2020 (10) TMI 339 - Tri - Companies Law

Reduction of equity share capital - repayment of the fair value of the shares to the small equity shareholders - section 66 read with section 52 of the Companies Act, 2013 - HELD THAT - After the first hearing of the petition further clarifications were sought by this Tribunal vide order dated July 16, 2020. The further affidavit dated August 4, 2020 provided the detailed working of the valuation report as well as other clarifications sought. Having perused the petition and more particularly the reasons given in support of the proposed reduction, in our view there is no reason not to confirm the proposed action of the petitioner to reduce its capital. The said proposal does not prejudicially affect anyone. Accordingly the resolution dated January 28, 2020 is hereby confirmed. It has been noticed by this Tribunal that a caveat was filed on behalf of some shareholder/s. The petitioner has confirmed the supply of copy of the application with all its annexures in the month of March. However, no further submissions have been forwarded by the said party even after the lapse of the prescribed period of 90 days for filing the objections. Reduction of share capital allowed - application approved.

Issues Involved:
1. Confirmation of proposed reduction of equity share capital.
2. Compliance with regulatory requirements.
3. Impact on shareholders and creditors.
4. Procedural adherence and objections.

Issue-Wise Detailed Analysis:

1. Confirmation of Proposed Reduction of Equity Share Capital:
The petitioner-company, incorporated on December 19, 1944, sought confirmation under sections 66 and 52 of the Companies Act, 2013, to reduce its equity share capital by repaying the fair value of shares to small equity shareholders. The company, delisted from BSE Ltd. since January 8, 2007, proposed this reduction to provide an exit opportunity for public shareholders holding non-marketable shares. The board of directors approved the reduction on November 27, 2019, based on a valuation report by RSBA Valuation Advisors LLP and a fairness opinion by Vivro Financial Services P. Ltd. The extraordinary general meetings of equity and preference shareholders approved the reduction on January 28, 2020, by the requisite majority.

2. Compliance with Regulatory Requirements:
The petitioner-company confirmed compliance with FEMA and RBI guidelines for non-resident shareholders and undertook to comply with the Income-tax Act provisions. The reduction did not involve unpaid share capital or cancellation of lost capital but was a repayment of excess paid-up share capital to public equity shareholders. The company assured that the net worth would remain positive post-reduction, ensuring no adverse effect on its commercial commitments.

3. Impact on Shareholders and Creditors:
The reduction was aimed at repaying public shareholders at a fair value of ?2,005 per share, including a premium of ?1,905. The company clarified that the reduction would not prejudice preference shareholders or creditors. Notices were served to all secured and unsecured creditors, and public notices were published. No objections were raised by creditors, and the claims of two creditors were addressed satisfactorily.

4. Procedural Adherence and Objections:
The petition, filed on February 10, 2020, complied with the National Company Law Tribunal (Procedure for Reduction of Share Capital of Company) Rules, 2016. Notices were served to creditors and regulatory authorities, and public notices were published. The Regional Director sought compliance with FEMA, RBI, and Income-tax Act provisions, which the company confirmed. Despite a caveat filed by some shareholders, no objections were raised within the prescribed period. The Tribunal, after seeking further clarifications and reviewing the detailed working of the valuation report, confirmed the proposed reduction.

Judgment:
The Tribunal confirmed the resolution dated January 28, 2020, for reducing the equity share capital from ?49,31,56,600 to ?45,90,19,700 by cancelling 3,41,369 equity shares held by public shareholders. The petitioner was directed to publish the notice of confirmation in specified newspapers within 14 days of registration with the Registrar of Companies and to repay the amount due to public shareholders as per the resolution. The petitioner was also directed to pay ?10,000 towards legal fees to the office of the Regional Director. The petition was disposed of with no order as to costs.

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