2014 (4) TMI 1320 - HC - Companies Law

Reduction of share capital account - Section 101(1) of the Companies Act 1956 read with Rules 46 47 of the Companies (Court) Rules - HELD THAT - As stated in the petition and as seen from the balance sheet filed the decision taken as reduction of share capital is purely a commercial decision to have a true reflection of the financial position of the company. Considering the fact that such move has been approved by the overwhelming majority of the shareholders apart from the fact that such reduction does not involve any cash out flow to prejudice the rights of the creditors there are no impediment in granting the relief prayed for herein. Consequently this petition seeking approval to the resolution passed is hereby granted. Clause (a) of sub Section (2) of Section 102 of the Companies Act 1956 provides that the Court may for any special reason if it thinks proper so to do direct the company to add the words and reduced to its name on the last words thereof during the period commencing from the date of the Court s order till such time as the court specifies in its order. The purpose of such inclusion is only to put on notice the investing public the state of affairs of the company and that it has gone for reduction of the capital - Taking note of the circumstances warranting the course for reduction of capital there being no cash outflow or for any creditor to object the procedure laid down under Section 100 fully complied with there is no impediment in granting the prayer confirming the reduction of capital as resolved by the company in its special resolution dated 21.10.2013 confirmed so as to be binding on all the shareholders and creditors of the petitioner company. The words and reduced pursuant to the reduction approved is dispensed with. In the light of the above-said facts the prayer sought for herein is granted. The petition is ordered to the effect that approving the resolution passed on 21.10.2013 for the reduction of the share capital to Rs. 5, 00, 000/- divided into 50, 000 equity shares of Rs. 10/- each fully paid up and dispensed with the words and reduced pursuant to the reduction.

Summary

Issues:
Reduction of share capital under Companies Act, 1956.

Analysis:

1. Background and Petition Details:
The petition seeks confirmation for the reduction of share capital under Section 101(1) of the Companies Act, 1956. The company's share capital is proposed to be reduced from Rs. 44,95,000 to Rs. 5,00,000 by extinguishing a specific number of equity shares. The company's main objects and the relevant resolutions by the Board of Directors and shareholders are presented in the petition.

2. Shareholders' Approval and Meeting Resolutions:
The Extra-Ordinary General Body Meeting held on 21.10.2013 saw unanimous approval of the special resolution for the reduction of capital. The resolution detailed the reduction process and the adjustment of the debit balance in the Profit and Loss Account. The company's financial position post-reduction is emphasized to provide a more accurate representation.

3. Financial Position and Creditor Interests:
The company's financial statements are expected to reflect a more realistic picture post-reduction, with no impact on the company's operations or ability to meet its commitments. The absence of secured or unsecured creditors ensures no adverse effect on creditor interests due to the reduction.

4. Regional Director's Report and Commercial Decision:
The Regional Director's report supports the reduction proposal, highlighting the absence of objections or secured creditors. The decision to reduce share capital is deemed a commercial choice to accurately depict the company's financial standing, supported by the majority shareholder approval.

5. Court Approval and Compliance:
The Court, after considering the circumstances and compliance with Section 100 provisions, grants approval for the reduction of capital as per the special resolution dated 21.10.2013. The inclusion of the words "and reduced" in the company's name is dispensed with, ensuring the reduction is binding on all shareholders and creditors.

6. Final Order and Relief Granted:
The petition is ordered to approve the resolution for the reduction of share capital to Rs. 5,00,000, divided into 50,000 equity shares, fully paid up. The dispensation of the words "and reduced" post-reduction is confirmed, concluding the relief sought in the petition.

This detailed analysis covers the legal judgment regarding the reduction of share capital under the Companies Act, 1956, highlighting the key aspects and decisions made by the Court in this matter.