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TMI Blog2007 (6) TMI 292X X X X Extracts X X X X X X X X Extracts X X X X ..... orporated with an authorised share capital of Rs. 5 crores divided into 5 lakh equity shares of Rs. 100 each. The present authorised share capital is Rs. 5 crores divided into 50 lakh equity shares each of Rs. 10. The equity shares of the Company are listed on the Bombay Stock Exchange (BSE) and Pune Stock Exchange. The issued and paid up share capital of the Company as on 31-3-2006 is Rs. 3,55,66,770 divided into 35,56,677 shares each of Rs. 10. Upon the proposed reduction, the issued and paid up share capital of the Petitioner shall be Rs. 2,66,75,080. The Company seeks to reduce its share capital by an amount of Rs. 88,91,690 constituting 25 per cent of its issued and paid up share capital. 2. The principal reasons underlying the proposed reduction of capital have been spelt out in paragraph 11 of the petition thus :- "(a)The Petitioner Company has sold its isolator Division located in Hyderabad, as approved by an ordinary resolution of the shareholders of the Petitioner Company by way of a postal ballot process, due to the severe competition faced by it in terms of input costs and margins, both in domestic and international markets. Subsequent to such sale, the residual busin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in a meeting held on 27-1-2006, passed a resolution in respect of the reduction of the issued and paid up capital of the Company. As aforesaid the Petitioner proposes to extinguish and cancel 8,89,169 shares held by shareholders constituting 25 per cent of the issued and paid up share capital and returning capital to such shareholders at Rs. 183 per equity share of Rs. 10 each so cancelled and extinguished in accordance with section 100 of the Companies Act, 1956. 4. The market price per share of the Company on the Bombay Stock Exchange at the point of time when the aforesaid resolution was passed by the Board of Directors was Rs. 172.25. On 27-1-2006 notices were sent to all the shareholders of the proposed resolution by postal ballot and shareholders were asked either to vote in favour of or against the resolution. The scheme propounded that the reduction of share capital would take place from amongst such shareholders who either vote in favour of the resolution or do not object to the resolution. In other words, the scheme provides an option whereby the shares of such shareholders who voted against the resolution would remain untouched. 5. The result of the postal ballot was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e ("BSE") in which it was stated that the scheme of the reduction of capital should be made applicable either to all the shareholders of the Company or only to those shareholders who have furnished a positive assent to the special resolution. The Company was advised not to proceed with the filing of the Petition in this Court until BSE granted its no objection to the same. By its letter dated 16-10-2006, the Company responded to BSE and submitted that it was permitted in law to reduce capital in any manner including, but not limited to, the method of paying off paid up share capital which is in excess of its wants. The Company submitted that a selective reduction of the share capital has been permissible in law and since it had obtained a special resolution of its shareholders approving the proposed reduction, implementation of the conditions imposed by BSE would be contrary to the terms of the resolution passed under section 100 of the Companies Act, 1956. In pursuance of a further request made by BSE, the Company has furnished an undertaking on 20-12-2006 stating, inter alia, that in the event that the non-promoter shareholding of the Company falls below the minimum limit prescri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The Petitioner has relied upon share price movement data of the shares of the petitioner for the period between January 2006 to January 2007 as quoted on the website of the BSE. That data, it has been urged, shows that on the date of the meeting of the Board (27-1-2006) the closing share price was Rs. 172.25 per share. The closing share price continued to be much lower than the offered exit price of Rs. 183 per share on the date when the postal ballot was sent to the shareholders of the Company as well as on the date, when the results of the postal ballot were declared, that is on 23-3-2006. On 23-3-2006, the closing share price of BSE was Rs. 156.25. On 25-7-2006 when a draft petition was filed with the BSE for its approval under clause 24(f) of the Listing Agreement, the closing share price on BSE was Rs. 124.45 per share. The shares of the Petitioner continued to trade on BSE at a price much below the exit price of Rs. 183 per share till the beginning of December 2006. It has been urged that the price on the date of the resolution of the Board must be regarded as the relevant price for consideration