1939 (6) TMI 6 - HC - Companies Law

Reduction of share capital Application to Tribunal for confirming order, objections by creditors, and settlement of list of objecting creditors

Issues Involved:
1. Reduction of share capital.
2. Increase of share capital.
3. Fairness and legality of the resolutions.
4. Jurisdiction of the Court regarding internal management.
5. Concerns of objectors.
6. Evidence of capital loss or unrepresented assets.
7. Validity of the extraordinary general meeting and resolutions passed.

Issue-wise Detailed Analysis:

1. Reduction of Share Capital:
The Bengal-Burma Steam Navigation Co., Ltd. sought confirmation from the Court to reduce its share capital from Rs. 25,00,000 to Rs. 2,00,000, as per a special resolution passed by the company. The Court's role was to confirm the reduction, ensuring it was fair and equitable to all shareholders, who were of one class in this case. The reduction was shared equally among all shareholders. The Court found no fault with the reduction itself, as it was necessary due to the loss of capital, as evidenced by the company's financial statements.

2. Increase of Share Capital:
Alongside the reduction, there was a resolution to increase the share capital to Rs. 50,00,000 by issuing new shares. However, the Court noted that no sanction was necessary under the Companies Act for the increase of share capital by issuing new shares. The increase was intended to obtain further capital for the company, with the expectation of raising Rs. 48,00,000. The objectors' concerns about the increase were dismissed as the Court's jurisdiction did not extend to this matter.

3. Fairness and Legality of the Resolutions:
The Court examined whether the reduction of capital was fair and equitable. The reduction was found to be fair as it applied equally to all shareholders, and no part of the capital was lost or unrepresented by available assets. The Court referenced precedents such as In re Ebbw Vale Steel, Iron and Coal Co. and British and American Trustee and Finance Corporation v. Couper, which supported the fairness and legality of the reduction.

4. Jurisdiction of the Court Regarding Internal Management:
The Court emphasized that it would not interfere with the internal management of companies acting within their powers, citing the principle that it has no jurisdiction to do so. The Court's function was limited to confirming the reduction of capital if it was fair and equitable, without delving into the internal affairs of the company.

5. Concerns of Objectors:
The objectors, represented by Mr. B.C. Paul, argued that the increase of capital would benefit new shareholders at the expense of current ones. However, the Court noted that the objectors admitted there was nothing inherently objectionable in the resolution to increase the share capital. The objections were primarily based on future concerns, which the Court deemed outside its purview.

6. Evidence of Capital Loss or Unrepresented Assets:
The Court required evidence that the capital reduction was justified due to losses or unrepresented assets. The company provided an affidavit from the Chairman of the Board of Directors and financial statements showing significant losses. The Court found this evidence sufficient to confirm that the reduction was necessary and justified.

7. Validity of the Extraordinary General Meeting and Resolutions Passed:
The validity of the extraordinary general meeting and the resolutions passed was challenged by the objectors. However, the Court found that the resolutions were duly passed at the meeting, as evidenced by the minutes and the company's records. The Court ruled that any challenge to the validity of the meeting should have been addressed in a separate suit, which had been withdrawn.

Conclusion:
The Court confirmed the reduction of share capital from Rs. 25,00,000 to Rs. 2,00,000, finding it fair and equitable. The increase of share capital to Rs. 50,00,000 was noted but not within the Court's jurisdiction to sanction. The objections raised were dismissed, and the Court emphasized its limited role in confirming the reduction without interfering in the company's internal management. The evidence provided by the company was deemed sufficient to justify the reduction, and the validity of the extraordinary general meeting and resolutions passed was upheld.

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