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2016 (3) TMI 1028 - DELHI HIGH COURT

2016 (3) TMI 1028 - DELHI HIGH COURT - TMI - Reduction of share capital - Held that:- There appears to be no impediment to grant sanction to the resolution, passed by the shareholders, at their EGM held on 06.12.2014, for reduction of its share capital by a sum of ₹ 24,34,700, comprising of 243470 shares of ₹ 10 each, held by public shareholders.

As indicated above, necessary power for reduction in share capital is contained in Article 48 of the Articles of Association of .....

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play in the present petition. - CO. PET. 137/2015 - Dated:- 29-3-2016 - Rajiv Shakdher, J. For the Petitioner : Mr. K. Datta and Ms. Nanay Agarwal, Advocates for the petitioner Ms AparnaMudiam, Asstt. ROC for the Regional Director ORDER Rajiv Shakdher, J 1. This is a petition filed under Section 100 to 105 of the Companies Act, 1956 (in short the 1956 Act) read with Rules 11(1)(a)(3) and 46 of the Companies (Court) Rules, 1959 (in short the Rules) alongwith Section 66 of the Companies Act, 2013 .....

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prises of 2,43,470 equity shares of a face value of ₹ 10 each. 3.1 Therefore the position which obtains as on 30.09.2014 and, which I am told, continues to hold, is as follows :- S. No. Name of Shareholders No. of Shares %age 1. Promoters & Propounders 42,06,530 94.53 2. Public Shareholders 2,43,470 05.47 Total 44,50,000 100.00 3.2 Thus, as prayed by the petitioner company, the cancellation of shares held by public shareholders if allowed, its paid-up share capital will get reduced to .....

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72, whereupon, a certificate of incorporation dated 15.05.1972, was issued to it. 4.3 The petitioner company was thus, as per its Memorandum and Articles of Association, engaged in the business of manufacture and marketing of steel ingots and billets as also other related products. The first Initial Public Offer (IPO) was carried out by the petitioner company in 1973, which resulted in its shares being listed on the Bombay, Delhi and U.P. Stock Exchange. This position continued to obtain till 19 .....

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t of apparent irregular supply of electricity in the State of U.P. This apart, the technology used, it appears, had also become obsolete. 4.6 As a result of the losses, which the petitioner company had suffered, it registered its reference with the Board of Industrial and Financial Reconstruction (BIFR) under the provision of the Sick Industrial Companies (Special Provisions) Act, 1985 (in short, the SICA). Evidently, a recommendation was made by the appellate authority constituted under the SIC .....

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hat the petitioner company be wound up. Consequent thereto, the Official Liquidator (OL) attached to this court was ordered to take over the assets of the petitioner company. 4.9 After a long gap, that is, in 2005, one Mr. N.K. Somani, the ex-Director and shareholder, approached this court, with a proposal, to revive the fortunes of the petitioner company. 5. Mr. N.K. Somani, apparently, proposed infusion of funds and also repayment of debts owed to the secured and unsecured creditors which incl .....

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winding up order passed by this court was sought. This application was followed by another application, being: CA 43/2013, wherein, the petitioner company once again sought revocation of order dated 06.08.1991. The said application was filed after the OL had filed his report with regard to the affairs of the petitioner company. 6. Evidently, this court ordered convening of meeting of the shareholders, whereupon, after being satisfied as regards the affairs of the petitioner company, by an order .....

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who fall in the category of promoters, promoters group and persons acting in concert (in short, described as : persons in control ). 7.1 Notice in this behalf was sent to the shareholders on 05.11.2014. The said notice was accompanied by an explanatory statement. As decided, by the BOD of the petitioner company, the EGM was convened on 06.12.2014, at which, a decision was taken to cancel the paid-up share capital to the extent of 5.47% of the total paid up share capital, represented by sharehol .....

