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TMI Blog2021 (6) TMI 687X X X X Extracts X X X X X X X X Extracts X X X X ..... posed reduction of share capital are INR 3,056.01 lakhs and approximately INR 3,001.26 lakhs (subject to adjustment based on the actual dollar rate on the date of payment), respectively - The capital reduction shall not adversely affect the company's ability to honour its commitments or meet its liabilities or settle the dues of all the creditors in the ordinary course of business and the company would continue to have a positive net worth after giving effect to the capital reduction. Therefore, the present reduction of the share capital shall not prejudice any creditors of the company. The reduction of share capital is contemplated as under the articles of association of the company - the settled law as laid down in several judicial decisions and the vital aspect that the outgoing shareholder, Mr. Gopi Suri Babu, has no objection to the proposed scheme of reduction, but has consented to receive the said consideration upon negotiations and mutual agreement between the parties, this Bench approves the reduction of capital without valuation of actual shares, by carving out an exception considering the extraordinary circumstances of this case. Application disposed off. - Smt. Su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne lakh) divided into 1,000 (one thousand) equity shares of INR 100 (one hundred) each to INR 76,000 (Indian rupees seventy six thousand) divided into 760 (seven hundred and sixty) equity shares of INR 100 each fully paid-up, by cancelling and extinguishing paid-up equity share capital of INR 24,000 (Indian rupees twenty four thousand) divided into 240 (two hundred and forty) equity shares of INR 100 (one hundred) each fully paid-up, being in excess of wants/requirements of the company and by returning to Gopi Suri Babu, a shareholder of the company, an aggregate amount of INR 54,75,000 (Indian rupees fifty four lakhs and seventy five thou sand) and an approximate amount of INR 22,813 (Indian rupees twenty two thousand eight hundred and thirteen) per equity share (subject to adjustment based on the actual dollar rate on the date of payment). Resolved further that post obtaining all approvals for the proposed reduction of the share capital of the company subject to the confirmation of the National Company Law Tribunal, the existing share certificates held by Gopi Suri Babu in relation to the existing equity shares of the face value of INR 100 (Indian rupees one hundred) each held in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e filed with the Registrar of Companies in accordance with the Companies Act, 2013. Resolved further that the board be and is hereby authorised, in their absolute discretion, to make the reduction and cancellation of the share capital (as set out above) on such other terms and conditions as they may consider appropriate and to accept such other conditions and modifications as may be prescribed by the National Company Law Tribunal, and other appropriate bodies/authorities while according their confirmation to the proposed reduction and cancellation of share capital. And resolved that a certified true copy of the aforesaid resolution be issued as and when necessary under the signature of any of the directors of the company. 4. The board of the petitioner, after considering the business model, profitability, positive cash flow, its capital requirements, reserves and surplus and other business factors, is of the opinion that the petitioner has surplus capital and free reserves which are in excess of the needs of the petitioner for its business operations. The board was also of the view that the business operations of the petitioner would continue to generate significant profits in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d cash equivalents 440.49 (iii) Other bank balances 939.56 (iv) Other financial assets 21.58 (c) Other current assets 473.57 Total current assets 7,030.42 Total assets 7,324.58 II. Equity and liabilities : (1) Equity (a) Share Capital 1.00 (b) Other equity 3,055.01 Total equity 3,056.01 (2) Current liabilities (a) Financial liabilities : (v) Trade payables -Total outstanding dues of micro and small enterprises 5.64 -Total outstanding dues of creditors other than micro and small enterprises 3,882.70 (vi) Other financial liabilities 9.53 (b) Other current liabilities 250.52 (c) Provisions 38.39 (d) Current tax liabilities (net) 81.79 Total current liabilities 4,268.57 Total equity and liabilities 7,324.58 9. As per the audited financial statement of the company for the year ending on March 31, 2019 turnover of the company is INR 1,23,12.97 lakhs. The net worth of the company as on March 31, 2019 is INR 3,056.01 lakhs. The company's reserves and surplus stood at INR 3,055.01 lakhs. 10. As per the audited financial statement of the company for the year ending on March 31, 2018 turnover of the company is INR 77,61.06 lakhs. The net worth of the company as on March 31, 2018 is INR 2, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... termining the proper consideration for the proposed scheme as it is a closely held private company and there is no market for the shares held by the outgoing shareholder otherwise. On the contrary, the proposed scheme provides the outgoing shareholder a convenient and swift means to exit the petitioner in accordance with his expectation by receiving a commercially acceptable consideration amount. 20. The petitioner further submits that while in the case of companies with multiple shareholders, a valuation exercise could assist a company to establish a basis for obtaining the consent of different classes of shareholders to a proposed scheme, in the present case, there is only a single outgoing shareholder who has already consented to a consideration amount which, in his commercial judgment, is fair and reasonable. 21. The petitioner submits that the proposed scheme will not adversely affect the petitioner's ability to honour its commitments or meet its liabilities or settle the dues of all the creditors in the ordinary course of business and the petitioner would continue to have a positive net worth after giving effect to the capital reduction. 