9911796707
TMI Blog2007 (8) TMI 461X X X X Extracts X X X X X X X X Extracts X X X X ..... 1. Prakash Industries Limited has filed this petition under section 101 of the Companies Act, 1956 (hereinafter referred to as "the Act") for confirmation of the reduction of share capital due to utilization of its securities premium account for the purpose of meeting the deferred tax liability in terms of Accounting Standard-22, issued by the Institute of Chartered Accountants of India, as resolved by the special resolution passed by the extraordinary general meeting of the company held on 15-12-2006; and further for dispensing with the procedural requirement of section 101(2) of the Act, as the proposed reduction of share capital does not involve either diminution of any liability in respect of unpaid capital or payment to any shareholder of any paid up capital, and the petitioner-company has no creditor or any class of them entitled to object it. 2. Initially, the petitioner-company was registered on 31-7-1980, under the provisions of the Act, as a company limited by shares in the name of Prakash Pipes and Industries Limited in the State of Haryana. Subse-quently, the name of the petitioner-company was changed to Prakash Industries Limited and a fresh certification of incor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y and subject to the confirmation by the Punjab and Haryana High Court at Chandigarh or National Company Law Tribunal or any other authority, if required, as the case may be, the company be and is hereby authorised to utilize the credit balance in the securities premium account of the company for the purpose of meeting the deferred tax liability in terms of Accounting Standard-22 issued by the Institute of Chartered Accountants of India, i.e., accounting for taxes on income and for deferred revenue expenses and for capital issue expenses of the company. Resolved further that the purpose of giving effect to the aforesaid resolution, the board of directors of the company (including any committee of the board for this purpose) be and is hereby authorized to take all such acts, deeds, matters and things as may be considered necessary." 6. In the petition, the following reasons for reduction of the share capital of the petitioner-company have been mentioned : "Company has taken various initiatives for improving its financial performance. In accordance with the provisions of section 78 read with section 100 of the Companies Act, 1956, the application/utilisation of secu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he order of this court, notice of this petition was published in the daily Indian Express (English) and the daily Hari Bhoomi (Hindi) dated 23-7-2007, but neither any shareholder or creditor nor any other person has appeared to oppose the prayer made by the petitioner-company. 10. Shri Atul Gandhi, advocate, was appointed as amicus curiae to assist this court. 11. I have heard learned counsel and have perused the petition as well as other documents annexed with it. 12. Section 100 of the Act provides for reduction of share capital by passing a special resolution. Such reduction can be made after the articles of association of the company so authorise to reduce its share capital. Section 101 provides that such proposed reduction of share capital is to be confirmed by the company court. Sub-section (2) provides that where the proposed reduction of share capital involves either the diminution of liability in respect of unpaid share capital or the payment to any shareholder of any paid-up share capital, and in any other case if the company court so directs, such proposed reduction is to be approved by the creditors of the company. 13. In this petition, the petitio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... remium account. 16. After hearing learned counsel for the petitioner-company and Shri Atul Gandhi, amicus curiae, I am of the opinion that the proposed reduc- tion of share capital will not result in diminution of any liability in respect of unpaid capital or the payment to any shareholder of any paid-up capital. Therefore, by the proposed reduction, the interests of the creditors or shareholders are not going to be affected. Since the petitioner-company has no creditor or any class of them entitled to object and the proposed reduction of share capital (utilisation of securities premium account) is not likely to involve either diminution of any liability in respect of unpaid capital or the payment of any shareholder of any paid-up capital, the interests of the creditors of the company are also not going to be affected. Keeping in view these considerations, the petitioner-company is permitted to dispense with the requirement of sub-section (2) of section 101 of the Act. 17. Now the question arising for consideration is : Whether the "deferred tax liability" can be adjusted towards the securities premium account and if it can be, then what is the procedure to reduce the sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e with the provisions of law for the time being in force. The board of directors in its meeting held on 11-11-2006, has resolved to reduce the share capital by utilising the securities premium account of the petitioner-company for the purpose of meeting the "deferred tax liability" in terms of Accounting Standard-22, subject to approval of its shareholders and confirmation by this court. The company in its extraordinary general meeting held on 15-12-2006, passed the following special resolution : "Resolved that pursuant to section 78, read with section 100 and other applicable provisions, if any, of the Companies Act, 1956, and article 123(3) of the articles of association of the company and subject to the confirmation by the Punjab and Haryana High Court at Chandigarh or National Company Law Tribunal or any other authority, if required, as the case may be, the company be and is hereby authorised to utilize the credit balance in the securities premium account of the company for the purpose of meeting the deferred tax liability in terms of Accounting Standard-22 issued by the Institute of Chartered Accountants of India, i.e., accounting for taxes on income and for deferred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In spite of the notice published under the orders of this court, neither any shareholder nor any creditor or any person from the public has come forward to oppose the proposed reduction of share capital. Nothing has been brought to the notice of the court that the special resolution affects the interests of the shareholders or the creditors. In the petition, it has been stated that the proposed reduction of share capital will be in the interest of the company and by setting off the securities premium account against the deferred tax liability will result in improvement in future profitability and consequent increase in earnings per share and return on capital employed. This should also help the company to show its operational efficiency better in future years. It has also been stated that the proposed reduction of share capital does not result either in the diminution of any liability in respect of unpaid capital or the payment to any shareholder of any paid-up capital. 25. So far as the contention of Shri Atul Gandhi, amicus curiae, is concerned, he has fairly submitted that recently the Calcutta High Court, while upholding the Accounting Standard-22, has observed that the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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