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TMI Blog2007 (6) TMI 292X X X X Extracts X X X X X X X X Extracts X X X X ..... persons who abstained from voting were in favour of the resolution that was resolved per se. Consequently, the question as to whether such abstention can be assumed to be in favour of the resolution will not arise in the facts of this case. Having considered the petition of the Stock Exchange, it is not possible for the Court to come to the conclusion that the exit opportunity that was offered was inequitable or unjust. The material placed on the record provides data of the share price movements. The price of Rs. 183 per share was well above the price at which the shares of the Company were traded on the date on which a resolution was passed by the Board of Directors. In fact, as the Company has pointed out to the Court, the price per share as offered was higher than the price prevalent on the date on which the result of the postal ballot was declared as well as on the date on which a draft petition was filed before the Stock Exchange for its approval. The speculative variation in the price of the shares of the Company will not operate, as suggested, to invalidate a resolution which has been validly passed. None of the shareholders have objected to the proposed reduction. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The principal reasons underlying the proposed reduction of capital have been spelt out in paragraph 11 of the petition thus : "( a )The Petitioner Company has sold its isolator Division located in Hyderabad, as approved by an ordinary resolution of the shareholders of the Petitioner Company by way of a postal ballot process, due to the severe competition faced by it in terms of input costs and margins, both in domestic and international markets. Subsequent to such sale, the residual business of the Petitioner Company will be the manufacture of lightening arresters. ( b )The sale of the isolator Division has generated surplus funds for the Petitioner Company. As a result, the Petitioner Company has more capital resources than it can profitably employ and the capital is in surplus to its needs. The Petitioner Company may face serious cash flow difficulties due to unavailable business, which would also negatively impact its cash reserves. This has given rise to the need to readjust the relation between capital and assets and to accurately and fairly reflect the liabilities and assets of the Petitioner Company in its books of account. The Petitioner Company evaluated the effect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sent to all the shareholders of the proposed resolution by postal ballot and shareholders were asked either to vote in favour of or against the resolution. The scheme propounded that the reduction of share capital would take place from amongst such shareholders who either vote in favour of the resolution or do not object to the resolution. In other words, the scheme provides an option whereby the shares of such shareholders who voted against the resolution would remain untouched. 5. The result of the postal ballot was as follows : ( i )The total number of postal ballot notices sent out-3859; ( ii )The total number of valid responses received - 136 which represented 25,93,684 shares of the Company; ( iii )Total invalid responses received-1; ( iv )Total responses expressly in favour of the resolution - 112 representing 25,81,017 shares of the Company equivalent to 99.5 per cent of the voted shares; ( v )Total responses expressly against the resolution - 24 representing 12,667 shares equivalent to 0.5 per cent of the voted shares. The proposed scheme of reduction was approved by 95.76 per cent in number and 99.62 per cent in value of the creditors of the Company. The re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a selective reduction of the share capital has been permissible in law and since it had obtained a special resolution of its shareholders approving the proposed reduction, implementation of the conditions imposed by BSE would be contrary to the terms of the resolution passed under section 100 of the Companies Act, 1956. In pursuance of a further request made by BSE, the Company has furnished an undertaking on 20-12-2006 stating, inter alia , that in the event that the non-promoter shareholding of the Company falls below the minimum limit prescribed by Stock Exchange Regulations upon the reduction of share capital in accordance with the proposed scheme, the promoters shall take necessary steps for meeting the immediate non-promoter holding requirement of 25 per cent of the post-scheme paid up share capital by way of divestment of their shareholding to the extent required, to SEBI Registered Qualified Institutional Buyers, Mutual Funds, Financial Institutions or Scheduled Banks within a period of three months from the date of the order of this Court confirming the reduction. 