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TMI Blog2025 (1) TMI 554X X X X Extracts X X X X X X X X Extracts X X X X ..... posed by the appellant company. Appeal allowed. - ( Justice Yogesh Khanna ) Member ( Judicial ) And ( Mr Ajai Das Mehrotra ) Member ( Technical ) For the Appellant : Mr. Arun Kathpalia, Sr Advocate with Mr Hemant Sethi, Mr Gaurav H Sethi, Mr. Debanshi Sethi, Mr Rahul Pawar, Mr Vikrant , Advocates For the Respondent : Mr Durga Dutta, Ms Rashi Verma , Advocates JUDGEMENT JUSTICE YOGESH KHANNA , MEMBER ( JUDICIAL ) This appeal is filed against an impugned order 19th December, 2023 passed by the Ld. NCLT, Mumbai in CP No.271/2022. 2. The appellant vide a Special Resolution of the Board of dated 29th November, 2022 had approved the cancellation of 16,76,96,382 equity shares of INR 10 each and the said reduction was to be effected by returning to the shareholders INR 11.33 per equity share, being the fair market valuation of the equity shares of the appellant company as determined by registered valuer, thus aggregating to an amount of INR 190,00,00,008/- to be repaid over a period of time as a loan between the Appellant Company and its shareholder. 3. The rationale for reduction is as follows:- a) The appellant company operates a four-lane highway on BOT (toll) model. The said highway ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Appellant company shall offer an avenue to the appellant Company to repatriate surplus cash to the shareholders in a timely and efficient manner. d) The Appellant Company shall be able to meet all its existing liabilities as and when due. Further, stakeholders of the Appellant Company, including creditors and employees, shall not be adversely impacted by the proposed capital reduction. It is pertinent to note that pursuant to the order of Hon ble NCLT dated 9th February 2023, notices were sent to the secured and unsecured creditors of the Appellant Company and no objections were received by the Appellant Company. The Appellant Company decided to cancel 16,76,96,382 equity shares of INR 10 each, fully paid up held by the shareholders, out of total existing paid - up equity share capital of the Appellant Company of INR 2,64,55,23,650 divided into 26,45,52,365 equity shares of INR 10 each, fully paid up and that such reduction shall be effected by returning to the shareholders INR 11.33 per equity share (being the fair market valuation of the equity shares of the Appellant Company as determined by the registered valuer CA Harsh Chandrakant Ruparelia in his report dated 29th Novem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the sustained growth anticipates sufficient cash flows to pay off its liabilities and expenses and thereby wishes to reward its shareholders by returning the surplus cash from its operations. The proposed scheme of reduction by way of conversion of existing share capital into unsecured loans is based on the premise that The Petitioner Company currently generates surplus cash from its operations and also anticipates a higher cash surplus in the future year basis the business projections. This clearly indicates that the proposed buy back shall take place out of future cash flows, which are anticipated based on the projections. Accordingly, it can not be said that the proposed share capital sought to be reduced is in excess of the wants of the company in present and is based on future cash flows. Since, the converted portion of reduced share capital into unsecured loans shall be interest bearing, it has propensity to impact the operating as well as financial ratios of the petitioner company. 13. We are of considered view that the scheme of section 66(1)(b)(ii) of the Companies Act, 2013 only enables a company to pay off excess capital to its shareholders, which is considered in excess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Section 66 of the Companies Act, 2013 deals with the issue and is as under:- 66. Reduction of share capital. (1) Subject to confirmation by the Tribunal on an application by the company, a company limited by shares or limited by guarantee and having a share capital may, by a special resolution, reduce the share capital in any manner and in particular, may (a) extinguish or reduce the liability on any of its shares in respect of the share capital not paidup; or (b) either with or without extinguishing or reducing liability on any of its shares, (i) cancel any paid-up share capital which is lost or is unrepresented by available assets; or (ii) pay off any paid-up share capital which is in excess of the wants of the company, alter its memorandum by reducing the amount of its share capital and of its shares accordingly: Provided that no such reduction shall be made if the company is in arrears in the repayment of any deposits accepted by it, either before or after the commencement of this Act, or the interest payable thereon. 11. A bare perusal of the above section would show it gives discretion to the appellant company to reduce its share capital in any manner subject to special res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Court, before confirming the proposed reduction the Court has to be satisfied that (i) there is no unfair or inequitable transaction and (ii) all the creditors entitled to object to the reduction have either consented or been paid or secured. 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). 14. The aforesaid principle adopted in the Reckitt Berickiser (India) Ltd was also followed in Precious Energy Services Ltd Vs Regional Director, North Western Region, MCA, on dated 28.07.2022 by this Tribunal and also in Panruti Industrial Company (P) Ltd AIR 1960 Mad.537 etc. 15. In Tamil Nadu Newsprint Papers Ltd (CP No.17 of 1995) the Court held as under:- SCHEDULE-B The paid-up capital of Tamil Nadu Newsprint Papers Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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