2022 (1) TMI 112 - Tri - Companies Law

Reduction in the share capital - Section 66(1) of the Companies Act, 2013 - HELD THAT - The present position of law, while dealing with the provisions of Section 66 (Old Sections 100-104 of Companies Act, 1956) 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 normally deserves to be admitted. In the case of ELPRO INTERNATIONAL LTD., IN RE 2007 (6) TMI 292 - HIGH COURT OF BOMBAY , Hon'ble Bombay High Court has expressed that the question of reduction of share capital is the matter of domestic concern. Further observed that decision for reduction is based on commercial consideration undertaken by the businessmen who are in the best position to know of the necessities and interests of the company concerned, in the absence of serious allegations as regards the bona fides of the proposed Scheme, the Courts are of the view that no interference in such decisions are acquired. It has also been observed that considering the commercial aspect of the decision it is not permissible for the Court to come to the conclusion that the exit opportunity offered is inequitable and unjust. It is ordered to confirm the reduction of share capital of Petitioner Company by approving the minutes of the EOGM - the scheme is approved - application allowed.

Summary

Issues Involved:
1. Decision to wind up operations in India.
2. Proposal to reduce share capital.
3. Compliance with Section 66 of the Companies Act, 2013.
4. Approval by Board of Directors and shareholders.
5. Financial implications and accounting treatment.
6. Compliance with statutory requirements and regulatory authorities' reports.

Detailed Analysis:

1. Decision to Wind Up Operations in India:
The Petitioner Company, "M/s Chipita India Private Limited," incorporated on 22nd June 2012, decided to wind up its operations in India due to continuous losses. The promoters and local management have ceased business operations, necessitating the restructuring of the company's share capital.

2. Proposal to Reduce Share Capital:
The Company proposed to reduce its equity share capital as it no longer required excess funds due to the cessation of operations. Article 37 of the Articles of Association authorizes the company to reduce its capital by special resolution, and the reduction is in line with Section 66 of the Companies Act, 2013.

The proposed reduction involved canceling and extinguishing 1,90,00,000 equity shares of ?10 each, thereby reducing the paid-up share capital from ?79,71,48,460 to ?60,71,48,460. This reduction would return ?19,00,00,000 to the shareholders.

3. Compliance with Section 66 of the Companies Act, 2013:
The reduction of share capital is undertaken in accordance with Section 66 of the Companies Act, 2013, which allows a company to reduce its share capital by special resolution and subject to Tribunal confirmation. The reduction involved paying off excess paid-up share capital and canceling shares that are no longer needed.

4. Approval by Board of Directors and Shareholders:
The Board of Directors approved the reduction of share capital on 8th May 2019, subject to shareholders' approval in an Extra-Ordinary General Meeting (EOGM) held on 15th May 2019. The special resolution passed at the EOGM approved the reduction, and the minutes of the meeting were submitted to the Tribunal for confirmation.

5. Financial Implications and Accounting Treatment:
The financial position of the Company post-reduction would reflect a more accurate state of affairs. The reduction would be recorded in the books of accounts, and the shareholding pattern would be adjusted accordingly. The accounting treatment for the reduction is in conformity with the applicable Accounting Standards.

6. Compliance with Statutory Requirements and Regulatory Authorities' Reports:
The Company confirmed it had no deposits or arrears in repayment of deposits as per Sections 73 to 76 of the Companies Act, 2013. The Registrar of Companies (RoC) reported that the Company had filed statutory returns up to 31.12.2018, with no pending prosecutions or complaints. The RoC noted the absence of a valuation report but did not object to the reduction.

Tribunal's Decision:
The Tribunal confirmed the reduction of share capital, approving the minutes of the EOGM dated 15.05.2019. The Company was ordered to alter its Memorandum of Association to reflect the reduced share capital and file the necessary documents with the RoC within 30 days. The Registry was directed to prepare an Order in FORM No. RSC-6 as per the National Company Law Tribunal (Procedure for Reduction of Share Capital of Company) Rules, 2016.

Ordered Accordingly. To be consigned to the Records.

Form of Minutes:
The issued, subscribed, and paid-up share capital of M/s Chipita India Private Limited as on 15.05.2019 is henceforth ?60,71,48,460 divided into 6,07,14,846 shares of ?10 each.