2020 (8) TMI 463 - Tri - Companies Law

Reduction of Share Capital - the equity shares of the petitioner-company were delisted from stock exchange - the company petition was filed for providing the non-promoter public shareholders an opportunity to liquidate their shareholding at a fair and equitable price. - HELD THAT - In the present case, we have found no patent unfairness in the valuation report obtained by the petitioner-company. The proposed capital reduction has in fact also been approved by a majority of the non-promoter public shareholders. The petitioner-company to publish the notices about registration of order and minutes of reduction by the concerned Registrar of Companies Mumbai, Maharashtra in two newspapers namely i. e., Financial Express Mumbai edition in English language and translation thereof in Loksatta in Marathi language both having circulation in Mumbai within 30 days of registration. The petitioner-company undertakes to file certified/authenticated copy of the order and form of minutes duly certified by the Deputy Director or Assistant Registrar, National Company Law Tribunal, Mumbai Bench with the Registrar of Companies within 30 days of receipt of this order - Application for the reduction of share capital allowed subject to the directions given. Application for the reduction of share capital allowed.

Issues Involved:
1. Reduction of share capital by the petitioner-company.
2. Delisting of equity shares and exit opportunity for non-promoter public shareholders.
3. Observations and compliance requirements by the Regional Director.
4. Objections raised by certain shareholders.
5. Fairness and equity of the offer price for share reduction.
6. Legal precedents and valuation principles applied.

Issue-wise Detailed Analysis:

1. Reduction of Share Capital by the Petitioner-Company:
The petitioner-company, empowered by Article 8 of its Articles of Association, sought to reduce its share capital by canceling and extinguishing shares held by non-promoter public shareholders. This reduction was approved by a special resolution passed on October 25, 2018. The reduction aimed to decrease the issued, subscribed, and paid-up equity share capital from ?22,56,15,640 to ?21,73,19,510 by canceling 8,29,613 shares.

2. Delisting of Equity Shares and Exit Opportunity for Non-Promoter Public Shareholders:
The equity shares of the petitioner-company were delisted from BSE Limited and Pune Stock Exchange Limited in May 2011. Post-delisting, non-promoter public shareholders were unable to liquidate their investments. The petitioner-company filed the petition to provide these shareholders an opportunity to liquidate their shareholding at a fair and equitable price.

3. Observations and Compliance Requirements by the Regional Director:
The Regional Director, Western Region, Mumbai, made observations requiring the petitioner-company to submit an affidavit ensuring the protection of creditors' interests, payment of statutory dues, and compliance with tax implications as per the Income-tax Act, 1961. The petitioner-company undertook to comply with these observations and address any complaints reflected on the MCA portal.

4. Objections Raised by Certain Shareholders:
In the extraordinary general meeting, 37 shareholders representing 34,476 equity shares objected to the proposed reduction. Four shareholders filed objections before the Tribunal. The petitioner-company undertook to allow these objecting shareholders to retain their shares if they chose to. The Tribunal followed the approach in Reckitt Benckiser (India) Ltd. [2005] 122 DLT 612, holding that the objections did not survive as the objectors were given an option to retain their shares.

5. Fairness and Equity of the Offer Price for Share Reduction:
The offer price of ?2,100 per share was determined by adding a premium of ?246 to the average fair equity value of ?1,854 per share. The objectors argued that this price was on the lower side. However, the Tribunal found no patent unfairness in the valuation report and noted that the proposed reduction was approved by a majority of non-promoter public shareholders.

6. Legal Precedents and Valuation Principles Applied:
The Tribunal referred to the principles set out in Cadbury India Ltd., In re [2014] SCC Online Bom 4934 and Sandvik Asia Ltd. v. Bharat Kumar Padamsi [2009] 151 Comp Cas 251 (Bom). It emphasized that valuation is not an exact science and that the court's role is supervisory, not appellate. The court must ensure that the valuation is fair, just, and reasonable, and not unconscionable or contrary to law. The Tribunal found no evidence of patent unfairness or erroneous assumptions in the valuation report.

Conclusion:
The application for the reduction of share capital was allowed, subject to compliance with the directions given. The petitioner-company was directed to publish notices in specified newspapers and file the necessary documents with the Registrar of Companies. Miscellaneous Application No. 3857 of 2019 was disposed of in these terms.

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