2022 (10) TMI 813 - Tri - Companies Law

Reduction of shares of only one shareholder - Seeking cancelling/ extinguishing fully paid up equity shares - Section 66 read with National Company Law Tribunal (Procedure for Reduction of Share Capital) Rules, 2016 - HELD THAT - The Reduction of the Share Capital in present case is approved by the Shareholders of the Company unanimously by way of a Special Resolution. It is settled law that the question of reduction of Share Capital will be treated as a matter of domestic concern i.e., it is the decision of the majority which prevails. If majority by Special Resolution decides to reduce the Share Capital of the Company, it also has the right to decide as to how this reduction should be carried into effect. In the instant case, admittedly, the reduction of Share Capital is approved unanimously by the Shareholders by way of a Special Resolution. Perused documents on record, as there are no adverse observation made by the Regional Director, Registrar of Companies and the Income Tax Department and in view of all necessary compliances for making the proposed reduction, also no objections from creditors, shareholders or any other stakeholders received, this application deserves to be allowed. The reduction of equity share capital resolved on 25.02.2022 by the special resolution is hereby allowed - Application allowed.

Issues Involved:
1. Application for reduction of share capital under Section 66 of the Companies Act, 2013.
2. Compliance with procedural requirements for reduction of share capital.
3. Impact on creditors and shareholders.
4. Legal precedents and judicial approval for selective reduction of share capital.

Detailed Analysis:

1. Application for Reduction of Share Capital:
The application was filed by the Company Secretary of Mundra LPG Terminal Private Limited seeking to cancel/extinguish 10,99,47,900 fully paid-up equity shares held by Adani Trading Services LLP. The aggregate paid-up value of these shares was Rs. 1,09,94,79,000/-, and the company proposed to pay a nominal consideration of INR 1/- for this reduction. This proposal was approved by the shareholders in an Extraordinary General Meeting (EOGM) held on 25.02.2022.

2. Compliance with Procedural Requirements:
The company followed the procedural requirements for reducing share capital as per Section 66 of the Companies Act, 2013, and the National Company Law Tribunal (Procedure for Reduction of Share Capital) Rules, 2016. Key steps included:
- Sworn affidavit by the Company Secretary supporting the application.
- Authorization via Board Resolution dated 24.02.2022.
- Confirmation that Article 43 of the Articles of Association empowered the company to reduce its share capital.
- Issuance of notices to the Central Government, Registrar of Companies, and Income Tax Department, and publication of notices in newspapers inviting objections.
- No adverse observations or objections were received from statutory authorities or creditors.

3. Impact on Creditors and Shareholders:
The company assured that the reduction of share capital would not significantly impact its net worth or prejudice its creditors. It was noted that:
- There were no secured creditors and 69 unsecured creditors, with 98.70% of the unsecured creditors consenting to the reduction.
- The company's net worth would not be significantly impacted due to minimal financial outgo.
- The reduction was aimed at better presentation of the balance sheet, smooth functioning, and raising required funds for future profitability.
- The selective reduction would increase the shareholding of Adani Ports & SEZ Limited without adversely impacting its worth or adding liability.

4. Legal Precedents and Judicial Approval:
The tribunal referred to several legal precedents supporting the selective reduction of share capital:
- The judgment in M/s. Brillio Technologies Pvt. Ltd., where the Hon'ble NCLAT held that selective reduction is permissible.
- The Madras High Court's decision in Re. Panruti Industrial Company (Private) Ltd., treating reduction of capital as a matter of domestic concern for the majority of shareholders.
- The Delhi High Court's ruling in Reckitt Benckiser (India) Ltd., affirming that majority shareholders have the right to decide on reduction and its implementation.
- The recent judgment in M/s. Precious Energy Services Limited, approving the reduction of share capital by the NCLAT.

The tribunal concluded that the reduction of share capital was in compliance with statutory requirements, with no objections from creditors or stakeholders. The application was allowed, and the company was directed to publish the reduction in newspapers and deliver a certified copy of the order to the Registrar of Companies and concerned authorities.

Conclusion:
The application for reduction of share capital by Mundra LPG Terminal Private Limited was allowed, with the tribunal directing necessary compliance and publication. The reduction was deemed compliant with legal requirements and in the interest of the company and its stakeholders.

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