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TMI Blog2011 (10) TMI 510X X X X Extracts X X X X X X X X Extracts X X X X ..... ges 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 reduction of its paid up equity share capital from Rs. 32,91,31,880/- divided into 3,29,13,188 fully paid up equity shares of Rs. 10/- each to Rs. 26,27,96,120/- divided into 2,62,79,612 fully paid up equity shares of Rs. 10/- each. This Court vide its order dated 31st May, 2005 approved the said Scheme of Reduction. The relevant portion of the said order is reproduced hereinbelow:- "36. To summarize, when in the instant case 99.97% shareholders have supported the resolution of reduction of share capital; the valuation of the share is arrived at in a reasonable manner and lucrative price for the share is offered; and above all the petitioner has agreed that the objectors may retain their shares, I do not find any legal impediment or a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - 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 the said letter dated 26th March, 2010 is reproduced hereinbelow:- " ........ This is also to confirm that as Promoter shareholder of your Company, we would like to retain our shareholding in the Company and in line with the 'first in and last out' principle, we will continue to hold the capital till the final exit of all other shareholders." [Emphasis supplied] 10. In pursuance to the decision taken by the Board on 3rd March, 2010, a Notice along with Explanatory Statement was sent to the equity shareholders of petitioner-company informing them that an Extra-Ordinary General Meeting (for short 'EOGM') was to be held on 24th April, 2010 to consider the proposed reduction of share capital of the petitioner-company. The relevant extract of said Notice as well as Explanatory Statement is reproduced hereinbelow:- (a) Notice to the Members dated 27th March, 2010 "Special Business: To consider and, if thou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany'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 Act, 1956 (the "Act") is the only practical and economically efficient legal option available to the Company. As such, the Board proposes to return capital to identified equity shareholders in accordance with Section 100 of the Act, whereby the paid-up equity share capital in excess of its requirements be reduced and that such reduction be effected by canceling and extinguishing of 378,614 equity shares held by Lancaster, constituting about 4% of Lancaster's equity shareholding in the Company, and 28,531 equity shares held by the public, constituting 100% of the equity shareholding of the public in the Company......... The Board has recommended that Reckitt Benckiser Plc being the promoter shareholder should not be returned any of its equity capital contribution before the public equity shareholders or Lancaster are returned their equity capital contribution. Reckitt Benckiser Plc being the promoter shareholder of your Company has agreed vide its lett ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 February, 2011 along with the valuation report of J. C. Desai & Co. Keeping in view of aforesaid agreement between the petitioner and all the objectors, except Mr. Chander Bhan Gandhi, petitioner is directed to pay an amount of Rs. 1500/- per equity shares to public shareholders of petitioner-company. The objections filed by Mr. Janak Mathuradas and 22 other shareholders along with the affidavits of Mr. Mathuradas and valuation report of J.C. Desai & Co. are dismissed as withdrawn. List the matter for arguments in the objections filed by Mr. Chander Bhan Gandhi, the only remaining objector, on 21st September, 2011 at 2:15 p.m. " 13. The only remaining objector Mr. Chander Bhan Gandhi submits that the Government policy of removing sectoral caps in personal care and health sector is illegal. According to him, the present Scheme of Reduction is nothing but a product of wrong economic policies being followed by the Government of India. 14. Mr. Gandhi fur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 meetings of shareholders for reduction of share capital by the petitioner is absolutely wrong and irrational and it has been made only with a view to ensure that the special resolution is passed. He states that had the petitioner company constituted the true minority shareholders that means, the public shareholders as a separate class of shareholders, then it would have been impossible for the petitioner company to pass the special resolution for 'extinguishing' their shares. 18. Mr. Gandhi points out that a similar previous attempt by the petitioner had been given up by the petitioner itself, upon objections raised by objectors like him, as would be apparent from the judgment dated 31st May, 2005 passed by this Court in CP No. 206/2004 wherein the petitioner agreed to let the objectors continue to be shareholders and it was only thereupon that this Court permitted reduction of petitioner's share capital. He submits that res judicata is attracted to the facts of the present case and, therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entical 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 Organon (India) Ltd., In Re. [2010] 101 SCL 270 (Bom). 24. Mrs. Shroff points out that the valuation with respect to the entire value of the petitioner's equity shares has been done by a reputed firm of Chartered Accountants, i.e., M/s. T.R. Chadha & Co. She states that the valuation has been done with reference to the position as on 31st December, 2009 and the Valuer has considered the future stream of earnings of the petitioner-company. According to her, as the report of M/s. J.C. Desai & Co. had been filed at the instance of Mr. Janak Mathuradas who has now withdrawn his objections, the same cannot be relied upon in the present proceedings. In any event, she points out that M/s. T.R. Chadha & Co. has used both the income approach and the market approach for its Valuation, whereas M/s. J.C. Desai & Co. has used only the market approach. 25. Without prejudice to the aforesaid, Mrs. Shroff states that the report of M/s. J.C. Desai & Co. considers datas and transaction that occurred after the date of M/s. T.R. Chadha & C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Special resolution for reduction of share capital.-(1) Subject to confirmation by the Tribunal, a company limited by shares or a company limited by guarantee and having a share capital, may, if so authorised by its articles, by especial resolution, reduce its share capital in any way; and in particular and without prejudice to the generality of the foregoing power, may- (a)extinguish or reduce the liability on any of its shares in respect of share capital not paid up; (b)either with or without extinguishing or reducing liability on any of its shares cancel any paid-up share capital which is lost, or unrepresented by available assets; or (c)either with or without extinguishing or reducing liability on any of its shares, pay off any paid-up share capital which is in excess of the wants of the company, and may, if and so far as is necessary, alter its memorandum by reducing the amount of its share capital and of its shares accordingly. (2) A special resolution under this section is in this Act referred to as "a resolution for reducing share capital". 