2021 (8) TMI 388 - Tri - Companies Law

Reduction of Share Capital - section 66 of the Companies Act, 2013 read with the National Company Law Tribunal (Procedure for reduction of share capital of Company) Rules, 2016 - HELD THAT - In order to safeguard the interest of those who are in the dissenting minority category, who would otherwise not be willing to accept the price of ₹ 14,680 per share offered by the petitioner-company in consideration of cancellation of their shares and reduction, the petitioner-company shall facilitate constituting a trust in which the fractional shares shall be vested for benefit of the dissenting shareholders - in order the safeguard of interest of the dissenting shareholders, who do not offer the shares to the company for cancellation of the shares held by them by accepting price of ₹ 14,680 per share, the petitioner-company shall facilitate constituting Trust, in which fractional shares of the dissenting shareholders shall be vested for their benefit arising thus shares through an appropriate deed, delineating and rights and entitlement of the beneficiaries and other matters incidental or ancillary thereto. In this regard provisions has contained in section 89 of the Companies Act, 2013 and rules made there under, in so far as it pertains to declaration in respect to beneficial interest. This Tribunal comes to an irresistible conclusion that the consolidation of shares is free from any legal infirmities and falls within the contours of section 61(1)(b) of the Companies Act, 2013 - this Tribunal is of the view that it is just and proper to confirm the consolidation of share capital of the applicant-company. The application for reduction of share capital is approved.

Issues Involved:
1. Approval of consolidation of shares.
2. Confirmation of reduction of share capital.
3. Dispensation of notice to creditors.
4. Valuation of shares and objections by minority shareholders.
5. Procedural compliance and objections by the Regional Director.
6. Protection of minority shareholders' interests.

Issue-wise Detailed Analysis:

1. Approval of Consolidation of Shares:
The applicant-company, M/s. Simpson and Co. Ltd., sought approval for consolidating its shares from ?10 each to ?2,500 each. The board of directors approved the proposal on September 25, 2019, subject to shareholders' and Tribunal's approval. The consolidation aimed to streamline administrative processes and reduce costs associated with servicing a large number of small shareholders. The consolidation was approved by 99.86% of the shareholders, with only 0.14% voting against it.

2. Confirmation of Reduction of Share Capital:
The applicant-company also sought confirmation for reducing its share capital under Section 66 of the Companies Act, 2013. This reduction was a consequence of the consolidation, specifically addressing fractional shares. The company proposed paying ?14,860 per pre-consolidated share of ?10 to fractional shareholders. The Tribunal confirmed the reduction, emphasizing that it did not involve any extinction or reduction of unpaid share capital.

3. Dispensation of Notice to Creditors:
The Tribunal dispensed with the notice to creditors as the applicant-company had no secured creditors and provided an auditor's certificate confirming the same. The unsecured creditors' liabilities were deemed manageable given the company's sound financial position and positive net worth of ?1,631.91 crores.

4. Valuation of Shares and Objections by Minority Shareholders:
The valuation of shares at ?14,860 per share was conducted by registered valuers and confirmed by a SEBI-registered Category-I Merchant Banker. Minority shareholders objected, claiming the valuation was too low and suggested values ranging from ?50,000 to ?5,00,000 per share. The Tribunal found the valuation fair and transparent, noting that the shares were unlisted and lacked liquidity, which justified the valuation.

5. Procedural Compliance and Objections by the Regional Director:
The Regional Director's report indicated no major objections except for minor observations. The applicant-company addressed complaints from certain shareholders, and the Tribunal found the company's replies satisfactory. The Tribunal also noted that the company was compliant with statutory requirements and had no pending prosecutions or investigations.

6. Protection of Minority Shareholders' Interests:
To protect the interests of dissenting minority shareholders, the Tribunal ordered the constitution of a trust to hold fractional shares for their benefit. This arrangement ensured that shareholders who did not wish to accept the offered price could retain their shares through the trust.

Conclusion:
The Tribunal approved the consolidation of shares and the consequent reduction of share capital, finding no legal infirmities in the process. The objections raised by minority shareholders were addressed, and measures were implemented to protect their interests. The Tribunal emphasized compliance with all relevant laws and regulations, including SEBI, FEMA, and Income-tax laws.

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