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TMI Blog2021 (4) TMI 814X X X X Extracts X X X X X X X X Extracts X X X X ..... reditors has not been obtained - HELD THAT:- The debt or claim of every creditor. (i) has been discharged or (ii) determined or (iii) has been secured or (iv) his consent is obtained, if any one condition is satisfied then the Tribunal may dispense with the requirement of giving notice to creditors or publication of notice under this rule or both - It is observed that while objections have not been received from creditors, neither has any consent affidavits on their behalf been produced. With regard to reduction of share capital is erroneous. Security Premium Account cannot be utilized for making payment to the non-promoter shareholders - HELD THAT:- The SPA can be utilized for making payment to non-promoter shareholders. The submissions made by Ld. Counsel for the Respondents that the amount laying the SPA can be applied by the company, only for the purposes which are specifically provided in sub-Section 2 of Section 52 of the Act and for no other purpose, cannot be accepted. Consent from 171 non-promoters shareholders who were not traceable, has not been obtained and claim of such shareholders has not been secured or determined - HELD THAT:- The Petitioner Company has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... For the Appellant : Mr. NPS Chawla Ms. Sakshi Singh, Advocates. For the Respondents : Mr. P S Singh Ms. Annu Singh, For R-1 2. JUDGMENT Jarat Kumar Jain: J. The Appellant Brillio Technologies Pvt. Ltd. filed this Appeal against the order dated 28.08.2019 passed by National Company Law Tribunal, Bengaluru (In brief Tribunal ) in CP No. 53/BB/2019 whereby Appellant s Application under Section 66 of the Companies Act, 2013 (In brief the Act ) read with Rule 2 of National Company Law Tribunal (Procedure for Reduction of Share Capital of the Company) Rules, 2016 (In brief Rules ) has been dismissed with the liberty to file a fresh Company Petition in accordance with law. 2. Brief facts for deciding this Appeal are that the Appellant Brillio Technologies Pvt. Ltd. is a private Company incorporated on 19.05.1997 under the provisions of the Companies Act1956, in the name and style of Collabera Solutions Pvt. Ltd.On 03.01.2014. the name of the Company was changed to Brillio Technologies Pvt. Ltd. The registered office of the company is situated at No. 58, First Main Road, Mini Forest, J.P. Nagar, 3rd Phase, Bangalore. The main objects of the Company ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Company on 24.01.2019 resolved to reduce the equity share capital from the existing ₹ 21,72,50,000/- to 20,82,97,363/- by reducing 89,52,637/-equity shares of Re. 1/-each from nonpromoter equity shareholders for a consideration of ₹ 5,61,33,034/- being 89,52,637/- equity shares of Re. 1/- each with premium of ₹ 5.27/- per share paid out of the Securities Premium Account. The Security Premium Account of ₹ 15,24,81,955/- shall accordingly be reduced to ₹ 10,53,01,558/- 7. Thereafter, an Extraordinary General Meeting was held on 04.02.2019, wherein by special resolution duly passed in accordance Section 66 (1) read with Section 114 of the Act, the 100% members present, voted in favour of the resolution for reduction of share capital of the Company. 8. The proposed reduction of equity share capital from selective group of equity shareholder involves repayment of excess capital which is not required for carrying on the main objects of the Company. Consequently, such reduction will not cause any prejudice to the Creditors of the Company. The reduction of the equity share capital does not involve the diminution of any liability in respect of unpa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ROC, Regional Director and all the unsecured creditors and the notice has been published in daily newspaper on 29.03.2019. 12. The Registrar of Companies, Karnataka has filed Report dated 19th June 2019 after reiterating the facts of the case, inter alia making observations as follows: i. The Company is a subsidiary of foreign company, viz., M/s. GCI Global Ventures holding 94.44% shares of the Company. ii. The Company has not filed the valuation report in support of the valuation arrived. iii. As per the master data of the company, one open charge is pending against the company. However, as per the petition there are no secured creditor. The company may be directed to clarify the same. iv. As per the Petition the amount to be paid out will be kept in separate Escrow Account for three years and the amount unpaid will be transferred to IEPF. Whereas as per Section 125 such amount cannot be transferred to IEPF. The Company may be asked to pay the difference amount to the members in case Hon'ble Court agree with the proposal of reduction. v. In case the payment is to be made to any foreigner/foreign entity, the company has to comply with the provision of RBI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eholders. The Company ought to have offered the Scheme to all Shareholders. i) The Scheme of Reduction of Capital, the Company intends to pay non- promoter equity shareholders for a consideration of ₹ 5,61,33,034/- being 89,52,637 equity shares of Re.1/- each with premium of ₹ 5.27/- per share paid out of the Securities Premium Account, thereby reducing to the Securities Premium Account from ₹ 15,24,81,955/- to ₹ 10,53,01,558/-. j). The Securities Premium Account can be utilized only for the conditions provided in Section 52(2) of the Act. Whereas the