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TMI Blog2021 (3) TMI 1374X X X X Extracts X X X X X X X X Extracts X X X X ..... 9 under section 66 read with section 52 of the Companies Act, 2013 (the Act) for reduction of Share Capital. 2. We have heard the learned counsel for the Petitioner Company and the representative of the Regional Director (Western Region), Ministry of Corporate Affairs, Mumbai. No objector has come before this Tribunal to oppose the Scheme and nor has any party controverted any averment made in the Petition. 3. It is submitted that Article 38 of the Articles of Association (AoA) of the Petitioner Company empowers the Company to reduce its share capital in any manner permitted by law by passing a Special Resolution. 4. That the Petitioner Company has passed a Special Resolution on 7th December 2019 whereby the shareholders have approved the reduction in the equity share capital by proportionately returning capital to the shareholders to the tune of an amount of INR 0.10/- (Indian Ten Paisa Only) per share aggregating to INR 3,20,00,000 (Indian Rupees Three Crores Twenty Lakhs Only). Further, the difference between the face value of the equity shares so cancelled and the amount to be paid to the shareholders, shall be first adjusted against the debit balance of Profit a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In the present scheme the ROC has reported that the inquiry under section 206 of the Companies Act, 2013 is under way against the Company for booking of huge losses of Rs. 320 Crores (Rupees Three Hundred Twenty Crores) to the Shareholders and hence also the present scheme should not be allowed till the inquiry is completed by ROC. 6. The Petitioner Company has filed an affidavit in Rejoinder with this Bench on 14th January 2021 in response to the report filed by the Regional Director. Copy of the Rejoinder is also served on the Regional Director, Western Region, Mumbai. It is clarified as under: A. Apropos observation made in para 7 of the Report of the Regional Director is concerned, there are no complaints received against the Petitioner Company/scheme of reduction but there is one SRN reflected on the MCA portal in relation to some complaint for which the status is unknown. The complaint against the Petitioner Company relates to a matter unconnected with the reduction of capital. B. Apropos observation made in para 9(a) of the Report of the Regional Director is concerned, the Petitioner Company states that the interest of the creditors, all stakeholders and Gov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s huge finance cost on such borrowings, as a result of which the Petitioner Company has incurred accumulated losses. Further, due to the market conditions, the Petitioner Company was not able to dispose-off the inventory. Also, to make good the loss and complete the project, the shareholders had infused substantial amount of funds. In view thereof, the Petitioner Company submits that the accumulated losses aggregating to INR 427,07,95,365 have been incurred in the ordinary course of its business. c. The observation of the Regional Director that the payment of share capital to the shareholders by way of reduction of share capital is not envisaged by section 66 of the Act and that the same is in the guise of buy-back is contradictory to the judicial precedents available on the subject matter. d. In this regard reliance is placed on the following rulings, wherein despite the company having accumulated losses, the Hon'ble Bombay High Court/NCLT, Mumbai has allowed payout to shareholders pursuant to reduction of share capital, since the company demonstrated sufficient liquidity to discharge the consideration to be paid as a result of capital reduction. Times Global ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icate from Registrar of Companies for the Proposed Reduction pursuant to section 103(4) of the Companies Act, 1956. Copy of the Special Resolution is annexed at Exhibit- E to the Petition. 6. 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 prayer clauses (a) and (b). Atlas Copco (India) Limited (CP No. 4475 of 2018) (@Page 3 Para 3 and 4 and Page 14 Para 20) 3. ...The Learned Senior Counsel for the Petitioner Company further submits that the Company Petition was filed for providing the non-promoter public shareholders an opportunity to liquidate their shareholding at a fair and equitable price. 4. ...The Learned Senior Counsel for the Petitioner Company further submits that the Petitioner Company have passed a special resolution on 25th October 2018 whereby the shareholders had approved the reduction in the issued, subscribed and paid-up equity Share Capital of the Petitioner Company by cancelling and extinguishing the equity shares held by the non-promoter in the Company. Consequent to the reduction, the issued, subscribed and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led for rationalisation of the capital structure by reducing its outstanding equity shares by way of capital reduction for a cash consideration thereby maximising overall shareholder value by returning the excess capital to the shareholders on a proportionate basis and proper utilisation of resources. The Board of Directors of the Petitioner Company at their meeting held on 14th March, 2019 have deemed it appropriate to reduce its equity share capital. The Counsel for the Petitioner Company further submits that the Petitioner Company having passed a special resolution on 18th March, 2019 whereby the shareholders had approved the reduction in the equity share capital on a proportionate basis from the shareholders from INR 49,85,720/- (Indian Rupees Forty Nine Lakhs Eighty Five Thousand Seven Hundred and Twenty only) divided into 4,98,572 (Four Lakhs Ninety Eight Thousand Five Hundred and Seventy Two only) equity shares of INR 10/- (Indian Rupees Ten only) each to INR 29,95,720/- (Indian Rupees Twenty Nine Lakhs Ninety Five Thousand Seven Hundred and Twenty only) divided into 2,99,572 (Two Lakhs Ninety Nine Thousand Five Hundred and Seventy Two only) equity shares of INR 10/- (Indian ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... March 31, 2019 which has substantially wiped off the value represented by the share capital of the Company.... 18. Since the requisite statutory procedure has been fulfilled, the Company Petition is made absolute in terms of the prayer clause of the Petition. e. In the past, Courts have unanimously taken a view that 'Reduction of Capital' is a 'Domestic Affair' of a particular Company, in which, ordinarily, a Tribunal will not interfere because of the reason that it is a 'majority decision' which prevails. One of the oldest judgements on the subject is the judgement of the House of Lords of England in the case of British and American Trustee and Finance Corporate v. Couper, (1894) AC 399. In this case, the Court held that the prescribed majority of the shareholders of a company 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. The Court observed that: ..It will be observed that neither of these statutes prescribes the manner in which the reduction of capital is to be effected. Nor is there any limitation of the power of the Court to confirm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er Company Limited, the Andhra Pradesh High Court while allowing a Scheme of Reduction involving adjustment of accumulated losses against the balance of securities premium account held that (@Para 22 of the Judgement)- ... The Section provides that share capital can be reduced in any way . Those words are extremely wide and general. There are then given three particular instances of ways, but they are expressly given without prejudice to the generality of the foregoing in any way (Re. Ratters Group Plc). The Statute has not prescribed the manner in which the reduction is to be carried out nor has it prohibited any method effecting the object... j. In view of the above, the Petitioner Company respectfully submits that Section 66 of the Act allows the company to pay-off the share capital to the shareholders pursuant to reduction of share capital and thus, it would be inappropriate to re-characterize the same as buy-back. E. Apropos observation made in para 9(d) of the Report of the Regional Director is concerned, the Petitioner Company states that the inquiry under section 206 of the Act is an ongoing proceeding and that the application for reduction of share capi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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