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2020 (10) TMI 781 - Tri - Companies LawReduction of share capital - Section 66 of the Companies Act, 2013 and NCLT (Procedure for Reduction of Share Capital of Company) Rules, 2016 - HELD THAT - The present position of law, while dealing with the provisions of Section 66 is that if none of the shareholders are objecting for the proposed reduction, then after considering the merits of the case as also connected facts and circumstances such petition generally deserves to be admitted - Further, observed that while reducing the share capital, company can decide to extinguish some of its shares without dealing in the same manner as with all other shares of the same class. The company limited by shares is permitted to reduce the share capital in any manner, thereby a selective reduction is permissible within the framework of law. On the question of valuation as well, an observation was that valuation of shares is a technical matter, which requires considerable skill and experience. If the stakeholders are satisfied with the value, can approve the transaction of reduction of share capital which should not deemed to be inequitable or unfair transaction. In the present case, it can be seen that in the present case, exiting equity shareholders are being issued equivalent preference shares in order to fix their priority dividend over that of ordinary share dividend. Therefore, there is no need to furnish valuation report to the ROC because there is no change in the paid up share capital of the petitioner company post reduction of the capital in the present case. The petitioner company in the present case has already filed Form GNL-2 online on 04.05.2018 and the copy of the same is a part of Diary No. 7090 dated 13.12.2019. As the application for reduction of share capital under Section 66 of the Act has to be filed before this Tribunal, therefore, it is held that there is no need to file Form GNL-1 with the Registrar of Companies in respect of application of Reduction of Share Capital and filing of GNL-2 online would be sufficient in the present situation. It is hereby ordered to confirm the reduction of share capital of Petitioner Company by approving the minutes of the EOGM dated 30.05.2018, wherein the members of the Petitioner Company resolved for the reduction of share capital of the Company, as prescribed U/s 66 of the Companies Act, 2013, to reduce issued and paid up share capital from ₹ 61,67,000/- divided into 61670 equity shares of ₹ 100/- each to ₹ 37,17,000/- divided into 37,170 equity shares of ₹ 100/- each fully paid and simultaneously issue 24500 6% non-cumulative redeemable preference shares of ₹ 100/- each to the holder of equity share capital - the necessary alteration shall be made in the Memorandum of Association by the Petitioner Company for reduction of the amount of its share capital and of its shares. The issued, subscribed and paid-up share capital of Saraswati Offset Printers Private Limited as on 05.04.2019 is henceforth ₹ 1,66,00,770/-divided into 2,41,404 Equity Shares of ₹ 10/- each and 14,18,673 Preference Shares of ₹ 10/- each, reduced from ₹ 8,30,03,880/- divided into 12,07,022 Equity Shares of ₹ 10/- each and ₹ 70,93,366/- Preference Shares of ₹ 10/- each - Application allowed.
Issues Involved:
1. Application under Section 66 of the Companies Act, 2013 for confirming the reduction of share capital. 2. Compliance with procedural requirements under NCLT (Procedure for Reduction of Share Capital of Company) Rules, 2016. 3. Financial soundness and creditor consent. 4. Valuation report and ROC objections. 5. Legal precedents on reduction of share capital. Issue-wise Detailed Analysis: 1. Application under Section 66 of the Companies Act, 2013 for confirming the reduction of share capital: The Petitioner Company sought confirmation for reducing its share capital from ?61,67,000 divided into 61,670 equity shares of ?100 each to ?37,17,000 divided into 37,170 equity shares of ?100 each. Simultaneously, the company proposed issuing 24,500 6% non-cumulative redeemable preference shares of ?100 each to the holders of the reduced equity share capital. The reduction was resolved by a special resolution passed in the Extraordinary General Meeting (EOGM) held on 30.05.2018. 2. Compliance with procedural requirements under NCLT (Procedure for Reduction of Share Capital of Company) Rules, 2016: The company complied with procedural requirements by sending notices to the Central Government, Registrar of Companies (ROC), and all creditors. Notices were also published in newspapers. The company filed affidavits confirming dispatch and publication of notices and submitted tracking reports and postal receipts. No objections were received from any stakeholders, including creditors and shareholders. 3. Financial soundness and creditor consent: The company’s financial position was sound, with no qualifications, reservations, or adverse remarks from auditors. The statutory auditor confirmed that the company had neither accepted any deposits nor was in arrears of any deposits or interest. The company obtained No Objection Certificates from all unsecured creditors, and the ROC confirmed no pending prosecutions against the company. 4. Valuation report and ROC objections: The ROC objected to the absence of a valuation report and non-compliance with certain procedural requirements. The petitioner argued that a valuation report was unnecessary as the reduction involved issuing preference shares of equivalent value to the reduced equity shares. The company provided evidence of compliance with notice requirements and filed Form GNL-2 instead of GNL-1, which was deemed sufficient by the Tribunal. 5. Legal precedents on reduction of share capital: The Tribunal referenced several legal precedents, including Elpro International Limited, Reckitt Benckiser (India) Ltd., and Sandvik Asia Limited, emphasizing that the reduction of share capital is a domestic matter based on commercial considerations. Courts generally do not interfere unless there are serious allegations of bad faith. Selective reduction and valuation matters are within the company’s discretion if stakeholders are satisfied. Conclusion: The Tribunal confirmed the reduction of share capital, approving the minutes of the EOGM dated 30.05.2018. The company was directed to alter its Memorandum of Association accordingly and file the necessary documents with the ROC within 30 days. The order was to be consigned to records, and the Registry was instructed to issue the order in FORM No. RSC-6. Form of Minutes: The issued, subscribed, and paid-up share capital of Saraswati Offset Printers Private Limited was reduced from ?8,30,03,880 to ?1,66,00,770, divided into 2,41,404 equity shares and 14,18,673 preference shares of ?10 each.
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