company intends to pay off the Nonpromoter equity shareholders i.e., 89,52.637 with premium of ₹ 5.27/- from and out of the SPA which is against the provisions of Section 52 of the Act. k) As per the Balance Sheet as at 31.03.2018, the company has Long Term Borrowings to the tune of ₹ 22,51,360/- and Loans and Advances to the tune of ₹ 32.11.98.156/-. The Company needs to comply with the provisions of Section 185 186 of the Act. l) There were dues payable to the statutory authorities, hence, the company may furnish NOC from the statutory authorities before approval of the Scheme o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Authorized Signatory of the company has filed a detailed Reply Affidavit dated 27.06.2019 alongwith the list of shareholders and valuation report in response to the report of RoC. 15. The Authorized Signatory of the Company has filed a Reply Affidavit dated 04.07.2019 alongwith the independent auditors report for 2017-18, acknowledgment of E-Form-32, notice in form RSC- 2 and its acknowledgment, acknowledgment of form RSC-5 and valuation report in response to the Regional Directors reports. 16. Subsequently, the Regional Director, Ministry of Corporate Affairs, South -East Region, Hyderabad represented by RoC has filed Additional affidavit dated 02.08.2019. The Authorized Signatory of the Company has filed a reply affidavit dated 02.08.2019 in response to the Additional Affidavit of Regional Director. 17. The Counsel for the Company has filed a Memo regarding Fema/RBI Regulations. 18. Ld. Tribunal observed that no objections have been received from creditors and consent affidavits on their behalf has not been produced. Ld. Tribunal held that as per Section 52 (2) of the Act, Security Premium Account may be used only for the purpose specifically provided under Sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a Ltd. Vs. The Registrar of Companies CP No. 482/BB/2018 (Para 3 and 4 at page 94 of Written Submissions Diary No. 22749) without filing the consent affidavits of the creditors, vide order dated 09.05.2019has approved and confirmed the reduction of the share capital of the Company. Similarly, in the case of Onicra Credit Information Company Ltd. CP 376/ND/2017 (Para 10 and 11 at page 74 and 76 in Written Submissions Diary No. 22749) NCLT Delhi Bench has held that there is no mandatory requirement prescribed under the Act and the Rules for obtaining consent from creditors for seeking confirmation to the reduction of share capital. 22. Ld. Counsel for the Appellant submitted that the Securities Premium Account (SPA) can be utilized for reduction of share capital. SPA is quasicapital and section 52(1) specifically provides that SPA has to be treated as if it was the paid up share capital of the Company. Such Account can be statutorily utilized for the purposes set out in Section 52(2) and (3) of the Act and hence reduced without Tribunal s approval but for other purposes it can be utilized by resort to the reduction of share capital. For this purpose, cited the Judgments of Hon ble ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompromise and arrangement. The Option of buyback of shares is less beneficial for the shareholders who requested the exist opportunity for the following reasons: (i) Offer for buyback lapses after 30 days, if the offer goes unnoticed by any shareholders the opportunity for such exist is lost. (ii) Once the buyback is accomplished no issue of similar kind of securities can be undertaken for six months as it may affect business and investments. (iii) The entire process of reduction is more transparent and fair because the approval of ROC, RD and Tribunal is mandatory. 26. It is submitted that Hon ble Supreme Court in the case of Mihir H. Mafat Lal Vs. Mafat Lal Industries (1997) 1 SCC 579 held that the power of Court is supervisory not appellate in nature and that scrutiny of the scheme of reduction is best left to the parties in the realm of commercial democracy. Thus, the impugned order is liable to be set-aside. 27. Per Contra Ld. Counsel for the Respondents submitted that the Appellant Company seeking to reduce the capital selective method wherein selected non-promoters were taken into consideration but not the whole nonpromoters of the Appellant Company. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ders has not been secured or determined. (v) Selective reduction of shareholders is not permissible. (vi) The Petition for reduction of capital under Section 66 of the Act, is not maintainable. However, it may be filed under Section 230-232 of the Act. Ground No. i. 35. Ld. Counsel for the Respondents in his Written Submissions raised a ground that no proper genuine reason has been given for reduction of share capital and the Financial Statements does not show any kind of accumulated loss. In Para 8 of the Petition, it is specifically pleaded that: 8. The Petitioner Company had received the request in the past from the non-promoter shareholders to provide them with an opportunity to dispose of their shareholding in the Petitioner Company and provide liquidity to the shares held by them in the petitioner company. Taking to request of the non-promoter shareholders into consideration, the board of directors decided to provide liquidity to the non-promoter shareholders by a selective reduction in the equity share capital of the petitioner company. Also, the proposed reduction of equity share capital is to make the petitioner company a wholly owned subsidia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the Creditors of the Company and to cause paper publication in the Hindu English daily, Bengaluru edition and Udayavani Kannada daily, Bengaluru edition and file proof of Service in the registry well before the next date of hearing i.e. 21.06.2019. 