2016 (3) TMI 1028 - HC - Companies Law

Reduction of share capital - Held that - There appears to be no impediment to grant sanction to the resolution, passed by the shareholders, at their EGM held on 06.12.2014, for reduction of its share capital by a sum of ₹ 24,34,700, comprising of 243470 shares of ₹ 10 each, held by public shareholders. As indicated above, necessary power for reduction in share capital is contained in Article 48 of the Articles of Association of the petitioner company.For the foregoing reasons, as prayed, the resolution passed, at the EGM, held on 06.12.2014, by the shareholders of the petitioner company is approved. As the petitioner company has no secured and unsecured creditors, it is exempted from using the expression AND REDUCED as a suffix against its name.The fact that the petitioner company is not listed on any stock exchange, an averment which is not refuted by the RD, the SEBI, so to say, may not have any role to play in the present petition.

Issues Involved:
1. Approval for reduction of share capital.
2. Legality of preferential allotment of shares.
3. Fairness to public shareholders.
4. Compliance with statutory provisions and Articles of Association.
5. Role and response of SEBI.

Issue-wise Detailed Analysis:

1. Approval for Reduction of Share Capital:
The petitioner company sought approval for the special resolution passed at the Extraordinary General Meeting (EGM) on 06.12.2014, to reduce its paid-up share capital by canceling shares held by public shareholders. The reduction aimed to decrease the share capital by ?24,34,700, representing 2,43,470 shares of ?10 each, held by public shareholders, constituting 5.47% of the total paid-up share capital.

2. Legality of Preferential Allotment of Shares:
The company had previously allotted 40 lakh shares on a preferential basis to persons in control, including Mr. B.K. Agarwal, a strategic investor, which resulted in a significant change in the equity pattern. This allotment was made to pay off unsecured creditors and was carried out in accordance with Section 81(1A) of the Companies Act, 1956, and the Unlisted Public Companies (Preferential Allotment) Rules, 2003. The court found no evidence to suggest that the allotment was flawed or illegal.

3. Fairness to Public Shareholders:
The court noted that the value of shares held by public shareholders had significantly decreased, and the proposed reduction would provide them with a fair exit opportunity. The public shareholders would be paid ?10 per share, which was higher than the current value of ?1.4252 per share. The court referenced the Sandvik Asia case, where it was held that as long as non-promoter shareholders were paid a fair value, the court would not withhold its sanction.

4. Compliance with Statutory Provisions and Articles of Association:
The reduction of share capital was in line with Article 48 of the Articles of Association of the petitioner company. The court also considered the historical context, including the company's revival efforts led by Mr. N.K. Somani and Mr. B.K. Agarwal, which were sanctioned by the court. The court found that the reduction of capital was compliant with the relevant statutory provisions.

5. Role and Response of SEBI:
The Regional Director (RD) suggested seeking comments from SEBI, but no response was received from SEBI despite a communication dated 17.08.2015. The court noted that since the petitioner company was not listed on any stock exchange, SEBI's role in this matter was limited.

Conclusion:
The court approved the resolution passed at the EGM on 06.12.2014, for the reduction of share capital by ?24,34,700, comprising 2,43,470 shares of ?10 each, held by public shareholders. The minutes of the meeting were ordered to be registered with the Registrar of Companies (ROC). The petitioner company was exempted from using the expression "AND REDUCED" as a suffix against its name, considering it had no secured and unsecured creditors. The petition was disposed of in these terms.

← Previous Next →