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TMI Blog2016 (11) TMI 1134X X X X Extracts X X X X X X X X Extracts X X X X ..... statement of the affairs of the company to its benefit in the market place. Consequently, we allow this petition and confirm the reduction of the petitioner company’s share capital (Securities Premium Account) against the accumulated losses in the surplus/ (deficit) head of Reserves & Surplus of the petitioner company in terms of the special resolution passed by the requisite majority of the equity shareholders of the petitioner company through postal ballot and e-voting on 16-1-2016. I would also approve the form of Minutes under Section 103(1) of the Act of 1956 as set out in para 20 of the petition which is proposed to file with the ROC (Jaipur). The procedure prescribed in Section 101(2) of the Act of 1956 is dispensed with as also is dispensed with is the formalities of the words "And Reduced" while describing capital structure of petitioner company while confirming the approved reduction of share capital (Securities Premium Account). - S.B. Company Petition No. 4/2016 - - - Dated:- 18-11-2016 - Alok Sharma, J. For the Petitioner : Sanjay Jhanwar For the Registrar of Companies : Prakul Khurana, K. J. Mehta ORDER The matter comes up on a petition filed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , which has been annexed to this petition as Annexure-4, for only reduction of its securities premium account. The scheme did not envisage transfer for vesting properties and liabilities in the petitioner company. In the process of reduction of its share premium account full compliance with SEBI Circular No.CIR/CFD/DIL/5/2013 dated 4- 2-2013 read with Circular No. CIR/CFD/DIL/8/2013 dated 21-5- 2013 was to be made. The reduction of the Share Premium Account was also made subject to sanction and approval of all laws of Central and State Government or any other public authority including that of Stock Exchanges in terms of clause 24(f) of the Listing Agreement executed between the petitioner company and the respective stock exchanges. The scheme also envisaged the mandatory approval from shareholders of the company through postal ballot and e-voting and was to be acted upon only if the vote cast by the equity shareholders was more than th of the number of total vote cast by the shareholders. After the special resolution of the equity shareholders as prescribed under Section 100 of the Act of 1956, sanction of jurisdictional High Court under Section 52 of the Act of 2013 correspondin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... documents, papers, deed and other writings on behalf of the Company as may be necessary or incidental thereto in this regard and the Board of Directors be authorised to do such acts, deeds, matters, things as may be required in connection with the above. Resolved further that Mr. Sunil Agrawal Chairman and Managing Director, Mr. Rahimullah, Whole time Director, Mr. Puru Aggarwal, Group of CFO and Mr. Brahm Prakash, Company Secretary, be and are hereby severally or jointly authorised to sign, execute and deliver, file petitions, pleadings forms, reports, applications, affidavits, declarations, certificates and all other documents, deeds and writings and take any action that may be required in order to consummate the transactions contemplated therein including represent the company before any regulatory authority and the High Court, in relation to any matter pertaining to the scheme or delegate such authority to another person by a valid power of attorney in successful implementation of the Scheme of Reduction of Capital. Following the passing of the aforesaid special resolution on 16-1-2016 by the requisite majority of shareholders, e-Form MGT- 14 dated 18-1-2016 has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ary objects in the Memorandum of Association provides for the activity of investment, yet it has been reiterated that such investments by the petitioner company in subsidiaries was required to comply with the provisions of Section 149(2A) of the Act of 1956 and this the petitioner company did not, as neither e-form 20 and/ or 23 were filed with the competent authority. Contravention of Section 372A of the Act of 1956 has also been alleged. It has been also submitted that the scheme for reduction of the share premium account under consideration be rejected as is purpose is also not covered by any of the clause (a) to (e) of Section 52(2) of the Act of 2013. It has been emphatically submitted that even otherwise the petitioner company cannot be permitted to resort to Section 52 of the Act of 2013 read with 100-104 of the Act of 1956 to write off its accumulated losses against its securities premium account as the purposes for the utilisation of Securities Premium Account are limited in law and the securities premium account can be utilised only for delineated purpose such as issue of bonus shares from unissued shares of the company, writing off preliminary expenses, writing off the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... count of the company as its paid up share capital. The Securities Premium Account is the property of the equity shareholders, requisite majority of whom has approved the scheme by a special resolution for reduction of share capital. Mr. Jhanwar then submitted that the petitioner company was not at all required to be registered as a Core Investment Company under section 45-I of the Reserve Bank of India Act, 1934 as contended by the ROC, its core business being purchase and sale of goods i.e. jewellery and other related items. Importantly and tellingly at no point of time such