43. In compliance Jayanth Selvappullai, Director of the Company filed an Affidavit in Form No. RSC-5 confirming the dispatch and publication of the notice. (As per Rule 3 (5) of Rules) In Para 4 of the Affidavit name of unsecured creditors, date of issue of notice in form RSC-3, speed post acknowledgement No., Speed post delivery date, is mentioned. Thus, it is clear that the Company has given notice to all the creditors individually and notice was also published in aforesaid daily newspapers. 44. Ld. Counsel for the Appellant has made it clear that the last notice was delivered to one of the unsecured creditors on 29.04.2019 and hence, three month s period stipulated in Section 66 (2) of the Act, has long passed before the passing of the impugned order on 28.08.2019. Admittedly, after service of notice, no representation has been received from the creditors within three months. Therefore, as per proviso to Section 66(2) of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... one or more or the four specific instances enumerated in sub-Section (2) of Section 78. When the application of the Securities Premium Account is for one or more of the four specific purposes enumerated in Section 78(2), no further compliance with any of the provisions of the Act relating to reduction of securities capital of a company is necessary and the amount lying in the Securities Premium Account can be straightaway be applied for all or any of the said four specific purposes. 20. The argument of the Regional Director (NR) is that the Securities Premium Account can be applied only for the specific four purposes mentioned in Section 78(2) of the Act and for no other purpose. To support this interpretation, the learned counsel for the Regional Director, Ms. Manisha Dhir, heavily relies on the use of the expression notwithstanding anything in sub-Section(1) to submit that sub-Section (2) of Section 78 overrides everything stated in sub- section(1), in relation to the application of the Securities Premium Account . 21. In my view, the interpretation advanced by learned counsel for the Regional Director (NR) is not correct. If the interpretation as advanced b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t does not appear to be the purpose of Section 78(2) of the Act. Sub-Section(2) of Section 78 is engrafted so as to provide greater flexibility to a company, and reduce the need to comply with the rigors of procedure provided for in sub-Section (1) of Section 78 in certain specific cases of application of the Share Premium Account . The object of Section 78 does not appear to be to unnecessarily and unreasonably limit the flexibility that a company enjoys in dealing with the Securities Premium Account by limiting its application only to the four specific instances mentioned in sub-Section (2) of Section 78. 47. Hon ble High Court of Rajasthan in the case of Vaibhav Global Ltd (Supra) held as under:- 15. From a reading of Section 52 of the Act of 2013 it is apparent that this provision equates a Share Premium Account of a company to its paid up share capital. For specified purposes as set out in subsection (2) and (3), the Share Premium Account can be statutorily utilised without any approval of a court. For other purposes the provisions of Sections 100-104 of the Act of 1956 have to be adopted, and approval of the court sought for the reduction of paid up share capital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng for the ROC that the share premium account albeit deemed to be part of paid up share capital as per Section 52 of the Act of 2013 cannot be utilized for the purpose of adjustment of accumulated loss of the petitioner company. The aforesaid conclusion as to utilisation of the Securities Premium Account for any purpose outside Section 52(2) of the Act of 2013-(old Section 78 of the Act of 1956) after due approval of the requisite majority of equity shareholders finds support from the judgment of the Andhrapradesh High Court in the case of re:Hyderabad Industries Limited [2004 (3) ALD 832]. A similar view has been taken in the case of re: Prashanth Textiles (P) Ltd [(2015) 192 Company Cases 184 (Madras)]. So too in the case of re-Koyo Bearings India Private Limited [Manu (ka) 3792/2015] and in the case of Tmeic Power Electronics Systems India Private Limited [Manu/Ka/ 2570/ 2014]. This legal position is also buttressed by the judgment in the case of re-DSM Anti Infectives India Limited [Manu/PH/3561/2010], which followed the ratio in the case of Hindalco Industries Limited [(2009)151 Company Cases 446] where the Bombay High court held that since all the shareholders had consented f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the company, only for the purposes which are specifically provided in sub-Section 2 of Section 52 of the Act and for no other purpose. Ground No. iv 51. In response to observation of the RoC that as per Section 125 of the Act, the amount to be paid out cannot be kept in Investor Education and Protection Fund (IEPF). The Petitioner Company has a total of 171 non-promoter shareholders, majority of them are untraceable, in this regard, in the Petition it is specifically mentioned that the amount to be paid to the untraceable nonpromoter shareholders will be kept in an Escrow Account for a period of three years and any