8. On 17-1-2007, BSE issued a letter to the Petitioner declining its permission to proceed with the sche ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g share price of BSE was Rs. 156.25. On 25-7-2006 when a draft petition was filed with the BSE for its approval under clause 24( f ) of the Listing Agreement, the closing share price on BSE was Rs. 124.45 per share. The shares of the Petitioner continued to trade on BSE at a price much below the exit price of Rs. 183 per share till the beginning of December 2006. It has been urged that the price on the date of the resolution of the Board must be regarded as the relevant price for consideration and the price that is offered was fair and reasonable. It has been urged that under clause 24( f ) of the Listing Agreement, the Petition is required to be lodged with the Stock Exchanges one month prior to the date of the filing and the Stock Exchanges accordingly have been granted a period of one month to respond to an application. On 25-8-2006, on which date the shares of the Company were trading, the price per share was Rs. 155.60. The BSE, it is urged, issued its final letter only on 17-1-2007 several months after the filing of the petition with the BSE. Increase in the shareholders price is based on market movement and may be speculative in nature and it is not necessarily reflective of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... necessarily be qua all shareholders of the company, but can take place from one or more amongst the body of shareholders. A classification of shareholders for the purposes of effecting the reduction of capital is, therefore, not an act which is extraneous to the provisions of section 101. The Court must give effect to the plain meaning and intendment of the provisions of section 101. Corporate autonomy must have a wholesome recognition in law and unless the law circumscribes it by a clear provision, the Court would not read limitations where the Legislature has not imposed them. 12. One of the leading decisions in England which approves a selective reduction of capital is the decision of the House of Lords in British and American Trustee and Finance Corporation Ltd. and Reduced v. John Couper 1894 AC 399 (HL). In that case, the shares of the company were divided into ordinary shares partly paid up, and founder s shares partly paid up. The Company carried on business both in England and in the U.S., but it being found impossible to do so in both countries with advantage, it was determined that the Company should cease to carry on business in the U.S. This was carried out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... L) and Robert Stephen Holdings Ltd., In re [1968] 1 WLR 522. 14. In Ramesh B. Desai v. Bipin Vadilal Mehta AIR 2006 SC 3672, the Supreme Court referred to the Commentary in the Guide to the Companies Act by A. Ramaiya with approval which describes the decision in the British and American Trustee and Finance Corporation Ltd. case as the leading authority on the subject of a reduction of capital. In Hindustan Commercial Bank Ltd. v. Hindustan General Electric Corpn. Ltd. 3 AIR 1960 Cal. 637 the Calcutta High Court referred to the judgment of the House of Lords in the British American Trustee case with approval and held that the question of reducing capital is a domestic affair to be decided by the majority. The Court held that the Companies Act, 1956 leaves it to the company to decide for itself the extent and mode of reduction and application of the moneys thereby. This is, however, subject to the confirmation of the Court, which is required for safeguarding the interests of creditors and minority shareholders and seeing that it is fair, just and reasonable. A similar view was taken by the Madras High Court in Panruti Industrial Company (P.) Ltd., In re AIR 196 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shall retain their shares unreduced, the shares of others being extinguished totally, receiving a just equivalent. ( iv )The company limited by shares is permitted to reduce its share capital in any manner, meaning thereby a selective reduction is permissible within the framework of law ( see Re. Denver Hotel Co., 1893(1) Chancery Division 495). ( v )When the matter comes to the Court, before confirming the proposed reduction the Court has to be satisfied that ( i ) there is no unfair or Inequitable transaction and ( ii ) all the creditors entitled to object to the reduction have either consented or been paid or secured." The facts : 16. In the present case, the Court must first and foremost have regard to the well-established position that a selective reduction of share capital is legally permissible. It is significant for the purposes of the present proceedings to note what an option of reduction accompanied by a return of capital was given in the first instance to the entire body of shareholders. The resolution, however, prescribes that the actual return of capital was to be made to such shareholders that "either assent or do not object by postal ballot to the propo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of votes cast against the resolution by members so entitled and voting. The touchstone laid down by the statute is votes by persons who are entitled to vote and who in fact cast their votes at the meeting. The fact that some shareholders may decide to abstain from the meeting will not dilute the efficacy of the resolution, general or special, provided the requisite statutory majority is found to exist at the conclusion of the poll. In the present case, there are two aspects to the resolution proposed by the Company which are as follows: ( i ) An affirmative or negative vote in respect of the resolution proposing reduction and ( ii ) An objection to giving up one s shares in the proposed reduction thereby dealing with the mechanism of the reduction. In the present case, both these facets are covered by the same resolution. 3723 shareholders who did not object to the scheme by casting their votes are not counted towards the votes required to approve the decision to reduce per se. In other words, the assumption made on account of abstention in respect of the persons who did not vote is only in respect of the mechanism of reduction. This is, therefore, not a case where the Company ha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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