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TMI Blog2004 (7) TMI 354X X X X Extracts X X X X X X X X Extracts X X X X ..... disinvest its shareholding favouring the present promoters and/or their associates at a mutually acceptable price. However, the company considers it prudent to align the investment to reflect their true and fair value........the company proposes to set off the above amount against Share Premium Account. With the said adjustment, the Company s accounting method in respect of investments would fall in line with Accounting Standards of Institute of Chartered Accountants of India and represent true shareholder value. The set off will not cause any prejudice to the creditors of the Company. The reduction of capital does not involve either result in the diminution of any liability in respect of unpaid capital or the payment to any shareholder of any paid-up capital. No compromise or arrangement is contemplated. There is no reduction in the value of the security, which the creditors have in the Company. This Court in Company Petition No. 21 of 1998 dated 10-4-1998 allowed the application for reducing the share capital on the ground that no diminution of liability in respect of any paid up share capital was involved. Conclusion: The court found that the resolution to utilize an amount not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he value of the investment made by the appellant company in NMCL is reduced to Nil . The Board of Directors of the company, with a view to set off the loss incurred by the investment made in NMCL against the share premium account, proposed the following resolution as a Special Resolution. " Resolved that pursuant to the provisions of sections 78, 100 and other applicable provisions, if any, of the Companies Act, 1956 read with Article 15 of the Articles of Association of the Company and subject to the confirmation of the Honourable High Court of Judicature of Andhra Pradesh at Hyderabad, an amount not exceeding Rs. 115.30 lakhs out of the amount standing to the credit of Share Premium Account of the company be utilized for the adjustment against permanent loss in value of investment in shares of Nepal Metal Company Limited as at March 31, 2003. Resolved Further that for the purpose of giving effect to the aforesaid resolution, the Board of Directors of the Company or a Committee of Directors, be and is hereby authorized to do and perform all acts, deeds, matters and things and take all such actions as may be considered necessary and desirable to give effect to the same." 7. The res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vided that any part of the premiums which has been so applied that it does not at the commencement of this Act form an identifiable part of the company s reserves within the meaning of Schedule VI, shall be disregarded in determining the sum to be included in the securities premium account." 11. There is no dispute whatsoever that the aggregate sum not exceeding Rs. 115.30 lakhs now sought to be drawn out of the company s Share Premium Account does not fall under any of the contingencies provided for under sub-section (2) of section 78 of the Act. Section 100 of the Act deals with reduction of share capital by way of special resolution provided the Articles of Association so authorises the company to reduce its share capital. The special resolution under section 100 is referred to as "a resolution for reducing share capital". Section 101 of the Act deals with an application to Court for confirming the reduction. Section 102 of the Act provides that the Court, if satisfied with respect to every creditor of the company who under section 101 is entitled to object to the reduction, that either his consent to the reduction has been obtained or his debt or claim has been discharged, or h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the Share Premium Account for purposes mentioned in section 78(2) of the Act, no approval or sanction of this Court is required. 17. It is very well settled and needs no restatement that this Court does not exercise any appellate power over the decision of the Company or its management. The Company Court in this equity jurisdiction is required itself to satisfy and see that the procedure by which resolution is carried through is legally correct and the shareholders and creditors are not prejudiced. It is also the duty of the Court that it had to see that the scheme is fair and equitable between the different classes of shareholders. It is no doubt true that it is the duty of the Court to protect the interests of the creditors and it must be safeguarded. Public interest is also a paramount consideration. 18. In the instant case, the Special Resolution has been passed in accordance with the Articles of Association. Neither the creditors nor the shareholders are before the Court objecting to passing off the resolution. Nothing is brought to the notice of the Court that the Special Resolution affects the interests of the shareholders. There is no material available on record that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n any way which it may think fit by special resolution, including in particular any of the following ways: (1) it may reduce or altogether extinguish the liability on any paid or partly paid-up shares; (2) it may, by reducing the face value of any shares or otherwise, cancel any paid-up share capital which is lost or cancel it to the extent to which there is found deficiency in available assets; (3) it may pay off any paid up share capital which is found to be in excess of the capital requirements of the company. Reduction of the capital in the following ways is within the Act: (1) diminishing the nominal amount of the shares so as to leave a less sum unpaid; (2) diminishing the nominal amount of any shares by writing off or repaying paid up capital; (3) diminishing the nominal amount by combining both (1) and (2); (4) diminishing the number of shares by extinguishing the existing liability on certain shares, writing off or repaying the whole amount paid up thereon, and cancelling them. The statute has not prescribed the manner in which the reduction is to be carried out nor has it prohibited any method of effecting that object-per Lord Herschell L.C. in British American Trustee Fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 34 (Ch.D.). "The power under section 102 is conferred on the court in order to enable it to protect the interests of dissenting shareholders and even those who do not appear. Before confirming a reduction the court must see that the interests of the minority shareholders and of the creditors are adequately protected and that there is no unfairness even though this is an internal matter of the company". Indian National Press (Indore) Ltd., In re [1989] 66 Comp. Cas. 387 (MP)." 21. It is unnecessary to refer in detail to various orders passed by the Courts in India approving/confirming such resolutions relating to reduction of share capital. Nor is it necessary to refer to the orders in detail passed by the Supreme Court of New South Wales Equity Division in the matter of Coca-Cola Amatil Ltd, In re 1998 NSW Lexis 1786 and the decision of the High Court of Hong Kong Special Administrative Region in Yoshiya International Corpn. Ltd. In re [2002] 1207 HKCU 1. The Hong Kong High Court observed that the Principles that the Court will require to be satisfied for sanctioning a reduction of capital are well established. Firstly, the shareholders should be treated equitably in the proposed r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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