintainability. 3. Interpretation of Sections 230 and 66 of the Companies Act, 2013. 4. Comparison with the provisions of the Companies Act, 1956 regarding the power to compromise or make arrangements with creditors and members. 5. Review of previous High Court decisions related to reduction of share capital under Section 391 of the Companies Act, 1956. Analysis: 1. The Appellant filed an application under Section 230 of the Companies Act, 2013 for a Scheme of Arrangement involving the reduction of Share Capital. The NCLT rejected the application, stating that the reduction of capital requires a separate set of procedures under Section 66 of the Act, not covered by Section 230 meant for business restructuring. The Tribunal dismissed the application as not maintainable due to the specific rules for reduction of capital elsewhere in the Companies Act, 2013. 2. Section 391 of the Companies Act, 1956 empowered High Courts to pass orders for compromises or arrangements with creditors and members. The power to compromise or make arrangements with creditors and members is now governed by Section 230 of the Companies Act, 2013. The Appellate Tribunal highlighted the relevant provisions of Section 230, emphasizing that the provision of Section 66 for the reduction of share capital does not apply when passing orders under Section 230 for compromises or arrangements. 3. The Appellate Tribunal noted that the NCLT failed to consider the 'Explanation' below Section 230, clarifying that even for the reduction of share capital under orders of the Tribunal, Section 66 does not apply. The Tribunal's decision to reject the application based on Section 66 was deemed incorrect. The Appellate Tribunal set aside the NCLT's order and remitted the case for a decision under Section 230 after due notice and hearing. 4. Previous High Court decisions under the Companies Act, 1956 were referenced to show that applications for reduction of share capital were entertained under Section 391. However, the Appellate Tribunal emphasized that with the 'Explanation' below Section 230, such references were no longer necessary. The Appellate Tribunal allowed the appeal, setting aside the NCLT's order and directing a fresh decision under Section 230, without imposing any costs. In conclusion, the Appellate Tribunal's judgment clarified the interplay between Sections 230 and 66 of the Companies Act, 2013, highlighting that Section 66 does not apply to reduction of share capital under orders of the Tribunal pursuant to Section 230. The decision emphasized the importance of following the correct provisions for specific actions under the Companies Act, 2013, and set a precedent for future applications involving share capital reduction.
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