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he issued and paid up share capital of the petitioner company. 8. It needs to be noticed that the position as on 31.03.2014 was different, to that, which obtained on 30.09.2014, to which, I have made a reference right at the beginning of my discussion. As on 31.03.2014, the public shareholding i.e. equity stake held by persons other than persons in control was 56.32% which in real terms was equivalent to 2,43,470 equity shares. The remaining shares i.e. 43.68% were held by persons in control whi .....

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er company, in consonance with the provisions of Section 81(1A) of the 1956 Act. 8.2 The object of the preferential issue appeared to be to pay off the unsecured creditors. In consonance with the aforementioned decision taken at the EGM held on 25.03.2014, 40 Lakh equity shares were allotted on 26.05.2014, on preferential basis. As a result thereof, the equity stake of the persons in control in the petitioner company increased from 43.68% to 94.53%. Consequently, the equity stake of public share .....

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und of which the present peition came to be filed. 11. Notice in this petition was issued on 07.04.2015. On that date, notice was accepted on behalf of the Regional Director (RD). Since then a reply has been filed by the RD, based on inputs received from the Registrar of Companies (ROC). 12. The main objection of the RD is that the petition for reduction of capital is directed to benefit one class of shareholders i.e. persons in control. It is stated that the petitioner company is attempting to .....

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reply filed by the RD broadly, reiterated the facts set out in the petition to which, I have made a reference hereinabove. The petitioner company, in its defence, has stated that the company was put-in liquidation, in 1991, and while, the process of liquidation was on, in 2005, its ex-director and shareholder, Mr. N.K. Somani, approached the court with a proposition to infuse funds and settle dues of secured and unsecured creditors. 14 As indicated above, vide order dated 05.08.2005, this court .....

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ith the provisions of Section 391(1) and 393 of the 1956 Act. In the application, a prayer was made to recall the winding up order passed by this court. This court, though, directed convening of meeting of shareholders. The Chairperson appointed qua the meeting submitted a report, which revealed, that the shareholders of the petitioner company had consented to the revocation of the winding up order as also, its revival. 14.1 It is thus, averred, that this court vide order dated 19.07.2013 recall .....

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in, are extracted hereinbelow :- ..4. Mr. Bijendra Kumar Agarwal son of Late Shri Raghunath Parshad Agarwal, Proprietor of Tirubala Exports of Kanpur who is exporting Leather Footwear and whose group has turnover of ₹ 30 Crores per year has agreed to invest upto ₹ 5 Crores from his group for said purpose, subject to approval of scheme and terms by this Hon ble Court. Mr. B.K Agarwal and Mr. N.K. Somani want to bring a joint venture between Mr. N.K. Somani, ex-Director and Mr. Brijend .....

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rt. (i). The applicant will settle or pay to all creditors, secured creditors and labourers as specified in Statement of Affairs by applicant within 6 months from making of such order by Hon ble Court; (ii). The Sale of Plant and Machinery, land, etc. of company will be deferred for 6 months after order is made relating to compliance of the serial no.(i). (iii). The applicant will collect from debtors as specified in Statement of Affairs thereafter. (iv). On such settling or payment to all credi .....

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ent of all dues / settlement official Liquidator would be withdrawn from the management of the company. (vii). The amount to be brought in by Shri B.K. Agarwal and his group and Shri N.K. Somani shall be converted in the form of share capital which shall be increased suitably and the Board of Directors shall be suitably modified, so that Shri B.K. Agarwal and Shri N.K. Somani may have effective control over the affairs and management of the company, to safeguard his investments in the company&he .....

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of shares on preferential basis in consonance with the provisions of Section 81(1A) of the 1956 Act read with the Unlisted Public Companies (Preferential Allotment) Rules, 2003 as amended in 2011, was made. 15.1 It is averred that prior to the allotment of shares on preferential basis, which was made on 26.05.2014, unsecured loan to the extent of ₹ 3,96,98,630.09 was infused by Mr. B.K. Agarwal, who was recognized as a strategic investor by this court. The petitioner company further avers, .....

