2020 (11) TMI 532 - Tri - Companies Law

Reduction of capital - repayment of excess capital - sections 66 and 52 of the Companies Act, 2013, read with the National Company Law Tribunal (Procedure for Reduction of Share Capital of the Company) Rules, 2016, and the applicable provisions of the National Company Law Tribunal Rules, 2016 - HELD THAT - Section 66 of the Companies Act, 2013, deals with reduction of share capital of a company limited by shares or guarantee, after applying to the Tribunal, and based on a special resolution passed by the board of directors in this regard. This section provides for reduction of share capital either through extinguishment or reduction of the liability on any of the shares of a company in respect of the share capital which is not paid-up, or on cancellation of any paid-up share capital which is lost or is unrepresented by available assets, or on payment of any paid-up share capital which is in excess of the wants of the company, subject to the conditions enumerated therein. The reduction of paid-up share capital does not involve the diminution of any liability in respect of unpaid share capital. No prejudice is caused to any of the creditors or other stakeholders with the proposed reduction as there is no reduction in the amounts payable to them, no compromise or arrangement is contemplated with the creditors and there is no reduction in the security, if any. The company also has sufficient funds even after the reduction, and hence neither its business operations would be adversely affected, nor its ability to honour its commitments or to pay its debts in the ordinary course of its business. Hence it appears that the impugned action will not cause prejudice to any of the stakeholders, if the reduction of capital is approved. On a perusal of the material brought on record, it appears that the applicant fulfils the conditions laid down in section 66 of the Companies Act, 2013 and the proposed reduction is conformity with the accounting standards specified in section 133 of the Companies Act, 2013 - the company petition is disposed off by according approval to the proposed reduction of capital. Application allowed.

Summary

Issues Involved:
1. Confirmation of reduction of share capital.
2. Compliance with legal and regulatory requirements.
3. Impact on creditors and shareholders.
4. Financial viability of the company post-reduction.
5. Compliance with FEMA/RBI regulations.

Issue-wise Detailed Analysis:

1. Confirmation of Reduction of Share Capital:
The petitioner-company, M/s. Olmec Technologies P. Ltd., sought confirmation for the reduction of its share capital under sections 66 and 52 of the Companies Act, 2013. The reduction was resolved by a special resolution on November 29, 2019. The reduction involved canceling and reducing specific series of compulsorily convertible preference shares and repaying a total sum of INR 32,99,948.60 to series A, A1, and A3 preference shareholders, and INR 60,00,060 to series A2 preference shareholders. The reduction was approved by the board of directors on November 4, 2019, and by the shareholders in an extraordinary general meeting held on November 29, 2019.

2. Compliance with Legal and Regulatory Requirements:
The reduction of capital was in accordance with Article 38 of Table F of the company's articles of association, which permits such reduction by special resolution. The company complied with section 66 of the Companies Act, 2013, which allows reduction of share capital subject to Tribunal confirmation. The Registrar of Companies (RoC) observed that the reduction did not involve diminution of any liability in respect of unpaid share capital and would not adversely affect the company's operations or its ability to honor commitments.

3. Impact on Creditors and Shareholders:
The reduction did not prejudice any creditors or stakeholders as there was no reduction in amounts payable to them, no compromise or arrangement with creditors, and no reduction in security. The company had sufficient funds post-reduction to continue its operations and meet its obligations. The RoC noted that the company had no secured creditors and only four unsecured creditors with a total value of INR 4,10,411 as of September 30, 2019.

4. Financial Viability of the Company Post-Reduction:
The company had a bank balance of INR 1,49,92,892, and after the reduction, it would retain more than INR 56 lakhs for future operations. The share premium account and share capital together amounted to INR 15,42,95,168, with reserves and surplus after setting off accumulated losses amounting to INR 13,86,98,525. This left the company with a balance of INR 1,55,96,643, sufficient for the proposed reduction.

5. Compliance with FEMA/RBI Regulations:
The RoC noted that all shareholders of the CCPS were foreign entities, requiring compliance with FEMA/RBI regulations. The company undertook to comply with these regulations. The RoC also observed that the company had not converted CCPS into equity before the reduction, but the petitioner cited a Delhi High Court judgment affirming that conversion was not required under section 66 of the Companies Act, 2013.

Judgment:
The Tribunal approved and confirmed the reduction of capital as resolved by the board of directors and shareholders. The company was directed to register the form of the minute under section 66(5) of the Act, publish the reduction in specified newspapers, deliver certified copies to the RoC and other statutory authorities, and comply with RBI/FEMA and Income-tax regulations. Creditors were given the liberty to approach the Tribunal if their dues were not settled. The order was limited to the reduction of share capital and did not preclude any statutory authority from taking action for other violations. The petitioner-company was required to suffix "as reduced" after "issued, subscribed and paid-up capital."

Conclusion:
The Tribunal's judgment comprehensively addressed the issues related to the reduction of share capital, ensuring compliance with legal and regulatory requirements, protecting the interests of creditors and shareholders, and confirming the financial viability of the company post-reduction.