2021 (5) TMI 141 - Tri - Companies Law

Reduction of share capital - Section 66(1) of the Companies Act, 2013 - HELD THAT - It is seen from the Application and the annexures filed therewith, the shareholders of the Applicant Company has approved the scheme of Reduction of Capital in the Extra ordinary General Meeting held on 16th October, 2019 by way of Special Resolution, passed at this meeting. The Company Petition is allowed for reduction of the share capital of the Company, as per the directions given - Application allowed.

Issues Involved:

1. Application for reduction of share capital under Section 66(1) of the Companies Act, 2013.
2. Compliance with the Articles of Association and statutory requirements.
3. Financial position and absence of adverse qualifications or pending litigation.
4. Approval and procedure for reduction of share capital.
5. Observations from the Regional Director and response from the Applicant.
6. Confirmation and approval of the reduction of share capital by the Tribunal.

Issue-wise Detailed Analysis:

1. Application for Reduction of Share Capital:
The application under consideration was filed by M/s. Tenneco Clean Air India Private Limited on 08.11.2019, seeking confirmation for the reduction of its share capital under Section 66(1) of the Companies Act, 2013. The company was incorporated on 21.12.2018 and had its registered office in Chennai.

2. Compliance with Articles of Association and Statutory Requirements:
The company's Articles of Association adopted the regulations in Table F of Schedule I to the Companies Act, 2013, which allows for the reduction of capital by a special resolution. The relevant clause, Clause 38 of Table F, permits the reduction of share capital, capital redemption reserve account, or share premium account as per legal requirements.

3. Financial Position and Absence of Adverse Qualifications or Pending Litigation:
The Applicant Company confirmed that there were no adverse qualifications, remarks, reservations, or pending litigation impacting its financial position. The company had no secured creditors and 630 unsecured creditors with an outstanding value of ?152,74,75,466/-. The statutory auditors certified that the proposed accounting treatment for the reduction of share capital conformed to the accounting standards under Section 133 of the Companies Act, 2013.

4. Approval and Procedure for Reduction of Share Capital:
The Board of Directors decided to reduce the equity share capital, which was deemed excess, and recommended this reduction. A special resolution was passed in the Extraordinary General Meeting (EGM) held on 16.10.2019, approving the reduction. The proposal included canceling and extinguishing ?46,43,07,000 equity shares, reducing the share capital from ?7,777,131,200 to ?3,134,061,200, and adjusting the surplus against the Demerger Adjustment Reserve and Capital Reserve account.

5. Observations from the Regional Director and Response from the Applicant:
The Regional Director (RD) raised an observation regarding the utilization of surplus from the reduction to write off the negative balance in the Demerger Adjustment Reserve. The company explained the origin of this reserve from a previous demerger and provided an undertaking to disclose the adjustment in its annual accounts for financial years ending on and after 31.03.2020.

6. Confirmation and Approval of the Reduction of Share Capital by the Tribunal:
The Tribunal considered the application, supporting documents, and legal position, and confirmed the reduction of share capital. The reasons for the reduction were deemed justified as the capital was in excess and could not be profitably utilized. The Tribunal approved the special resolution passed in the EGM and the proposed minutes. The order clarified that it does not exempt the company from stamp duty, taxes, or other charges. The company was instructed to publish the confirmation order in specified newspapers and file the altered Memorandum of Association with the Registrar of Companies (RoC) within 30 days. The necessary alterations in the Memorandum of Association were to be made, and the order was to be issued in FORM No. RSC-6.

Conclusion:
The Tribunal allowed the reduction of share capital as per the directions, confirming the reduction from ?7,777,131,200 to ?3,134,061,200, and disposed of the Company Petition No. 1332 of 2019.

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