9911796707
TMI Blog2005 (8) TMI 712X X X X Extracts X X X X X X X X Extracts X X X X ..... . ( 4. ) Pursuant to an order dated 21th March, 2005 of this Court, notice of the petition was advertised in newspapers. No creditor or shareholder of the company has, however, opposed the petition. ( 5. ) The company is, under Article 25C of the Articles of Association of the company, authorised, to reduce by special resolution any securities premium account subject to the provisions of sections 100 to 103 of the said Act. ( 6. ) Sections 78, 100, 101, 102 and 103 of the said Act are set out hereinbelow for convenience: 78. Application of premiums received on issue of [securities]. - (1) Where a company issues [securities] at a premium, whether for cash or otherwise, a sum equal to the aggregate amount or value of the premiums on those [securities] shall be transferred to an account, to be called the [securities] premium account , and the provisions of this Act relating to the reduction of the [securities] capital of a company shall, except as provided in this section, apply as if the [securities] premium account were paid-up [securities] capital of the company. (2) The [securities] premium account may, notwithstanding anything in sub- section (1), be applied by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... either the diminution of liability in respect of unpaid share capital for the to any share holder of any paid up share capital, and in any other case if the Court so directs, the following provisions shall have effect, subject to the provisions of sub-section (3): - (a) Every creditor of the company who at the date fixed by the Court is entitled to any debt or claim which, if that date were the commencement of the winding up of the company, would be admissible in proof against the company, shall be entitled to object to the reduction; (b) the Court shall settle a list of creditors so entitled to object, and for that purpose shall ascertain, as far as possible without requiring an application from any creditor, the names of those creditors and the nature and amount of their debts or claims, and may publish notices fixing a day or days within which creditors not entered on the list are to claim to be so entered or are to be excluded from the right of objecting to reduction; (c) where a creditor entered on the list whose debt or claim is not discharged or has not determined does not consent to the reduction, the Court may, if its thinks fit, dispense with the consent of that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n order of the Court confirming the reduction of the share capital of a company; and (b) on the delivery to him of a certified copy of the order and of a minute approved by the Court showing, with respect to the share capital of the company as altered by the order, (i) the amount of the share capital, (ii) the number of shares into which it is to be divided, (iii) the amount of each share, and (iv) the amount, if any, at the date of registration deemed to be paid up on each share; shall register the order and minute. (2) On the registration of the order and minute, and not before, the resolution for reducing share capital as confirmed by the order shall take effect. (3) Notice of the registration shall be published in such manner as the Court may direct. (4) The Registrar shall certify under his hand the registration of the order and minute, and his certificate shall be conclusive evidence that all the requirements of this Act with respect to reduction of share capital have been complied with, and that the share capital of the company is such as is stated in the minute. (5) The minute when registered shall be deemed to be substituted for the correseponding part of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cel any paid up share capital which is lost or is unrepresented by available assets, either with or without extinguishing or reducing liability on any of its shares or (iii) pay off any paid up share capital which is in excess of the wants of the company, with or without extinguishing or reducing liability on any of its shares and may also, if and so far as is necessary, alter its memorandum by reducing the amount of its share capital and of its shares. The purposes listed above are only illustrative and not exhaustive. ( 12. ) Where a company has adopted a special resolution for reducing the securities capital, it may by petition to the Court apply for confirming the reduction. Where, however, the proposed reduction involves diminution of liability in respect of unpaid share capital or involves the payment to any shareholder of any paid up share capital or, in any other case, if the Court so directs, every creditor of the company would be entitled to object to the reduction and the Court would settle the list of creditors so entitled to object and for that purpose ascertain the names of creditors and the nature and amount of their debts or claims. ( 13. ) Where a creditor, e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gnized as an expense to be routed through Profit Loss Account. Amortization of assets as per Accounting Standard 26 (72) whether tangible or intangible would be deducted to profit loss account unless any othe accounting standard permitted or required it to be included in the carrying amount of any other asset. ( 18. ) Counsel further submitted that the application of securities premium account was restricted to the specific purpose mentioned in clauses (a), (b) (c) of section 100(1) of the said Act. It is difficult to accept the aforesaid submission. The purposes listed in such clauses (a) to (c) of section 100(1) are not exhaustive. This is amply clear from the said section. ( 19. ) It was further argued that the company wanted to adjust the securities premium account against tangible/intangible assets for example goodwill, copyright and trade mark which had no future benefits for the company. In reducing its securities premium against impairment value of intangible assets such as goodwill, trade mark, copyright, patent and the like the company was applying a short cut method not permissible in law and procedurally incorrect. ( 20. ) On behalf of the Regional Direct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny might be reduced. The said Act only prescribes the procedure for reduction. The confirmation of Court for the proposed reduction of securities premium account is necessary for safeguarding the interests of creditors and the minority shareholders. In an application for confirmation of the proposed reduction all that the Court is required to see is that the proposed reduction is fair, equitable and reasonable, the procedure by which the resolution is carried is legally correct and that no creditor or shareholder is prejudiced. ( 25. ) The Court has a discretion whether or not to confirm the reduction of securities premium account.The Court would not, however, refuse to exercise its discretion to confirm the proposed reduction, where the proposals for reduction are properly explained, the reduction is for a discernible purpose, the shareholders are treated equally and the creditors are safeguarded. ( 26. ) All the aforesaid tests appear to have been satisfied in this case. It is nobody's case that the reduction proposals are not properly explained. The reduction is for the express purpose of balancing the loss of the value of intangible assets, that is, goodwill, trade ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he company this Court does not sit in appeal over the decision of the shareholders of the company taken in an extraordinary general meeting. ( 32. ) The securities premium account not being a share capital of the company, there can be no question of exceeding the authorized share capital as rightly submitted on behalf of the petitioner. The fact that by reason of a legal fiction created by section 78 of the said Act, the provisions of section 100 to 103 are made applicable to reduction of securities premium account, the securities premium account does not become share capital of the company. ( 33. ) In passing an order confirming reduction of securities premium account all that the Court is required to do is to satisfy itself that the dues of every creditor entitled to object are discharged or determined or secured. No other obligation is cast on the Court in view of the express provisions of section 102(1). This Court can at best impose terms and conditions for reduction which the Court does not deem necessary in the instant case. The reasons for the reduction and other material information with regard thereto have duly been disclosed. There is nothing on record to show that ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
