TMI Blog2011 (10) TMI 510X X X X Extracts X X X X X X X X Extracts X X X X ..... an, J . - Present petition has been filed under Sections 100 to 105 of the Companies Act, 1956 (for short 'Act') read with Rule 46 of the Companies (Court) Rules, 1959 (for short 'Rules, 1959) for confirming the reduction of share capital of the petitioner-company. 2. The relevant facts of the present case are that on 5th July, 1951, the petitioner-company was incorporated as a public limited company under the name of M/s. Reckitt Colman of India Limited. On 18th December, 2000, the name of the petitioner-company was changed to M/s. Reckitt Benckiser (India) Limited. 3. Between 14th February, 2003 and 19th May, 2005, the equity shares of petitioner-company were delisted from Bombay, Calcutta and National Stock Exchanges in accordance with Regulation 21(3)( a ) of Substantial Acquisition of Shares and Takeovers Regulations, 1997. In fact, in view of the directions received from the said Stock Exchanges, M/s. Reckitt Benckiser Plc's subsidiary company, namely, Lancaster Square Holdings SL made an exit offer to acquire shares in petitioner-company under the aforesaid Regulations. 4. Post delisting, the petitioner-company filed a petition being CP No. 206 of 2004 for redu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apital by canceling and extinguishing 3,78,614 equity shares held by Lancaster Square Holdings SL (Lancaster) constituting about 1.44% of the issued and paid-up equity share capital of the petitioner company and 28,531 equity shares held by the public constituting about 0.11% of the issued and paid-up equity share capital of the petitioner company both aggregating to 4,07,145 equity shares. The petitioner-company appointed M/s. T.R. Chadha Co., Chartered Accountants to determine the fair value of its equity shares. 8. On 3rd March, 2010, the Board of Directors of petitioner-company approved further reduction in its paid up share capital, subject to approval of its equity shareholders and confirmation by this Court. At the said Board Meeting, the Valuation Report of M/s. T.R. Chadha Co. was considered and the Board approved the payment of Rs. 940/-per equity share as against the value of Rs. 836/- recommended by the Valuer, M/s. T.R. Chadha Co. 9. On 26th March, 2010, the largest shareholder of the petitioner-company, namely, M/s. Reckitt Benckiser Plc wrote to petitioner that it had no objection to the new Scheme for Reduction of share capital. The relevant portion of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted in the capital requirements of the Company having appreciably reduced. The Company's concentration on quality and performance as well as approach to the market has resulted in good growth numbers. Keeping in view the excess capital available with the Company the Board has evaluated the various options available for the utilization of the same. However, even after taking into account all the capital expenditures for its future growth plans, upgradation of existing product lines, investments in research and development, the Company has more capital resources than it can profitably utilize giving rise to the need to readjust the relation between capital and assets and to accurately and fairly reflect the liabilities and assets of the Company in its books of accounts. After a close examination and analysis of the various options available to the company and in the absence of adequately attractive acquisition opportunities, the restructuring of the Company's existing capital structure becomes imperative. After detailed deliberations, the Board of Directors of the Company are of the view that the reduction of the equity share capital in accordance with Section 100 of the Companies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itioner company offering to pay to the public shareholders an amount of Rs. 1500/- per equity share, Mr. Janak Mathuradas and twenty-two other objectors accepted the offer and unconditionally withdrew their objections as well as affidavits along with the valuation report of J.C. Desai Co. filed before this Court. The order dated 16th September, 2011 is reproduced hereinbelow:- "In the present case, Mr. Janak Mathuradas has filed objections to the Scheme of Reduction. 22 other public shareholders have filed one page affidavit supporting the objection of Mr. Mathuradas. Learned counsel for the petitioner submits that without prejudice to its rights and contentions, petitioner is willing to pay to the Indian public shareholders an amount of Rs. 1500/-per equity share. In view of the aforesaid offer, Mr. Ankit Shah, learned counsel for Mr. Janak Mathuradas and 22 other objectors, upon instruction of Mr. Janak Mathuradas, who is personally present in Court, states that he would like to withdraw the objections filed by Mr. Mathuradas and 22 other public shareholders. Mr. Shah, learned counsel further wishes to withdraw the affidavit filed by Mr. Janak Mathuradas in the month of F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... preme Court in Sesa Industries Ltd. v. Krishna H. Bajaj [2011] 3 SCC 218/ 106 SCL 239 /9 taxmann.com 218 (SC) and Miheer H. Mafatlal v. Mafatlal Industries Ltd. [1997] 1 SCC 579/[1996] 10 SCL 70 (SC) and Andhra Pradesh High Court's judgments in Aurbindo Pharma Ltd., In re., [2011] 105 SCL 71 (AP) and Chetan G. Cholera v. Rockwool (India) Ltd. [2010] 155 Comp. Cas. 605/102 SCL 93 (AP). 