2021 (11) TMI 196 - Tri - Companies Law

Reduction of share capital - Section 66 of the Companies Act, 2013 - HELD THAT - Upon receipt of the notice, the Regional Director has submitted its observation dated 29.04.2021, wherein it has been observed that the company has not complied with the provisions of Section 203 of the Companies Act, 2013 read with Rule 8A of the Companies (Appointment Remuneration of Managerial Personnel) Rules, 2014 from 02.09.2019 as the post of Company Secretary is vacant from 01.09.2019. However, it is stated in the report that the Company has appointed new Company Secretary with effect from 01.03.2021 and further filed an affidavit undertaking to file application with RoC Chennai for adjudicating the delay in appointment of Company Secretary. This Tribunal is of the view that it is just and proper to confirm the Reduction of Share capital of the Applicant Company as resolved by the members of the Company by passing a special resolution and by way of the consent in the form of affidavit - While approving the Reduction of share capital as above, it is clarified that this order should not be construed as an order in any way granting exemption from payment of stamp duty, taxes or any other charges, if any payment is due or required in accordance with law or in respect to any permission/compliance with any other requirement which may be specifically required under any law. Application allowed.

Summary

Issues:
Application for confirming reduction of share capital under Section 66 of the Companies Act, 2013.

Analysis:
The Applicant Company filed an Application under Section 66 of the Companies Act, 2013 seeking confirmation for the reduction of share capital. The company, incorporated in 2007, had its registered office in Chennai. The company's main objects included being an authorized dealer of an automobile manufacturer, sale of automobiles and spare parts, providing after-sale services, and venturing into beauty salons, parlours, health, wellness, and massage centers. The Authorized Share Capital was &8377; 47,00,00,000/- comprising of 4,70,00,000 Equity shares of &8377; 10/- each, with a subscribed and Paid up Capital of &8377; 41,94,37,410/- as of March 31st, 2020.

The company transitioned from the automobile business to beauty salons and parlours, leading to a decision by the Board of Directors to reduce the capital due to incurred losses. The Board believed the new business required less capital, especially considering the significant losses in the previous automobile business. The company aimed to utilize the reduced capital to offset losses and distribute excess capital to shareholders. The company had no secured creditors and only five unsecured trade creditors as of a specified date, as confirmed by a Chartered Accountant's certificate.

Shareholders unanimously passed a Special Resolution for the Reduction of Share Capital in an Extraordinary General Meeting. The application included the proposed form of Minutes for registration under Section 66(5) of the Companies Act, 2013. The Regional Director's observation highlighted non-compliance with certain provisions regarding the appointment of a Company Secretary, which was rectified by appointing a new Company Secretary and undertaking to address the delay in appointment.

Upon review, the Tribunal found it appropriate to confirm the reduction of share capital as approved by the shareholders. The Tribunal also approved the proposed form of Minutes for registration. However, any deficiency or violation found regarding legal requirements would not be exempted by the Tribunal's sanction. The order did not grant exemption from stamp duty, taxes, or other charges, and all necessary compliances were to be met post the confirmation of the reduction of share capital.

In conclusion, the Tribunal allowed the Application for confirming the reduction of share capital, subject to compliance with all legal obligations and regulations, including those related to SEBI, FEMA, and Income Tax laws.