amount remaining unclaimed in the Escrow Account for more than three years pursuant to capital reduction would be transferred to the Investor Education and Protection Fund (IEPF). Section 125 of the Act provides that the amount in the unpaid dividend account of the companies is to be transferred to the IEPF under Section 124 (5) of the Act. 52. It seems that Ld. Tribunal was satisfied with the aforesaid provision in the scheme, therefore, the Petition has not been dismissed on this ground, we are also agree with the Ld. Tribunal. Thus, we find no force in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Division Bench the Petition was opposed by the Respondents who are non-promoter shareholders of the company, Division Bench held as under:- 7. The law relating to reduction of share capital of a company is contained in Sections 100 to 105 of the Companies Act. Section 100 authorizes the company limited by shares having a share capital, if so, authorized by its Article of Association by special resolution to reduce its shares capital in any way. So a company can reduce its share capital, (i) if there is a provision in its Article of Association permitting it to do so. (ii) If it has passed a special resolution for that purposes and, (iii) if such a resolution sanctioned by the Court .. 16. In our opinion, the above quoted observations of the House of Lords from its judgment in the case of Poole, referred to above, squarely apply to the present case. In our opinion, once it is established that the non-promoter shareholders are being paid faire value of their shares, at no point of time it is even suggested by them that the amount i.ebeing paid is any way less and that even overwhelming majority of the non-promo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .............................................................. 30. In the present case, admittedly requirements as contained in (i) to (iv) of para 21 have been complied with. Most of the arguments of the objectors stand answered in view of the principles of law laid down in the aforesaid judgments. It is clear that majority shareholders have decided to reduce the share capital. Normally, decision of the majority is to prevail. It is also their right to decide the manner in which the shareholding is to be reduced and in the process they can decide to target a particular group (of course it is to be seen that this is not with mala fide and unfair motive which aspect is discussed hereinafter). Thus such a step cannot be treated as buying back the shares and the provisions of Section 77A of the Act would not be attracted. Similarly there is no question of following provisions of Section 391 of the Act, although in the instant case even the procedure prescribed therein has been substantially followed. Likewise, provisions of Article 300A of the Constitution of India would not be attracted. 57. In the light of aforesaid proposition of law we can safely held that selective red ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that can be entered into under section 391 is not defined. The definition of reorganization of capital is an inclusive definition which would not exclude reduction of share capital or increase of share capital which would also be a kind of reorganization of the share capital of a company. If section 391 was subject to other provisions of the Act every time the scheme of compromise and arrangement is put forth for the sanction of the court, if it includes things for which specific. provisions are made and that will have to be gone through before the scheme is sanctioned, it would result in unnecessary duplication of. procedure and would be cumbersome. On the contrary, it appears that if the creditors and members of the company arrive at a certain compromise which the court considers fair, it can be@sanctioned under section 391 despite the fact that for some of those things included in the compromise another procedure is prescribed in the Companies Act and a which has not been carried out. It, therefore, appears that section 391 is a complete code which provides for sanctioning of thescheme of compromise and arrangement. If such a scheme of compromise and arrangement includes increa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e reduction of share capital can be sanction. It will, of course, be necessary to find out whether the procedure prescribed for effecting reduction of share capital has been gone through or not. 60. With the aforesaid citation, we hold that Section 66 of the Companies Act, 2013 makes provision for reduction of share capital simpliciter without it being part of any scheme of compromise and arrangement. The option of buyback of shares as provided in Section 68 of the Act, is less beneficial for the shareholders who have requested the exit opportunity. 61. Admittedly, there is a provision in Article 45 and 47 of the Article of Association that the company may by special resolution reduced its capital and in the EGM held on 04.02.2019 a special resolution was duly passed for reduction of share capital. The Appellant Company has pleaded the genuine reason for reduction of share capital and has secured the rights of 171 nonpromoter shareholders who are not traceable. 62. With the aforesaid we are of the view that the Tribunal has erroneously held that the Application for reduction of share is not maintainable under Section 66 of the Act, consent affidavits from the creditors i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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