16. According to Mr. Gandhi, the petitioner's shares are invaluable. He emphasizes that the shares of the petitioner-company are at par with a 'Kohinoor Diamond'. He states that the valuation report of M/s. T.R. Chadha Co. is improper and has been filed with an intent to evaluate the shares at a lower value. In this connection, Mr. Gandhi relies upon the report of M/s. J.C. Desai Co. filed by Mr. Janak Mathuradas. 17. He also submits that the petitioner has acted in a mala fide manner by clubbing the minority shareholders whose rights are being affected by the proposal to reduce the share capital along with petitioner's own subsidiary namely, Lancaster Square holdings SL. He submits that such artificial classification of the class of shareholders for holding class m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ary public. This may be got verified'. 21. At the outset, Mrs. Pallavi S. Shroff, learned counsel for the petitioner-company submits that it is not within the domain of this Court to inquire as to whether a particular economic policy is wise or whether a better economic policy can be evolved. 22. Mrs. Shroff further submits that Section 100 of the Act permits a company to reduce its share capital in any manner. She also submits that it does not contemplate class meetings. According to her, it only requires passing of a special resolution by the equity shareholders. She points out that equity shares of Lancaster Square Holdings SL are also being reduced and, therefore, they were also entitled to vote at the EOGM. 23. Mrs. Shroff submits that shares of Reckitt Benckiser (India) Ltd., being the promoter, are not being reduced on the principle of ' first in and last out'. Mrs. Shroff also submits that the objections with regard to 'forcible acquisition' and 'elimination' are no longer res Integra as identical objections have been rejected in similar cases of reduction by Bombay High Court in Sandvik Asia Ltd. v. Bharat Kumar Padamsi [2009] 92 SCL 272 (Bom.) and O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nto Section 100 of the Act. In this connection she relies upon the judgment of the Bombay High Court in SEBI v. Sterlite Industries (India) Ltd. [2003] 113 Comp. Cas. 273/ 45 SCL 475 (Bom). 28. Mrs. Shroff states that the EOGM was conducted in a fair and transparent manner. According to her, objections of Mr. Gandhi were duly recorded in the minutes of the EOGM and he was also given an opportunity to examine the valuation report. Mrs. Shroff points out that Reckitt Benckiser Plc. by resolution dated 12th April, 2010 authorised the execution of form of representation for meeting of 24th April, 2010. She states, similarly Lancaster Square Holdings SL at its meeting on 9th April, 2010 appointed Mr. S.N. Kannan to represent the company at the EOGM. He submits, there is no requirement in law for an Indian subsidiary to maintain specimen signatures of Directors of its holding company. 29. Having heard the parties at length, this Court is of the view that it is first essential to analyze Section 100 of the Act. Section 100 of the Act reads as under:- "100. Special resolution for reduction of share capital. (1) Subject to confirmation by the Tribunal, a company limited by s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... further held that certain adjustments in the Scheme were not permissible under law and, thus, the Scheme under Section 391 could not be sanctioned. 33. The other judgments relied upon by Mr. Gandhi, namely, Sesa Industries Ltd. ( supra ) and Miheer H. Mafatlal ( supra ) deal with a Scheme of Arrangement under Section 391 of the Act and not with regard to reduction of share capital under Section 100 of the Act. In fact, when direct judgments are available on reduction of share capital, this Court is of the view that reliance upon judgments under Section 391 of the Act is not apposite. 34. Moreover, in the present case, the proposed reduction in the paid-up equity share capital of the company is duly authorised by Article 54 of its Articles of Association. The said Article states, "The Company may from time to time by Special Resolution, reduce its capital and any Capital Redemption Reserve Account or Share Premium Account in any manner and with and subject to any incident authorised and consent required by law". It is settled law that Articles of Association constitute a contract between the shareholders and its company. 35. Section 85 of the Act specifies that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of Mr. Lakhani, raised on the principle of 'first in last out' is, therefore, rejected." [Emphasis supplied]. 38. The fact that minority shareholders are Indian and the majority promoter shareholders are foreigners is of no relevance as long as the mandate of law is complied with. This Court is of the opinion that there is nothing in the Act which requires that the reduction should be spread either equally or rateably over all the shareholders of the company. 