2020 (10) TMI 1038 - Tri - Companies Law

Reduction of Share Capital - section 66 of the Companies Act, 2013 - Board of Directors are of the view that the Applicant Company does not require such excess capital for its business operations and such excess capital impacts the return on equity and earnings per share - HELD THAT - The Board of Directors has passed the resolution on 21.11.2019 in the Board meeting which they have accorded approval for reducing the Paid-up share capital of the company. Pursuant to the above notices dated 22.11.2019 along with the Explanatory Statement for convening the Extraordinary General Meeting of all the members of the Applicant Company were sent - That as on 20.11.2019, there are two Secured Creditors and twenty eight unsecured creditors in the Applicant Company. The Applicant Company in this regard has obtained a Certificate from MKPS Associates Charted Accountants (FRN 302014E) dated 22.11.2019 that the list of Creditors is correct as per the records of the Company. The Applicant has obtained the written consent from unsecured creditors and are annexed as Annexure -12 of the Petition along with written consent of the Secured Creditors filed as additional documents on 13.01.2020 (Pg. 41-44). The total amount of debt of 28 Unsecured Creditors is ₹ 1,11,68,14,744/- and 2 Secured Creditors is ₹ 2,719,084,099/-. The Articles of Association of the applicant company, in Article 9 provides for reduction of the share capital by way of special resolution be passed. Hence, the reduction of share capital is as per the Articles of Association of the Applicant Company - We have gone through the report of the Income Tax Department filed on 06.08.2020 raising certain observations/objections along with the reply dated 17.08.2020 filed by the Applicant in response to the observations/objections. We are of the view that the averments made by the Applicant in response to the observations/objections raised by the Income Tax Department are satisfactory. There is no objection from any quarter in respect of prayer made for reduction of capital as contemplated by the Applicant Company, this Tribunal directs that the reduction of the share capital of the above company as resolved by the special resolution passed at the Extra Ordinary General meeting held on the 26.11.2019. Application allowed.

Summary

Issues:
Reduction of share capital under section 66 of the Companies Act, 2013.

Analysis:
1. The application was filed by the company for the reduction of its share capital under section 66 of the Companies Act, 2013. The company was registered under the Companies Act, 1956 and engaged in infrastructure projects and building projects. The Board of Directors decided that the excess capital impacts the return on equity and earnings per share, leading to the proposed reduction of share capital.

2. The share capital of the Applicant as of 31st March, 2019, was detailed, with the authorized and paid-up share capital specified. The proposed reduction involved reducing the paid-up share capital by cancelling a specific number of equity shares held by existing shareholders, with a premium per share determined based on a valuation report.

3. The Board of Directors passed a resolution for reducing the paid-up share capital, and an Extraordinary General Meeting was held where the members unanimously approved the reduction by passing a special resolution. The reduction was in line with the Articles of Association of the company, which provided for reduction by way of a special resolution.

4. The Applicant obtained consent from both secured and unsecured creditors, and a certificate from Charted Accountants regarding the list of creditors. The reduction was also subject to compliance with the publication requirements as directed by the bench.

5. The Regional Director raised certain observations regarding the reduction, including the remittance of excess capital to foreign shareholders and the need for RBI approval. The Applicant provided an undertaking to comply with FEMA 1999 and RBI regulations for the payment to foreign shareholders.

6. The Income Tax Department raised objections, but the Applicant's responses were deemed satisfactory by the Tribunal. A previous judgment was cited where a similar reduction of share capital was allowed by the Principal Bench.

7. Considering the lack of objections and compliance with legal requirements, the Tribunal allowed the reduction of share capital as proposed. The specific details of the reduction, refunding of the amount to shareholders, and compliance undertakings were outlined in the order, along with the approval of the form of minute under section 66(5) of the Companies Act, 2013. The order required delivery to the Registrar of Companies and publication in a designated newspaper within a specified timeframe.