30. From the aforesaid, it is apparent that Section 100 of the Act expressly permits a company, if so authorised by its articles ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers and its company. 35. Section 85 of the Act specifies that there are only two kinds of share capital i.e. Preference and Equity share capital. In the present case, the petitioner company has only one class of share capital. Further, in the opinion of this Court, Section 100 of the Act read with Rule 47 of the Rules, 1959, does not envisage class meetings. Section 100 of the Act requires passing of a special resolution by equity shareholders and does not require passing of a separate class resolution. 36. It is only Section 391 of the Act read with Rule 61 of the Rules, 1959 which deals with Scheme of Arrangement, recognizes that class meetings can be directed to be held. In the opinion of this Court, Rule 67 of the Rules, 1959 cannot be read with Section 100 of the Act. In fact, Rule 67 of the Rules, 1959, has been inserted as under a Scheme of Arrangement, similarly placed shareholders or creditors may be treated differently and this is the concept recognized in the judgment of Miheer H. Mafatlal ( supra). Accordingly, the prescribed majority under Section 100 of the Act is a majority of the entire body of shareholders of the company and not minority public shareholders as ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w up the wealth of Lombard Street, or of the city of London. But again it is for the company to determine, subject of course to the statutory provisions for the protection of creditors, whether its capital, under the circumstances, and in view of the policy approved by the shareholders, is or is not in excess of its present wants (page) 675)..... it follows as a self-evident proposition that the interests of the shareholders in respect of their shares as regards dividend and everything else must be equal. In the result, therefore, I am of opinion that the objection on the part of the respondent is not well founded. I think that the proposed reduction is within the power conferred by the Act of 1867......." (page 677) [Emphasis supplied]. 40. In fact a Division Bench of the Bombay High Court in Sandvik Asia Ltd. ( supra) following the aforesaid House of Lords decision held "In our opinion, the above quoted observation of the House of Lords from its judgment in the case of Poole & ors, referred to above, squarely apply to the present case. In our opinion, once it is established that non-promoter shareholders are being paid fair value of their shares, at no point of time it is even ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reduction of capital were totally unfair and unjust. In appeal, the Hon'ble Division Bench held that they were bound by the law laid down by the Hon'ble Apex Court in Ramesh B Desai v. Bipin Vadilal Mehta [2006] 73 CLA 357 /[2006] 5 SCC 638 (SC) where the Apex Court recognised the judgment of the House of Lords in the case of British & American Trustee & Finance Corporation (supra). The Learned Bench also referred to the judgment in Poole v. National Bank of China Ltd. [1907] AC 229 (HL), the relevant portion of which is as follows: "The dissenting shareholders do not demand, and never have demanded, better pecuniary terms, but they insist on retaining their holdings which in all reasonable probability can never bring profit to any of them and may be detrimental to the company." 20. The learned Bench granted sanction to the reduction of capital, overruling the order of the learned Single Judge in Sandvik Asia Ltd. ( supra), and posited as follows: "Once it is established that non-promoter shareholders are being paid the fair value of their shares, at no point of time it is even suggested by them that the amount that is being paid is way less and even the overwhelming majority of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o. cannot be relied upon in the present proceedings as it had not been placed before the EOGM by any of the objectors and further as it has been withdrawn by Mr. Janak Mathuradas at whose instance it had been furnished. In any event, the price of Rs. 1500/- per share, now being offered by the petitioner-company to its public shareholders, has been accepted by all its shareholders except Mr. Gandhi. Consequently, this Court is of the view that the price of Rs. 1500/- is fair and reasonable. 46. This Court is further of the opinion that the judgment dated 31st May, 2005 in Co. Pet. 206/2004 does not raise or create any bar on the petitioner from presenting another Scheme of Reduction. The statement recorded in the aforesaid judgment is in the context of the first Scheme of Reduction and not the present one. Consequently, the statement made in Co. Pet. 206/2004 cannot bind the petitioner company for perpetuity. 47. Moreover, to attract the concept of res judicata amongst other conditions precedent, there has to be final determination/decision of the same issue by a Court of law. Since this essential ingredient and condition precedent is missing, this Court is of the view that the pl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an enabling provision and Court's powers under Sections 100-104 and Section 391 are not in any way affected. The conditions provided in Section 77A are applicable only to buy-back of shares under Section 77A. The conditions applicable to Sections 100-104 and Section 391 cannot be imported into or made applicable to a buy-back under Section 77A. Similarly, the conditions for a buy-back under Section 77A cannot be applied to a scheme under Sections 100-104 and Section 391 The two operate in independent fields. [Emphasis supplied]. 51. The Andhra Pradesh High Court in T.C.I. Industries Ltd., In re [2004] 188 Comp. Case 373/ 50 SCL 450 (AP) has also held as under:- "14. Be it noted that Sections 391 and 77A of the Act are independent of each other. Section 77A of the Act, which was incorporated by reason of the Companies (Amendment) Act, 1999, and which came into effect from January 31, 1999, was not given any overriding effect over the provisions of Sections 391 and 394 of the Act. The said provision is merely an enabling provision, providing for alternative mode by which the company can buy back its shares up to a certain percentage......... ** ** ** 19. In the instant case, a ..... 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