39. The House of Lords in British and American Trustee and Finance Corporation v. Couper, [1891] 4 All E.R. 667, upheld a Scheme of Reduction by which an English company cancelled only the shares held by its American shareholders. The House of Lords held " the question whether each member shall have his share proportionately reduced, or whether some members shall retain the shares unreduced, the shares of others being extinguished upon their receiving a just equivalent, is a purely domestic matter (page) 672) It is for the company, and for the company alone, to judge of the prudence of the course proposed. The objects of the company are wide enough to swallow up the wealth of Lombard Street, or of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he share capital proposed by the petitioner-company, by paying off the public holders of equity shares, other than the promoter shareholders and given them certain compensation, amounts to a forceful acquisition of the shares held by them. He states that such action on the part of the petitioner-company is against the principles of natural justice, corporate democracy and corporate governance. He states that such reduction tantamount to a sophisticated corporate mafiaism. ** ** ** 19. This Court is, however, bound by the decision of the Division Bench of this Court, reported in Sandvik Asia Ltd. v. Bharat Kumar Padamsi [2009] 91 CLA 247 [2009] 111 (4) Bom. LR 1421, concerning the reduction of capital of Sandvik Asia Ltd. The learned Single Judge of this court, had refused confirmation of the proposal for reduction of Sandvik Asia Ltd. on the ground that the promoters group could virtually bulldoze the minority shareholders and purchase their shares at the price dictated by them. The learned Single Judge found that the minority shareholders were not given any option under the proposal. Hence, the learned Single Judge concluded that such s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pital. It is pertinent to mention that the said recall application was ultimately dismissed by the said decision. 44. It is also settled law that a valuer's report is not to be interfered with by a Court in the absence of any fraud or illegality - which allegation is missing in the present petition. In fact, Supreme Court in Hindustan Lever Employees' Union ( supra ) has held "Mr. Ashok Desai, appearing on behalf of TOMCO, has argued that the valuation of shares had to be done according to well-known methods of accounting principles. The valuation of shares is a technical matter. It requires considerable skill and experience. There are bound to be differences of opinion among accountants as to what is the correct value of the shares of a company. It was emphasised that more than 99% of the shareholders had approved the valuation. The test of fairness of this valuation is not whether the offer is fair to a particular shareholder. Mr Jajoo may have reasons of his own for not agreeing to the valuation of the shares, but the overwhelming majority of the shareholders have approved of the valuation. The Court should not interfere with such valuation." [Emphasis supplied]. 45. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enables a company to buy- back its shares without approaching the Court under Sections 100 to 105 of the Act. In fact, the provisions of Sections 77A and 100 of the Act operate in different fields. The Bombay High Court in The Sterlite Industries (India) Ltd. ( supra ) has held "The submission of the appellants that the non-obstante clause in Section 77A gives precedence to that section over the provisions of Sections 100-104. Section 391 is misconceived. The non-obstante clause in Section 77A namely "notwithstanding anything contained in this Act..." only mean that notwithstanding the provisions of Section 77 and Sections 100-104, the company can buy back its shares subject to compliance with the conditions mentioned in that section without approaching the court under Sections 100-104 or Section 391. There is nothing in the provision of Section 77A to indicate that the jurisdiction of the court under Section 391 or 394 has been taken away or substituted. It is well settled that the exclusion of the jurisdiction of the Court should not readily be inferred, such exclusion should be explicitly or clearly implied. There is nothing in the language of Section 77 that gives rise to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... precedent in Section 77A (5) of the Act are applicable only to buy-back of shares under Section 77A of the Act. Consequently, Section 77A(5) of the Act does not apply to a Scheme of Reduction under Section 100 of the Act, as the two operate in entirely different fields. 53. As far as challenge to economic policy is concerned, it is well settled that Courts do not interfere with an economic policy which is in the domain of the executive unless the same is capricious, arbitrary, illegal or uninformed. Also, it is not the function of a Court to sit in judgment over matters of economic policy which must be necessarily left to expert bodies. In fact, a Court does not supplant the view of an expert with its own. [ See BALCO Employees Union v. Union of India [2002] 2 SCC 333/ 35 SCL 182 (SC)]. Accordingly, it is not open for this Court to strike down the Government policy of removing sectoral caps in personal care and health sector. 54. Consequently, keeping in view the aforesaid as well as the fact that reduction of share capital is a commercial and business decision, which has been approved by 99.999% of equity shareholders of petitioner-company and only 0.0020% of share ..... X X X X Extracts X X X X X X X X Extracts X X X X
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