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TMI Blog1959 (9) TMI 59X X X X Extracts X X X X X X X X Extracts X X X X ..... ntained in the Articles of Association, the company by a special resolution of its shareholders duly passed at a meeting convened for that purpose on 15th November 1958 (sic) that the share capital be reduced as set out above. The reduction of the capital, according to the petitioner, will not involve either a diminution of liability in respect of unpaid share capital or the payment to any shareholder of any field up share, capital and in consequence creditors of the company are not entitled to object to the reduction under the provisions of S. 101 (2) of the Act. The petitioner therefore prays that it may be declared that the creditors are not entitled to object to the above reduction of the capital and the reduction of the capital effected by the special resolution be confirmed and that the period for which the words and reduced shall be added to the company's name be limited to one month from the date of the order of this court. 3. Notice has been taken out under orders of court to two creditors of the company and the Registrar of Companies, Madras and no objection is forthcoming. 4. The provisions under the Indian Companies Act, 1956 relating to reduction of the sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be returned in the same way as capital is returnable (Re Chatterley Whitefield Collieries Ltd., 1948 2 All ER 593). Where a reduction proposes to pay off one class of shareholders, e.g. preference shareholders, the fact that that class might have obtained a future benefit beyond what they will receive on reduction e.g. a share in compensation under the Coal Industry Nationalisation Act, 1946, does not in itself render the scheme inequitable (1948 2 All ER 593 supra, Scottish Insurance Corporation Ltd. v. Wilson and Clyde Coal Co., 1949 AC 462.) Where, however, all concerned were invited to proceed on the basis that the company would not reduce by repaying the whole of the preference shareholders until the value of that compensation could be ascertained, the court refused to confirm the reduction (Re Old Silk Stone Collieries, Ltd., 1954 Ch. 169, Re Stevenson Anderson and Co. 1951 S.L.T. 235) the Court of Session confirmed a reduction where part of the share capital was to be returned to the members On the footing that the amount so returned could be recalled, leaving the nominal capital as it was. In Re Fraser (A and D) Ltd., 1951 T.R. 73, the same court refused to confirm a r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the interest of creditors where by the reduction such interest is likely to be affected, the court acts on the principle that it is the policy of the legislature to entrust the prescribed majority of the shareholders with the decision as to whether there should be a reduction of capital, and if so, how it should be carried into effect. In re De La Rue (Thomas) and Co. 1911-2 Ch. 361 And the court will refuse to sanction any reduction which may be unjust to either the creditors or to the minority of the members: Re Welsbach Incandescent Gas Light Co. Ltd. 1904-1 Ch. 87. But where however the reduction of the capital is based on the ground that capital has been lost or unrepresented by available assets apart from the special resolution it is always prudent to proceed on sure evidence. Marwari Stores Ltd. v. Gouri Shanker, AIR 1936 Cal 327: 40 Cal WN 661, In the matter of Jaiton Stock Exchange Association Ltd. AIR 1952 Pepsu 114, In the matter of Bengal Burma Steam Navigation Co. Ltd. AIR 1939 Rang 417. 13. It is quite true that the court has a discretion in the matter and is not bound to accord its sanction, but that discretion has got to be exercised according to the well kno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is, of course, is useful so far as it goes, especially as the formalities are designed to secure that the rights of creditors are fully protected. As we have seen, the court is only authorised to sanction a reduction of uncalled liability or a repayment of capital if satisfied that creditors have agreed, Or been paid, or had their debts secured. And the court may take similar action in other types of reduction also, and may, as the Westburn case, 1951 AC 625, recognise, consider the interests of future creditors as well as of existing ones-although here again there is more evidence of lip service than practical application. But, in straightforward reduction schemes, there has been a considerable relaxation in every respect and it is rare today to find a reduction rejected even on technical grounds. Indeed, the freedom with which the courts rubber-stamp reductions of capital adds further to the doubts whether the elaborate rules for the raising and maintenance of share capital - really fulfil any purpose. 16. Bearing these principles in mind if we examine the facts of this case, I find no impediment to exercise my discretion in declaring that the creditors are not entitled to obj ..... X X X X Extracts X X X X X X X X Extracts X X X X
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