and the price that is offered was fair and reasonable. It has been urged that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y to reduce its share capital and lays down the procedure which is required to be followed. Sub-section (2) of section 101 then provides that where the proposed reduction of share capital involves either a diminution of the liability in respect of unpaid share capital or the payment to "any shareholders" of any paid up share capital and in any other case, if the Court so directs, then the provisions which have been made thereunder shall have effect. The adoption by Parliament of the words "any shareholders" in section 101 of the Companies Act, 1956 indicates that a reduction of share capital need not necessarily be qua all shareholders of the company, but can take place from one or more amongst the body of shareholders. A classification of shareholders for the purposes of effecting the reduction of capital is, therefore, not an act which is extraneous to the provisions of section 101. The Court must give effect to the plain meaning and intendment of the provisions of section 101. Corporate autonomy must have a wholesome recognition in law and unless the law circumscribes it by a clear provision, the Court would not read limitations where the Legislature has not imposed them. 12. O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y scrutinized by the Court, and that no such scheme ought to be confirmed unless the Court has satisfied that it will not work unjustly or inequitably. But that is quite a different thing from saying that the Court has no power to sanction it." 13. The decision of the House of Lords in the British and American Trustee and Finance Corporation Ltd. case was followed in England in the decisions in Poole v. National Bank of China, 1907 Appeal Cases 299; Thomas De la Rue & Co. Ltd., In re and Reduced, (1911) 2 Ch. 361; Westburn Sugar Refineries Ltd., (1951) 1 All ER 991 (HL) and Robert Stephen Holdings Ltd., In re [1968] 1 WLR 522. 14. In Ramesh B. Desai v. Bipin Vadilal Mehta AIR 2006 SC 3672, the Supreme Court referred to the Commentary in the Guide to the Companies Act by A. Ramaiya with approval which describes the decision in the British and American Trustee and Finance Corporation Ltd. case as the leading authority on the subject of a reduction of capital. In Hindustan Commercial Bank Ltd. v. Hindustan General Electric Corpn. Ltd. 3 AIR 1960 Cal. 637 the Calcutta High Court referred to the judgment of the House of Lords in the British American Trustee case with approval and held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which prevails; (ii)If a majority by special resolution decides to reduce share capital of the company, it has also the right to decide as to how this reduction should be carried into effect; (iii)While reducing the share capital the company can decide to extinguish some of its shares without dealing in the same manner as with all other shares of the same class. Consequently, it is purely a domestic matter and is to be decided as to whether each member shall have his share proportionately reduced, or whether some members shall retain their shares unreduced, the shares of others being extinguished totally, receiving a just equivalent. (iv)The company limited by shares is permitted to reduce its share capital in any manner, meaning thereby a selective reduction is permissible within the framework of law (see Re. Denver Hotel Co., 1893(1) Chancery Division 495). (v)When the matter comes to the 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." The facts : 16. In the present case, the Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a resolution will be regarded as an ordinary resolution when at the general meeting the votes in favour of the resolution by members who are deemed to be entitled so to do vote in person or by proxies exceeds the votes if any, cast against the resolution by members entitled to voting. Similarly under sub-section (2) of section 189 a special resolution is where votes cast in favour of the resolution by members who being entitled to so to do vote in person or proxies are not less than three times the number of votes cast against the resolution by members so entitled and voting. The touchstone laid down by the statute is votes by persons who are entitled to vote and who in fact cast their votes at the meeting. The fact that some shareholders may decide to abstain from the meeting will not dilute the efficacy of the resolution, general or special, provided the requisite statutory majority is found to exist at the conclusion of the poll. In the present case, there are two aspects to the resolution proposed by the Company which are as follows: (i) An affirmative or negative vote in respect of the resolution proposing reduction and (ii) An objection to giving up one's shares in the propos ..... X X X X Extracts X X X X X X X X Extracts X X X X
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