2021 (2) TMI 1088 - Tri - Companies Law

Seeking approval for reduction of share capital - Section 66 of the Companies Act 2013 - HELD THAT - The investments by shareholder in the equity share capital of the company are non- repatriable basis, hence the provisions of FEMA and the regulations made there under are not applicable to the company. The proposed reduction would not involve either diminution of any liability in respect to unpaid share capital or the payment to any shareholder, accordingly the provisions of Section 66(1)(a) of the Act will not be applicable. Further the net worth of the company shall remain positive and therefore not in any way have any adverse effect on the company s ability to honor its commitments and obligations. Notice has been served to income tax department. However, no objection has been raised by the Income tax department - In response to the observation made by RD in the report, the applicant has stated that the queries raised by the RD has already been dealt with vide compliance affidavit dated 25.02.2020. Further on 19.01.2021, during the hearing Ld. Counsel for RD made statement that they have perused the compliance affidavit and as per instructions the queries/objections of the department stands satisfied. Hence, they have no objection to the application being allowed. That the reduction of the share capital of the above company as resolved by the Board Of Directors at the Extra Ordinary General meeting held on the13.12.2019 is allowed - That the minutes for reduction of share capital as specified under section 66(5) of the Companies Act, 2013 is be and hereby approved. That a certified copy of this order including the minute as approved, be delivered to the Registrar of Companies within thirty days of receipt of the order - Application allowed.

Summary

Issues:
Reduction of share capital under Section 66 of the Companies Act 2013.

Analysis:
1. The applicant, a company limited by shares, sought approval for the reduction of share capital due to accumulated losses. The company had a paid-up share capital of Rupees 36,01,00,000 divided into 3,60,10,000 Equity Shares of Rupees 10 each. The authorized share capital was Rupees 37,00,00,000 divided into 3,70,00,000 Equity Shares of Rupees 10 each. The company was engaged in the construction business.

2. The applicant justified the reduction of share capital to realign the relation between capital and assets for better financial position. The Board recommended to write off accumulated losses against reduction of share capital in accordance with Section 66 of the Companies Act. The relevant Board Resolution was dated 29.11.2019.

3. The applicant complied with Article 23 of the Articles of Association, empowering for reduction of share capital. The reduction was approved by shareholders at an Extra Ordinary General Meeting on 13th December 2019, with due notice and unanimous voting in favor. The resolution included reducing the share capital by 42.30% to Rupees 20,77,77,700.

4. The reduction involved cancelling paid-up share capital unrepresented by available assets. The applicant provided details of secured and unsecured creditors, along with compliance affidavits and statutory auditor certificates. The sole secured creditor gave in-principle consent, and no objections were received from unsecured creditors.

5. The applicant ensured compliance with Section 66(3) of the Act regarding accounting treatment and solvency declaration. The proposed reduction did not involve repatriable investments, FEMA regulations, or adverse effects on the company's net worth to honor commitments.

6. The Regional Director's report highlighted certain deficiencies, including the need for relevant form filings, NOC from unsecured creditors, and auditor's qualifications. The Income Tax department raised no objections, and the applicant addressed the RD's queries satisfactorily.

7. Considering the documents and no objections, the Tribunal allowed the reduction of share capital as per the Board's resolution. The minutes for reduction were approved, to be delivered to the Registrar of Companies within thirty days. Paper publication confirming the reduction was mandated in English and Hindi newspapers.

8. The application was allowed and disposed of in accordance with the above orders, concluding the legal proceedings regarding the reduction of share capital under Section 66 of the Companies Act 2013.