2021 (1) TMI 574 - Tri - Companies Law

Reduction in share capital - cancellation/extinguishment of shares as approved by the share-holders at their annual general meeting - section 66 read with section 52 of the Companies Act, 2013 read with the National Company Law Tribunal (Procedure for reduction of share capital of Company) Rules, 2016 and the Rules framed thereunder - HELD THAT - From the balance-sheets submitted by the company, it is noted that as on August 24, 2020 as per books, the company is having negative net worth/shareholders funds of ₹ 1,609.66 lakhs (share capital of ₹ 698.50 lakhs other equity of Rs. (-) 2,308.16 lakhs) and borrowings and inter corporate loans are to the tune of ₹ 11,354.43 lakhs. Other equity consists of share premium account and accumulated losses. The book value per share as on August 24, 2020 is Rs. (-) 23.04. Further, for the previous financial year 2019-20, the company's total income is ₹ 1,962.45 lakhs and interest payments (finance cost) is ₹ 1,019.37 lakhs - Based on the accounting treatment, on capital reduction, the negative net worth/shareholders funds of the company as per books may go to ₹ 7,014.59 lakhs (share capital of ₹ 1 lakh other equity of Rs. (-) 7,015.59 lakhs), the book value per share to Rs. (-) 70,110.81 and the companies borrowings and inter corporate loans to the tune of ₹ 11,354.43 lakhs. In view of negative net worth as per books, and negative book value per share, this Adjudicating Authority is of the considered view that the proposed capital reduction by way of return of capital to its shareholders is not in the overall interest of the company and its stakeholders - Petition allowed.

Summary

Issues:
Capital reduction petition under section 66 of the Companies Act, 2013.

Detailed Analysis:
The petitioner-company, Precious Energy Services Ltd., filed a petition for reducing its share capital by cancelling 69,75,000 equity shares of ?10 each and paying ?77.49 per share to the holders, totaling ?54,04,92,750 as approved by shareholders. The company cited article 44 of its articles of association allowing share capital reduction. The authorized share capital was ?7,51,00,000, and the issued, subscribed, and paid-up capital was ?6,98,50,050 as of March 31, 2019.

The company passed a board resolution confirming the reduction and held an AGM where the special resolution was unanimously approved. Notices were issued to secured and unsecured creditors, and shareholders. The Tribunal directed notices to the Central Government, Registrar of Companies, and creditors, with newspaper publications. The petitioner complied with these directives.

The Regional Director raised concerns regarding compliance, foreign shareholders, liquidity, creditor letters, and notice to the Income-tax authority. The company responded, clarifying that RBI approval was not needed for reduction involving non-resident shareholders. No objections were received from creditors after notices were published and sent.

The Tribunal reviewed the financials showing negative net worth and high borrowings, indicating that the proposed capital reduction was not in the company's best interest. Due to the negative net worth and book value per share, the Tribunal disallowed the petition for capital reduction under section 66 of the Companies Act, 2013.

The Tribunal disposed of the petition, C. P. No. 4 of 2020, as not allowed, based on the negative financial indicators and lack of overall benefit to the company and stakeholders.