1977 (12) TMI 92 - SC - Companies Law

Shares capital Reduction of Oppression and mismanagement Notice to be given to central government of applications under section 397 and 398

Issues Involved:
1. Validity of the court's order directing the company to purchase its shares and reduce share capital without notice to creditors.
2. Necessity of following the procedure prescribed in sections 100 to 104 of the Companies Act for reduction of share capital.
3. Requirement of notice to the Central Government under section 400 of the Companies Act.

Issue-wise Detailed Analysis:

1. Validity of the Court's Order Directing the Company to Purchase its Shares and Reduce Share Capital Without Notice to Creditors:
The interveners, claiming to be creditors of the company, argued that the court's order dated 31st May, 1977, directing the company to purchase shares and reduce share capital without notice to creditors was invalid. The court noted that while the interveners claimed to be creditors to the tune of Rs. 40 lakhs, the primary question was whether the lack of notice invalidated the court's order.

The court clarified that section 77 of the Companies Act allows a company to purchase its shares if the consequent reduction of capital is sanctioned either under sections 100 to 104 or section 402. Both procedures are distinct and do not require adherence to the same process. The court emphasized that when the reduction of share capital is directed under section 402, which deals with relief against oppression, there is no statutory requirement to notify creditors. The court further reasoned that the order safeguarding the interests of the creditors by ensuring the valuation of shares considered all existing, contingent, and anticipated debts, liabilities, claims, and demands, including those of the interveners.

2. Necessity of Following the Procedure Prescribed in Sections 100 to 104 of the Companies Act for Reduction of Share Capital:
The court examined whether the procedure outlined in sections 100 to 104 must be followed when the reduction of share capital is directed under section 402. It was conceded that the procedure under sections 100 to 104 is not mandatory in such cases. The court explained that sections 100 to 104 provide a detailed procedure for reduction of share capital, including the settlement of a list of creditors and notice to them. However, section 402, which deals with relief against oppression, constitutes a separate code and does not require adherence to the procedure in sections 100 to 104.

The court highlighted that requiring the procedure under sections 100 to 104 in cases of oppression would defeat the purpose of providing timely relief to minority shareholders. The court further noted that the statutory power under section 402 allows the court to direct the purchase of shares without the need for a resolution by the company's members, which would be impractical in cases of oppression by the majority.

3. Requirement of Notice to the Central Government Under Section 400 of the Companies Act:
The interveners contended that the court's order was invalid as no notice was given to the Central Government as required under section 400. The court clarified that section 400 mandates notice to the Central Government when a petition is made under sections 397 and 398, but it does not require a fresh notice at the appellate stage. The court confirmed that notice was given to the Central Government during the initial proceedings in the Calcutta High Court, and the Central Government did not make any representation. Therefore, the requirement under section 400 was fulfilled, and no fresh notice was necessary when the matter reached the Supreme Court.

Conclusion:
The court rejected the civil miscellaneous petition, finding no merit in the interveners' arguments. It held that the order directing the company to purchase shares and reduce share capital without notice to creditors was valid under section 402. The court also clarified that the procedure under sections 100 to 104 was not required in this context, and the notice to the Central Government under section 400 had been duly given during the initial proceedings. The court directed the expedited disposal of related suits to ensure the timely determination of the value of shares.

← Previous Next →