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2020 (9) TMI 55 - Tri - Companies LawApproval of Consolidation of shares - Consolidation of equity shares by increasing the face value of the equity shares from the existing ₹ 10 per equity share of the petitioner to ₹ 5,000 per equity share and resultant increase in the paid-up equity share capital of the company - HELD THAT - The petitioner-company has duly followed the process of law and passed the resolution of the consolidation of shares. Section 61(1)(b) further enables consolidation of company to alter its share capital by consolidation and divide all or any of its share capital into shares of larger amounts than its existing shares. Thus, consolidation can be approved in terms of section 61(1)(b) of the Companies Act, 2013. The objections raised by two shareholders who have failed to attend the extraordinary general meeting despite receipt of notice have not been able to make tenable grounds to oppose such consolidation, which is proposed and resolved by the members in the extraordinary general meeting dated July 18, 2017 in the best interest of the shareholders and in view of the valuation of the shares carried out by the valuer appointed by the petitioner-company. The objector has questioned the valuation report with reference to the fair market value and the offer of ₹ 3,400 to the non-promoter share value being offered by the petitioner-company. Such objections cannot be considered as the petitioner-company is not a listed company and as such the shares are not marketable and that the shareholders themselves registered the grievance that they are not able to find buyers and hence the petitioner-company would justify such shareholders who are unable to find buyers by consolidation of share. In the light of the corporate structure of the petitioner-company wherein the promoters hold 90 per cent. of the equity shares, some shareholders are not able to find buyers for their shares and hence, consolidation will be the best exit option available to the shareholders more particularly to the small shareholders. Each consolidated share will rank pari passu in all respect of each other, with no impact on effective dividend yield of the company shares and therefore, it can be said that the shareholders will have the more liquidity in their hands and reasonable return on their investment - the prayer of the petitioner-company to consolidate equity shares by increasing the face value of the equity shares from the existing ₹ 10 per equity share of the petitioner-company to ₹ 5,000 per equity share is approved as provided under section 61(1)(b) of the Companies Act, 2013. Resultantly, the paid-up share capital of the company will be increased from ₹ 44,29,480 to ₹ 44,30,000 and consequential changes in the equity share capital in the records of the company and that of the Ministry of Corporate Affairs can be made. Petition disposed off.
Issues Involved:
1. Whether the consolidation of shares can be approved in terms of the Companies Act, 2013. 2. Whether the objections raised by two shareholders are tenable. Issue-wise Detailed Analysis: 1. Whether the consolidation of shares can be approved in terms of the Companies Act, 2013: The petitioner-company, Macrofil Investments Ltd., filed an application under section 61(1)(b) of the Companies Act, 2013, read with rule 71 of the National Company Law Tribunal Rules, 2016, seeking approval to consolidate equity shares by increasing the face value from ?10 to ?5,000 per share. The company is authorized under its articles of association (article 9) to consolidate its shares by passing a valid resolution after following the due process of law. A special resolution to this effect was passed on June 5, 2013, and the company carried out a valuation of shares. The valuation report was made available for inspection by the members at the registered office of the company on all working days between 11:00 a.m. to 1:00 p.m. until the date of the extraordinary general meeting. The extraordinary general meeting held on July 18, 2017, captured several key aspects, including the non-listing of the petitioner-company's shares, the high cost involved in handling a large number of shareholders, and the negligible dividend amounts payable to small shareholders. The consolidation was seen as providing an exit option to shareholders with small holdings and was deemed to be in the best interest of the members. The Companies Act, 2013, under section 61(1)(b), allows a limited company to consolidate and divide its share capital into shares of a larger amount than its existing shares, provided that no consolidation and division result in changes in the voting percentage of shareholders unless approved by the Tribunal. The petitioner-company duly followed the legal process and passed the necessary resolutions for consolidation. 2. Whether the objections raised by two shareholders are tenable: Two shareholders objected to the consolidation, raising several points: (a) The petitioner had 13,063 members, with 13,053 belonging to the non-promoter group holding 10.81% of the share capital, while the promoter group held 89.19%. (b) The request for consolidation was surprising given that shareholders holding up to 4 shares requested the purchase of their shares. (c) The consolidation aimed to reduce costs involved in handling a large number of shareholders with small holdings. (d) The valuation report was not submitted to shareholders along with the consolidation scheme. (e) The scheme was seen as an improper and forcible exit of public shareholders. (f) The whole process was alleged to be against the exit opportunity specified in the Companies Act. (g) The company failed to provide adequate information and disclosure on the shareholding pattern. (h) The scheme was in violation of the Companies Act, 2013, and prejudicial to the interest of non-promoter shareholders. In response, the petitioner-company provided detailed distribution of shareholding, stating that 99.38% of public shareholders held 50 shares or less. The company argued that the shares were not traded on any securities exchange and could not be sold in the open market. The valuation report was based on the asset-based approach, deemed appropriate given the company's investment nature. The report was made available for inspection, and the objectors did not request it or attend the general meetings. The company followed the legal process and applicable sections of the Companies Act, 2013. Findings: The Tribunal found that the consolidation is permissible under law, as the company followed the due process and passed the necessary resolutions. The objections raised by the two shareholders were not tenable, as they failed to attend the extraordinary general meeting and did not provide substantial grounds to oppose the consolidation. The consolidation was in the best interest of the shareholders, providing liquidity and reasonable return on investment. Conclusion: The Tribunal approved the petitioner's prayer to consolidate equity shares by increasing the face value from ?10 to ?5,000 per share under section 61(1)(b) of the Companies Act, 2013. Consequently, the paid-up share capital of the company will increase from ?44,29,480 to ?44,30,000, with necessary changes in the records of the company and the Ministry of Corporate Affairs.
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