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2014 (4) TMI 721 - HC - Companies LawSanction to the proposed reduction of the Subscribed and Paid-up Equity and Preference Share Capital of the petitioner Company - Held that:- The first observation made by the Regional Director expresses the apprehension that the proposed reduction of capital is in substance a ruse to distribute profits. The rationale for reduction of capital, that is provided by the petitioner, is that the current capital of the company is in excess of its requirements. It has also been stated that the object of the proposed reduction of share capital is to provide a partial exit to the investor shareholders (i.e. foreign investors). Apparently, the company does not envisage that the current quantum of share capital would be required for its future needs. Present capital of the company is in excess of its requirements and there is no material on record which would indicate to the contrary. The observation made by the Regional Director is solely premised on the fact that the petitioner company is a profitable one. There is no principle of law which prohibits a profitable company from reducing its share capital and thus the fact that the petitioner company is a profitable one cannot possibly, in absence of any other material fact, lead to the conclusion that the reduction of capital is for a collateral purpose. The fact that the petitioner is a profitable company would only indicate that the company has in addition to its capital also generated further funds and the same would not negate the reason that the petitioner has capital in excess of its requirements. It is also relevant to note that the reduction of capital is not on proportionate basis. Therefore, the ratio of the entitlement of the shareholders to future profits by way of dividends would also stand altered by reason of reduction in capital as proposed. Approval of reduction in the share capital cannot be withheld on the basis of the above mentioned observation made by the Regional Director - there is no infirmity in the procedure adopted by the petitioner for reduction of capital. The resolution for the same has been passed by the Board of Directors of the Company. The shareholders of the company have also unanimously passed the resolution for reduction of capital as proposed. The petition has been duly advertised - The procedure prescribed for sanction of a scheme under Section 391-394 of the Act, in substance, is similar to the procedure for approval of reduction in share capital. And, I see no reason why approval to the reduction not be granted, in given facts where the shareholders have unanimously consented to a reduction of capital in a particular manner - proposed reduction in the paid-up share capital of the Company is duly authorized by Article 3.1 of its Articles of Association. The Special Resolution has been unanimously approved and adopted by the shareholders of the Company at the EOGM held on 08.07.2013. None of the creditors have opposed the reduction of capital - Decided in favour of petitioner.
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