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TMI Blog2019 (8) TMI 1737X X X X Extracts X X X X X X X X Extracts X X X X ..... ular group involving non-promoter shareholders and bring the petitioner company as wholly owned subsidiary of its current holding company and also return excess of capital to them. This is an arrangement between the company and shareholders or a class of them and hence it is also not covered under Section 66. The relief as sought in the instant Company Petition under Section 66 of the Companies Act, 2013 is not covered under this Section - the instant case may be covered under Sections 230232 of the Companies Act, 2013, wherein compromise or arrangement between the Company and its creditors or any class of them or between a Company and its members or any class of them is permissible - Petition dismissed. - C.P. No. 53/BB/19 - - - Dated:- 28-8-2019 - Hon'ble Shri Rajeswara Rao Vittanala, Member (Judicial) And Hon'ble Dr. Ashok Kumar Mishra, Member (Technical) For the Petitioner: Shri. Saji P. John, Advocate And M/s SPJ Legal For the Respondent: Ms. Prema Hatti, Counsel for the Central Government And Shri K. Nagaraj, Advocate ORDER Per: Hon'ble Dr. Ashok Kumar Mishra, Member (Technical) 1. This Company Application has been filed on behalf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tatements as on 31st March 2018 is as under: Liabilities Amount Assets Amount Shareholders funds 1,46,19,94,204 Non-current Assets 74,84,48,062 Non-Current Liabilities 9,94,00,240 Current Assets 1,06,02,95,009 Current Liabilities 24,73,48,627 Total 1,80,87,43,071 Total 1,80,87,43,071 F. It is submitted that as per Article 45 and 47 of the Articles of Association of the Company, it is provided that the Company may, from time to time, by special resolution, reduce its capital and or its securities premium in any manner permitted by law. G. It is submitted that the Petitioner Company had received requests in the past from the non-promoter shareholders to provide them with an opportunity to dispose off their shareholding in the Petitioner Company and provide liquidity to the shares held by them in the Petitioner Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ghty Nine Lakhs Fifty Two Thousand Six Hundred and Thirty Seven) equity shares of Re. 1/- each with Premium of ₹ 5.27/- (Rupees Five and Twenty Seven Paisa only) per share paid out of the Securities Premium Account. The Securities Premium Account of ₹ 15,24,81,955/- (Rupees Fifteen Crores Twenty Four Lakhs Eighty One Thousand Nine Hundred Fifty Five Only) shall accordingly be reduced to ₹ 10,53,01,558/- (Rupees Ten Crores Fifty Three Lakhs One Thousand Five Hundred and Fifty Eight Only). J. It is stated that 100% of the members present and voting at the Extraordinary General Meeting held on 04th February 2019 voted in favour of the resolution. K. It has been stated that the proposed reduction of equity share capital from selective group of equity shareholders involves repayment of excess capital which is not required for carrying on the main objects of the Petitioner Company. Consequently, such reduction will not cause any prejudice to the creditors of the Petitioner Company. It is further submitted that the reduction of equity share capital does not involve the diminution of any liability in respect of unpaid share capital. The creditors of the Petitioner C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Company does not have any Secured Creditors. A list of the Unsecured Creditors (three in number) as on 08th February 2019 given by the auditors. It is further averred that the Petitioner Company is not in arrears in the repayment of the deposits or the interest payable thereon. 3. This Tribunal vide order dated 14th March 2019 has directed to issue notices to the Regional Director, Registrar of Companies, creditors of the Petitioner 'Company, and directing the Petitioners to cause the paper publication in The Hindu and Udayavani and to file proof of the same. The Director of the Petitioner Company through Affidavit dated 08th May 2019 has stated that Notice in Form RSC-2 has been served on the Registrar of Companies, Regional Director and has produced proof of the same. In the said Affidavit it is further stated that Form RSC-3 was issued to all the Unsecured Creditors and that paper publication of notice in The Hindu , an English daily and Udayavani a Kannada daily on 29th March 2019. 4. 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 Comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Account. The Securities Premium Account of ₹ 15,24,81,955/- shall accordingly be reduced to ₹ 10,53,01,558/-. c) As per Balance Sheet as at 31-03-2017, 31-03-2018, and 31.01.2019 the Applicant Company has shown a Profit of ₹ 4,11,67,088/-, ₹ 5,10,22,964/- and ₹ 5,91,59,446/- respectively. d) As per Para No.8 of the Scheme of Reduction of Capital, upon request from Non-promoter Shareholders to dispose off their shareholding in the Petitioner Company. the Board of Directors decided to provide Liquidity to the Non- Promoter shareholders by a selective reduction in the equity share capital and also to make the Petitioner Company Wholly Owned Subsidiary of its current holding Company and also return the Excess Capital to them. e) The Petitioner Company has Related Party Transactions during the years 2017-18. Necessary compliance under Section 188 of the Companies Act, 2013 may be done by the Petitioner Company. f) As per Scheme of Reduction of capital of the Petitioner Company, the Company intends to pay off 89,52,637 equity shares to Non-resident individuals, Mutual funds, F II, Corporate bodies and individuals. Hence the company is required t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account can be utilised only for the above conditions. Whereas the company intends to pay off the Non-promoter equity shareholders i.e., 89,52,637 with premium of ₹ 5.27/- from and out of the SPA account which is not as per the provisions of Section 52 of the Companies Act. 2013. 