22. Therefore, the proposed scheme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the company. (B) Without prejudice the above : (a) In view of the observation of the Registrar of Companies, Goa mentioned at paragraph 22 in his report regarding non-filing of form No. GNL-1 as required under rule 12(2) of the Companies (Registration Offices and Fees) Rules, 2014. The petitioner-company may be directed comply with the same. (b) The applicant to submit an affidavit to the effect that the interest of the creditors and all stakeholders and the Government Revenue are protected as well as statutory dues are paid off. (c) The applicant has to undertake to serve notice to RBI as share holders are foreign entities. (d) The tax implication if any arising out of the proposal for reduction is subject to final decision of Income-tax Authorities. The approval of the company petition by this hon'ble court may not deter the Income-tax Authority to scrutinize the fax return filed by the company after giving effect to the proposed reduction. The decision of the Income-tax Authority is binding on the petitioner-company. 28. The petitioner-company is part of Pentair group of companies and is engaged in the business of trading in components and equipment for waste-water treatment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bargain is a fair one, why should the court say that there is a preference in the one side or on the other ? If there is nothing unfair or inequitable in the transaction, I cannot see that there is any objection to allowing a company limited by shares to extinguish some of its shares without dealing in the same manner with all other shares of the same class. There may be no inequality in the treatment of a class of shareholders, although they are paid in the same coin, or in coin of the same denomination. 32. In the case of Westburn Sugar Refineries Ltd., In re [1951] 1 All ER 991 (HL), the House of Lords stated the principle in the following manner : The general rule is that the prescribed majority of the share holders is entitled to decide whether there should be a reduction of capital, and, if so, in what manner and to what extent it should be carried into effect. 33. In Reckitt Benckiser (India) Ltd., In re reported in [2005] 122 DLT 612 (Delhi), it is held as under : (i) The question of reduction of share capital is treated as matter of domestic concern, i. e., the decision of the majority which prevails. (ii) If majority by special resolution decide as to how this reduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 377; 4,19,083 shares held by Rahul Yadav and the company shall pay a consideration of ₹ 4,19,083 at a price of ₹ 1 per share, to Rahul Yadav for the afore said reduction of capital. Counsel appearing on behalf of the petitioner-company states that the petitioner has complied with all the statutory requirements as per the directions of this court and they have filed necessary affidavit of the compliance in this court. No objector has come forward to oppose the proposed reduction. Since the requisite statutory procedure has been fulfilled, the company scheme petition is made absolute in terms of the prayer clause. The hon'ble High Court held that since no objector came forward to oppose the proposed reduction, and since the requisite statutory procedure had been fulfilled, the reduction of capital could be allowed, without a valuation report, and with the outgoing shareholder receiving less than the face value of his shares. 36. In IL and FS Engineering and Construction Co. Ltd. v. Wardha Power Co. Ltd. [2013] 176 Comp Cas 156 (AP) wherein it was held that in the case of a reduction of capital, a court cannot interfere with the discretion and commercial wisdom of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or reduction of capital, when there solution for the same has been passed by the board of directors of the company and where the shareholders of the company have also unanimously passed the resolution for reduction of capital as proposed, the scheme must be approved. 38. The Andhra Pradesh High Court in IL and FS Engineering and Construction Co. Ltd. v. Wardha Power Co. Ltd. [2013] 176 Comp Cas 156 (AP) has also laid down that the overall duty of a court is to satisfy itself that the scheme reduction of capital is such that an honest man, might reasonably approve and might reasonably consider to be fair and equitable. The court held (page 171) : Where the reduction of capital forms part of the scheme of arrangement, the overall duty of the court is to satisfy itself that the scheme of arrangement, together with the reduction of capital, is such that an intelligent and honest man, a member of the class concerned and acting in respect of his interest might reasonably approve and might reasonably consider to be fair and equitable. The principles upon which the court will require to be satisfied are, that all share holders are treated equitably in any reduction. That usually means that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... honour its commitments or meet its liabilities or settle the dues of all the creditors in the ordinary course of business and the company would continue to have a positive net worth after giving effect to the capital reduction. Therefore, the present reduction of the share capital shall not prejudice any creditors of the company. 42. The company shall debit the equity share capital account to the extent of the face value of the shares cancelled under this capital reduction application and the difference between the face value per share and the amount of consideration per share shall be debited to the retained earnings under the head reserves and surplus . The aforementioned accounting treatment is in conformity with the accounting standards applicable to the company and a certificate to this effect is enclosed with this application. 43. The reduction of share capital is contemplated as under the articles of association of the company. 44. The petitioner-company has published notice (in form No. RSC-4) in English Paper Navhind Times and Konkani Newspaper Bhaagnagar Bhuin on November 21, 2019. Notice to creditors (in form No. RSC-3) was issued on October 26, 2019. The petitioner has ..... X X X X Extracts X X X X X X X X Extracts X X X X
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