2020 (8) TMI 464 - AT - Companies Law

Reduction of Share Capital - Allegation on unfair valuation Minority shareholders opposed the scheme - Power of NCLT to approve the reduction in share capital - Power of NCLT or Board of Directors to modify/amend the resolution - The appellant had mentioned that the price offered per share is on the lower side and also station that it is against the spirit of Section 66 of the Companies Act. HELD THAT - We note that to ensure fairness a fair play of the share purchase is necessary. The company appointed M/s BSR Associates LLP to do the valuation of share of the company. The company also added valuation taking into consideration the past performance as well as future projection by expert. - We find no irregularity in the valuation done by the valuer. We also note that the appellant in Company Appeal (AT) No.366/2019 has voted against the resolution and as per the affidavit of Respondent the appellant can hold the shares of Respondent company. If the appellant, Mr. Janak Mathuradas feels that the offer price is less and the valuation got done by him is the best, then we allow him to purchase/acquire the shares of other minority shareholders at a price of ₹ 2100/- and can hold it as per his wish. Power to modify the resolution / scheme approved in the EOGM - Held that - The undertaking affidavit was filed as per the direction of the NCLT Mumbai, when the Respondent company stated that the shareholders who have voted against the resolution can continue to hold the shares of Respondent company. We also note that the special resolution specifically provides that the said reduction is being approved by the shareholders subject to any terms, modifications or conditions that the NCLT Mumbai may impose and the Board of Directors of the Respondent may agree. We note from the record that the NCLT has given directions and the same has been approved by the Board of Directors of the company. The NCLT has the powers, therefore, the Company has approached for approval of the same and the objectors have objected to the Scheme and the modification has been done. The same modification has been ratified by the Board of Directors. Therefore, it can not be said the NCLT has no power. If we assume that the NCLT has no power then it means that the scheme approved by the shareholders, whether wrong or right, the NCLT has to approve. We are not satisfied with the argument of the appellants that the NCLT has no power - the directions issued by the NCLT and modification proposed by the Board of Directors are the practical method to ensure that the shareholders who want to retain his shares are able to do so which does prejudice them. Appeal dismissed.

Summary

Issues Involved:
1. Validity of Special Resolution for Reduction of Share Capital
2. Fairness of Share Valuation
3. Right of Minority Shareholders to Retain Shares
4. Authority of NCLT and Board of Directors to Modify Resolution

Detailed Analysis:

1. Validity of Special Resolution for Reduction of Share Capital:
The appellants challenged the special resolution passed on 25th October 2018, which approved the reduction of the Respondent Company's equity share capital held by public shareholders. The appellants argued that the resolution was mandatory for all minority or public shareholders without an option to retain their shares. The Respondent countered that the resolution was approved by 99.84% of the shareholders, and the NCLT had the authority to approve the reduction subject to terms and conditions.

2. Fairness of Share Valuation:
The appellants contended that the share price of ?2100 per share offered by the Respondent was undervalued and not in line with the true market value. They cited an independent valuation of ?3627 per share. The Respondent argued that the valuation was conducted by M/s BSR & Associates LLP, considering various valuation methods, and a premium was added to arrive at ?2100 per share. The NCLT found no irregularity in the valuation process and upheld the Respondent's valuation.

3. Right of Minority Shareholders to Retain Shares:
The appellants argued that the explanatory statement did not provide an option for minority shareholders to retain their shares. The Respondent later provided an undertaking allowing dissenting shareholders to retain their shares. The NCLT approved this modification, stating that it ensured fairness and did not prejudice the shareholders. The appellants contended that such modifications could only be made by shareholders in a general meeting, not by the NCLT or Board of Directors.

4. Authority of NCLT and Board of Directors to Modify Resolution:
The appellants argued that the NCLT and the Board of Directors did not have the power to modify the special resolution. The Respondent argued that the NCLT had wide substantive powers under Section 66(3) of the Companies Act, 2013, to approve the reduction on such terms and conditions as it deemed fit. The NCLT held that the modifications were within its powers and were necessary to ensure fairness.

Conclusion:
The NCLT dismissed the appeals, upholding the special resolution for the reduction of share capital and the valuation of ?2100 per share. The Tribunal found no merit in the appellants' arguments regarding the undervaluation of shares and the authority of the NCLT and Board of Directors to modify the resolution. The NCLT emphasized that the modifications ensured fairness and allowed dissenting shareholders to retain their shares, thereby protecting their interests. The interim orders, if any, were vacated, and no costs were awarded.