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 Petitioner Company needs to comply with the provisions of Section 185/186 of the Companies Act, 2013. l) As per the information provided by the Petitioner company, there were dues payable to the statutory authorities like Income Tax, Central Excise. wealth Tax, etc., hence the petitioner company may furnish NOC from the Regulatory authorities before approval of the Scheme of Reduction of Capital. m) As per reply of the petitioner Company, 7 members having 20,98,35,163 equity shares have attended the meeting and voted in favour the scheme of reduction of capital and none voted against the scheme. Whereas as per the scheme issued and paid capital of the company is 20,82,97,363 equity shares of Re. l/- each Petiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olders and valuation report, giving a response to the ROC report inter alia as follows: i. In response to observation of the ROC that the Company is a subsidiary of foreign company viz., M/s GCI Global Ventures holding 94.44% shares of the company- GCI Global Ventures holds 95.88% shares of the Petitioner Company as mentioned in the Extraordinary General Meeting resolution. The list of shareholders of the Petitioner Company with details of shareholding pattern certified by a Chartered Accountant is attached. ii. In response to observation of the ROC that the Company has filed Form No. MGT-14 vide SRN H45367935 dated 03.01.2019 for special resolutions for reduction of capital the said form was filed on 21/02/2019 with regard to the special resolution passed at the Extraordinary General Meeting held on 04/02/2019 for approving the proposed capital reduction. iii. In response to observation of the ROC that the reason for reduction of capital is to provide liquidity to the non-promoter by a selective reduction in the equity share capital of the Petitioner Company- the Petitioner Company had received requests in the past from the non-promoter shareholders to provide them with a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and Protection Fund under Section 124(5). Since the amount being distributed pursuant to capital reduction belongs to such non-promoter shareholders, as a matter of good corporate practice, the unclaimed amount would be transferred to the Investor Education and Protection Fund. vii. In response to observation of the ROC that in case payment is to be made to any foreigner/foreign entity, the company has to comply with FEMA/RBI regulations- the Petitioner Company undertakes to comply with the applicable FEMA/RBI Regulations, if any, in case of payment to be made to any foreigner/foreign entity. viii. response to observation of the ROC that the company need to extend the proposed scheme to all the non-promoters and not to selective non-promoters- The proposed scheme has been. extended to all non-promoters and not to selective non-promoters. As observed in point 8 above, one of the objectives of the proposed reduction of paid up equity share capital of the Petitioner Company is to make the Portioner Company a wholly owned subsidiary of its current holding company i.e., GCI Global Ventures, GCI Global Ventures holds 20,82,97,363 equity shares of the Petitioner Company i.e., 95.88% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sponse to the observation of RD regarding compliance of Section 203 read with Rule 8A of the Companies (Appointment and remuneration of managerial personnel) Rules 2014: The petitioner Company has a whole time Company Secretary from 26/12/2012. E-Form 32 for appointment of the whole time Company Secretary has been filed with the Registrar of Companies as on 23/01/2013. Acknowledgment of the e-form filed as well as the screenshot from the Ministry of Corporate Affairs has been submitted along with audited financial statements of Petitioner Company. v. In response to the observation of RD regarding pay off to only the Non Promoter group: Section 66 of the Companies Act, 2013 provides that a company can reduce its share capital in 'any manner' subject to, among other things. (i) the approval of the shareholders by way of special resolution; (ii) the approval of the National Company Law Tribunal; and (iii) the accounting treatment for such reduction being in conformity with the accounting standards specified under the Companies Act, 2013. Further, if a company decides to selectively reduce its capital, the articles of association of the company ought to allow the company to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Four Soft Limited) by High Court of Telangana and Andhra Pradesh on June 09, 2015. b) M/s Rhodia Specialty Chemicals India Limited by High Court of Bombay on April 22, 2016. c) M/s SeQuent Penems Private Limited Company Petition No. 287 of 2014 before the High Court of Karnataka on February 02, 2015. d) M/s Wipro Enterprises Limited Company Petition No. 17 of 2015 before the High Court of Karnataka on March 12, 2015. e) M/s Dish TV India Limited by NCLT Mumbai Bench on June 28, 2017. vii. In response to the observation of RD regarding compliance of Section 185 and 186 of the Companies Act, 2013: the provisions of Section 186 of the Companies Act, 2013 have been duly complied with in respect of investments made by the company. The Petitioner Company has not advanced loan to the director/to a Company in which the director is interested to which the provisions of Section 185 of the Companies Act, 2013 apply and has not given loans, guarantee, and provided securities to which the provisions of Section 1 86 of the Companies Act, 2013 apply. Hence compliance under section 185 and 186 (relating to loans given) is not applicable to the Petitioner Company. viii. In respon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of valuation report: The Petitioner Company has obtained a valuation report from M/s BDO India LLP dated 12/11/2018 and a copy of the same is furnished. xii. In response to the observation of RD regarding