2019 (12) TMI 478 - AT - Companies Law

Consolidation of division of equity share of the Company - Section 61(1)(b) of the Companies Act, 2013 read with Rule 71 of NCLT Rules, 2017 - SEBI Circular No. SEBI/HO/MRD/DSA/CIR/P/2016/110 dated October 10, 2016 - HELD THAT - The apprehension as expressed by minority shareholders with regard to consolidation of shares is concerned, the Company has well taken care of their concern. The Company having complied with the statutory requirement, as contemplated in the Act, we are of the view that the appeal deserves to be allowed. The reason taken for dismissal of Company Petition by the NCLT does not have any substance. As on the date of EGM, it is evident that the votes cast in favour of the resolution for consolidation of shares is more than 95%. It is noteworthy to mention that during pendency of the Appeal, most of the shareholders, who objected for consolidation of shares, have sold their shares to the Director of the Appellant-Company. Considering and taking into consideration the transfer of shares, more than 95% of shareholding, appears to be in favour of consolidation of shares. From the records, only two shareholders holding 172 and 335 shares respectively remained as shareholders of the Company and unequivocally their percentage is very minimal and their rights are well protected. The appeal is allowed in terms of Section 61(1)(b) of the Companies Act, 2013, by allowing the Appellant-Company for consolidations of its share capital - impugned order set aside - appeal allowed.

Summary

Issues Involved:
1. Legality of the consolidation of equity shares.
2. Compliance with SEBI regulations.
3. Protection of minority shareholders' interests.
4. Validity of objections raised by shareholders.

Detailed Analysis:

1. Legality of the consolidation of equity shares:
The Appellant filed a petition before the NCLT under Section 61(1)(b) of the Companies Act, 2013, seeking consolidation of the company's equity shares. The NCLT dismissed the petition, expressing concerns over compliance with SEBI regulations and the impact on minority shareholders. The Appellate Tribunal reviewed the company's compliance with the statutory requirements and found that the company had followed due process, including altering its Memorandum of Association (MOA) and Articles of Association (AOA) to facilitate the consolidation. The Tribunal noted that the resolution for consolidation was approved by a majority of 95.12% votes during the Extra Ordinary General Meeting (EGM), indicating substantial support for the consolidation.

2. Compliance with SEBI regulations:
The NCLT's dismissal was partly based on the company's alleged non-compliance with SEBI Circular No. SEBI/HO/MRD/DSA/CIR/P/2016/110 dated October 10, 2016. The Tribunal found that the promoters did not utilize the provision to acquire shares of public shareholders within the stipulated period. However, the Appellant contended that there was no such stipulation in the SEBI circular and that the company had made a valid offer for acquiring shares. The Appellate Tribunal noted that the company had provided an exit opportunity to public shareholders and extended the exit offer period, complying with SEBI regulations.

3. Protection of minority shareholders' interests:
The NCLT expressed concerns about the reduction in voting percentage for minority shareholders if the consolidation was allowed. The Appellant addressed these concerns by proposing the creation of a Trust to aggregate fractional entitlements resulting from the consolidation and distribute the proceeds proportionately among shareholders. The Appellate Tribunal found that the company had taken adequate measures to protect the interests of minority shareholders, including appointing a Trustee to manage the fractional shares.

4. Validity of objections raised by shareholders:
Seven shareholders initially objected to the consolidation, citing concerns about the impact on minority shareholders and public policy violations. The Appellant responded that the company had followed due process and that most of the objecting shareholders had subsequently sold their shares to the promoters. The Appellate Tribunal noted that five out of the seven objecting shareholders had sold their shares, leaving only two shareholders with minimal holdings. The Tribunal concluded that the company's measures, including the appointment of a Trustee, adequately addressed the remaining shareholders' concerns.

Conclusion:
The Appellate Tribunal was satisfied with the Appellant's submissions and the evidence provided. It concluded that the company had complied with statutory requirements and adequately addressed the concerns of minority shareholders. The Tribunal found that the NCLT's reasons for dismissing the petition lacked substance, especially given the majority support for the consolidation and the subsequent sale of shares by most objecting shareholders. The appeal was allowed, and the NCLT's order was quashed and set aside, permitting the consolidation of the company's share capital under Section 61(1)(b) of the Companies Act, 2013.