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ight Estate Private Limited 20,00,000 2,00,00,000 Total 40,00,000 4,00,00,000 16. It is further avered that the petitioner company does not have any fixed assets except land which is also a leasehold property. It is submitted that the petitioner company is a going concern, and that, it is entitled in law, being a de-listed company, to seek reduction of capital, and thereby, provide exit opportunities to public shareholders. The petitioner company further avers that reduction in capital sought by .....

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nts on behalf of the petitioner company were put forth by Mr. K. Datta, while on behalf of the Regional Director, submissions were advanced by Ms. Aparna Mudiam. 18. Mr. Datta argued for approval of reduction of share capital in line with the averments made in the pleadings filed. It is his submission that the reduction of share capital would accord an exit route to the public shareholders, who today have an equity stake of only 5.47% in the total paid-up share capital of the petitioner company. .....

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ut a change in the equity pattern. It was the learned counsel s submission that the allotment of shares on preferential basis was carried out in accordance with the relevant provisions of the law as obtaining at the relevant point in time. In support of his submissions, Mr. Datta relied upon the following judgments :- (i). Judgment dated 07.06.2010, passed in Company Scheme Petition No.101/2010, titled : Organon India Ltd. (ii). Sandvik Asia Limited Vs. Bharat Kumar Padamsi & Ors., 2009 SC O .....

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ever, did not refute the fact that Article 48 of the Articles of Association did permit the petitioner company to seek reduction of its share capital. 20. Having heard the submissions advanced on behalf of the parties before me and perused the record, in my view, what clearly emerges is as follows :- (i). The petitioner company went through significant business crisis between 1986-1987. Its problems were compounded by the fact that a winding up petition was filed against it, being: CP 114/1989, .....

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ner company. Permission in that behalf was given by this court vide order dated 05.08.2005. (iv). Consequent thereto, this court granted permission for filing a scheme of arrangement. This scheme of arrangement was subject matter of CA 1351/2012 and in subsequent application, being: CA 43/2013, a request was made for recall of winding up order dated 06.08.1991, passed by this court qua the petitioner company. It appears that this court did direct convening of the shareholders meeting to ascertai .....

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as a strategic investor had in the intervening years supported the petitioner company by infusing unsecured loans to the extent of ₹ 3,96,98,630.09; a figure set forth by the petitioner company, though, the RD avers that the figure should read as: ₹ 3.88 Crores. 22. Be that as it may, the fact of the matter is that, because funds by way of unsecured loans were infused in the petitioner company by Mr. B.K. Agarwal during its difficult days, allotment of shares on preferential basis w .....

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ver, the public shareholders continued to hold 2,43,470 shares. 22.2 These shares as alluded to above are held by 6,000 shareholders. 23. The petitioner company proposes to cancel the said shares and repay a sum of ₹ 24,34,700/- to these 6,000 shareholders. The RD does not refute the fact that after shares were allotted on preferential basis, the value of each share was pegged at ₹ 1.4252 per share. The RD, also does not refute that prior to allotment of shares on preferential basis, .....

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e promoter group held 95.54% of the share capital, while the balance, 4.46% was held by the non-promoters. A special resolution was passed by a majority of 99.95% of those who were present and had voted in favour of the resolution moved for reduction in share capital. The court, like in this case, was confronted with the issue as to whether the majority shareholders could seek cancellation, and thereby, return share capital of the minority, which represented the non-promoter group. 24.2 The Divi .....

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rder dated 13.07.2009. 25. The very same issue has been noticed by a single Judge of the Bombay High Court in Organon (India) Ltd., which followed the view of its Division Bench in Sandvik Asia. 26. Having regard to the aforesaid position in law, in my view, there appears to be no impediment to grant sanction to the resolution, passed by the shareholders, at their EGM held on 06.12.2014, for reduction of its share capital by a sum of ₹ 24,34,700, comprising of 243470 shares of ₹ 10 e .....

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