registration was ever required by the competent authority under the RBI Act. Yet oddly the said issue has been raised by the ROC quite mechanically, arbitrarily and palpably without jurisdiction which verges on the malafide. Mr. Jhanwar further submitted that the approval from the shareholders of the petitioner company as required under Section 372A of the Act 1956 has indeed been obtained by the petitioner company. Copy of extracts of minutes of the extraordinary general meeting held on 5-9-2005 for the purpose has been annexed with the reply to the ROC s objection. Mr. Jhanwar has also emphatically denied ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the petitioner company s Securities Premium Account was passed on 16-1-2016 read as under:- It would be in place to record that Section 52 of the Act of 2013 as notified has replaced Section 78 of the Act of 1956. Act of 2013: Section 52. Application of premiums received on issue of shares.-(1) Where a company issues shares at a premium, whether for cash or otherwise, a sum equal to the aggregate amount of the premium received on those shares shall be transferred to a securities premiums account and the provisions of this Act relating to reduction of share capital of a company shall, except as provided in this section, apply as if the share premium accounts were the paid-up share capital of the company. (2) Notwithstanding anything contained in sub-section(1), the securities premium account may be applied by the company- (a) towards the issue of unissued shares of the company to the members of the company as fully paid bonus shares; (b) in writing off the preliminary expenses of the company; (c) in writing off the expenses of, or the commission paid or discount allowed on, any issue of shares or debentures of the company; (d) in providing for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... share capital of the company. Section 52 of the Act of 2013 therefore does not disbar/ prohibit application/ utilisation of the share premium account treated thereunder as paid up capital for purposes other than the purposes set out in clauses (a) to (e) of Section 52(2) and Section 52(3) of the Act of 2013. Contrarily it actively so permits as evident from its plain language. And when so done the reduction of the share premium account has to be compliant with Sections 100-104 of the Act of 1956. The provisions for reduction of share capital presently obtaining are Section 100 to 105 of the Act of 1956. Section 100(1) of the Act of 1956 states that where the Articles of a company provide and where a special resolution of its equity shareholders has been passed a company can reduce its share capital in any way. This general power is followed by illustrative cases where the share capital can be reduced. The illustrations however do not negate reduction of share capital for other purposes. The special resolution for reduction of share capital passed by the requisite majority of equity shareholders has however to be approved by the court. As such where reduction of share capital of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utilisation of the securities premium account towards the BRR account, it could be so utilised as the purposes set out in then extant Section 78 of the Act of 1956 (new section 52 of the Act of 2013) were in any event merely illustrative. Such was also the view of the Calcutta High court in the case of Ushacomm India (P) Ltd. [(2006) 2 CHN 473] where the scheme for reduction of the securities premium account for the business reconstruction of the petitioner company was approved. Finally in the case of re: Zee Telefilms Ltd. [2004(6) Bom. Comp. Cases 270] the Mumbai High court having considered the scheme and purpose of reduction of share premium found no illegality or breach of any provision of law in approving its reduction where it was just, fair and proper and wholly within the framework of the law. As against the weight of the authorities detailed hereinabove as relied upon by Mr.Jhanwar, counsel for the petitioner company, the sole judgment relied upon by Mr. K.J. Mehta, counsel for the ROC while objecting to the approval of the special resolution passed by the equity shareholders of the petitioner company for reduction of the securities premium account by adjusting it with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Ancillary objects of the petitioner company with reference to its main objects. Similarly for the reasons aforesaid, equally unsustainable is the contention of Mr. K.J. Mehta that the petitioner company was required to comply with the provisions of Section 17 read with 149(2) of the Act of 1956 for the purpose of making investment in the shares of its subsidiaries. Further the petitioner company has filed a reply to the ROC s objections to the approval of the special resolution of the Securities Premium Account along with extracts of the minutes of Extraordinary General Meeting (EGM) on 5-9-2005 whereunder requisite approval of its equity shareholders under Section 372A of the Act of 1956 was obtained permitting it to invest and acquisition of the Overseas Companies for the expansion of its core business of gems and jewellry. Besides there is nothing on record to show that investments made in its subsidiaries by the petitioner company beginning 2004-2005 were at any point of time objected to by any statutory authority. To raise belated and unwarranted objections thereto without an iota of legal foundation when approval of reduction of share capital with the requisite overwhelming ..... X X X X Extracts X X X X X X X X Extracts X X X X
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