open charge pending against the Company: The open charge as per the master data of the petitioner company is in relation to a charge created on the asset of the account of the forex limit that the Petitioner Company has taken from the bank. Since the Petitioner company is primarily into export driven business, receipts are in USD. In this regard, to safeguard from the currency fluctuations, the Petitioner Company, hedges the exposure with the banks. To book these hedges the bank must create a line against which these hedges are booked for which the bank has created a charge on the assets. It is just a facility arrangement and there is no loan involved. xiii. In response to the observation of RD regarding Section 125 amount to be paid out cannot be kept in IEPF: the Petitioner Company has a total of 171 non-promoter shareholders. Out of the total 171 non-promoter shareholders, majority of them are untraceable. The petition for reduction of capital states that the amount to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f shareholders is received. creditors are notified and the viexvs of the Regional Director are elicited, and the entire process is under the supervision of the NCLT. xv. The case of Miheer H. Mafatlal Vs. Mafatlal Industries Ltd., [1996] 23 CLA 1 SC: [1996] 10 SCL 70 (SC), has been cited to state that the jurisdiction of the Company court is peripheral and supervisory and not appellate in nature. It is also stated that the scrutiny of the scheme of reduction is best left to the parties in the realm of commercial democracy. 8. The Regional Director, Ministry of Corporate Affairs, South-East Region, Hyderabad represented by Registrar of Companies has filed Additional Affidavit dated 02.08.2019 inter alia making the following observations: a) In response to the observation regarding compliance of section 188, it was stated that the related party transactions are at arm's length and are in compliance with section 188 of the Companies Act, 2013. b) In response to the observation regarding compliance of FEMA/RBI Regulations, the company has undertaken to comply with the said provisions/rules. c) In response to the observation regarding reduction of capital by paying t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to them. The proposed capital reduction was approved by a special resolution by all the shareholders on 04/02/2019 and the independent accountant has confirmed that the accounting treatment is as per the accounting standards. Articles 45 and 47 of the AOA permits reduction of the share capital. Selective reduction has been has been allowed by this bench in matters of Practo Technologies Pvt Ltd. ABB Global Industries and Services Pvt Ltd, Yokogawa India Ltd, and by the Mumbai Bench in decision of Intelnet Global Services Pvt Ltd. ii. In response 10 the observation of RD regarding furnishing the copy of requests received from the non- promoter shareholders seeking to exit: the Petitioner company received requests (both orally and in writing) the non-promoter shareholders to provide an opportunity to exit and provide liquidity to the respective holdings in any way legally framed. It is submitted that few of the non-promoter shareholders made such enquiries orally either at the' time of meetings of the company or at any time that they have contacted the company for any questions and clarifications. Some of the requests received are produced along with the application. 10. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the articles shall be so altered that the shares reduced in amount shall also be reduced in voting power: Re Pictuary [(1892) 3 CH 125]. The Court may, therefore, either confirm the reduction with or without [Re James Colmar (1897) 1 Ch 524], conditions or decline to confirm it. It is not necessarily coffined to seeing that the creditors are properly protected, but may take into account whether the reduction would work injustice between the different classes of shareholders, and although it may not fall within its function to impose conditions which amount to an alteration of the scheme, yet if the such an alteration appears requisite, it may refuse to confirm the reduction, leaving the company to resolve on a reduction in altered form if it thinks fit. Re Barrow Hoemotite Steel co. [(1900) 2 Ch 846, affirmed in (1901) 2 Ch 746]. 13. In Re Reckitt Benckiser (India) Ltd. [122 (2005) DLT 612], while distilling the principles governing the reduction of capital through various judgments, it has been held that, 21. The principles, which can be distilled from the aforesaid judicial dicta, are summarised as under: (i)[ ] (ii)[ ] (iii)[ ] (iv)[ ] (v) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t petition moreover, also involves selective reduction in equity share capital to a particular group involving non-promoter shareholders and bring the petitioner company as wholly owned subsidiary of its current holding company and also return excess of capital to them. This is an arrangement between the company and shareholders or a class of them and hence it is also not covered under Section 66. 18. The above facts and circumstances as stated supra clearly shows that the relief as sought in the instant Company Petition under Section 66 of the Companies Act, 2013 is not covered under this Section. However, the instant case may be covered under Sections 230232 of the Companies Act, 2013, wherein compromise or arrangement between the Company and its creditors or any class of them or between a Company and its members or any class of them is permissible. Therefore, the Petitioner failed to make out any case under Section 66 of the Companies Act, 2013 and thus it is liable to be dismissed by granting liberty to the Petitioner to file an appropriate application as per extant provisions of the Companies Act, 2013. 19. In the result, C.P. No.53/BB/2019 is hereby dismissed by grantin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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