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2016 (4) TMI 481 - DELHI HIGH COURT

2016 (4) TMI 481 - DELHI HIGH COURT - TMI - Reduction of share capital - Held that:- There is no legal impediment in the petitioner company seeking a reduction in its share capital, which is to be utilized towards distribution of assets which are in excess of its needs. The RD, in its reply/ report, clearly admits as much by making a specific reference to the fact that reduction in capital may be effected by paying up paid-up capital, which is in excess of one’s needs, and that, this can be achi .....

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re capital is being sought to distribute brought forward profits of the petitioner company, to escape payment of tax on distribution of profits, is an observation which is not backed by any relevant provision of the Income Tax Act, 1961. As a matter of fact, because such an observation had been made by the RD in his reply/ affidavit, the matter was re-listed in court for directions on 29.03.2016. Consequent thereto, an affidavit dated 31.03.2016 has been filed on behalf of the petitioner company .....

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- Dated:- 4-4-2016 - Rajiv Shakdher, J. For the Petitioner : Mr Awnish Kumar, Adv. Ms Aparna Mudiam, Asstt. ROC for the RD. ORDER Rajiv Shakdher, J 1. This is a petition filed under Section 100 to 104 of the Companies Act, 1956 (in short the 1956 Act) read with Rules 46 and 47 of the Companies (Courts) Rules, 1959 (in short the 1959 Rules), to obtain sanction of this court qua its prayer for reduction of share capital obtaining in the books of Orient Home Accents Private Limited (hereafter refe .....

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ort the RD), which was accepted by Mr Atma Sah, Asstt.ROC. Direction was also issued for serving a copy of the petition on the Registrar of Companies (in short the ROC), within one week of that date. In addition thereto, the petitioner company was directed to carry out publication in the Indian Express (English) and Veer Arjun (Hindi). 2.2 Since then, the petitioner company has filed an affidavit dated 19.11.2014 demonstrating publication in the two newspapers referred to above. The RD has also .....

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ermore, as on that date, it has issued, subscribed and paid-up capital, of ₹ 49,00,000/- comprising of 4,90,000 equity shares of face value of ₹ 10 each. 3.2 Evidently, the Board of Directors (BOD) of the petitioner company at their meeting held on 25.11.2013 approved the reduction of the share capital in accordance with the provisions of Section 78 read with Section 100 to 104 of the 1956 Act. Resolution to that effect was passed at this meeting. 3.3. Furthermore, the petitioner com .....

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s passed approving the reduction in the share capital of the petitioner company. 3.5 The said resolution of the petitioner company, for the sake of convenience, is extracted hereinbelow: .....RESOLVED THAT pursuant to the provisions of Section 78 read with Sections 100 to 104 and other applicable provisions, if any, of the Companies Act, 1956, read with Article 6A of the Articles of Association of the Company and pursuant to the relevant provisions of the Companies (Court) Rules, 1959 and subjec .....

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as on October 31, 20l3 of ₹ 96,14,726/- (Rupees Ninety Six Lac Fourteen Thousand Seven Hundred and Twenty Six only).... 3.6 A perusal of the aforesaid resolution would show that the shareholders at the EOGM, approved reduction of the issued and paid-up share capital of the petitioner company, as obtaining on 31.10.2013, from ₹ 49,00,000/- to ₹ 11,28,520/-. The reason set forth in the resolution, is that, the reduction in the share capital would be utilized for distribution of t .....

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certified that the petitioner company did not owe any secured or unsecured debts. 4. The petitioner company, thus, as indicated right at the outset, moved this court on 26.08.2014, when notice was issued in the petition. Since then, the RD, as indicated above, has filed its reply. In the reply, the RD, based on the ROC s report, has after due examination, brought out the following facts: (i) That Article 6A, as referred to in the petition, based on which the petitioner company averred that it ha .....

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t the 2013 Act). (ii) That reduction in the share capital from ₹ 49,00,000/- to ₹ 11,28,520/- is to be effected by writing off long term loan and advances and cash as shown on the assets side of the balance sheet of the petitioner company. In this context, it is further averred by the RD, that on 31.10.2013, the petitioner company has long term loan and advances equivalent to ₹ 85,01,800/-, including loan given to one company by the name of Tulip Hi-Fashion Creators Pvt. Ltd., .....

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ny to escape payment of tax on distribution of profits. 5. The petitioner company, in its rejoinder, has correctly pointed out that the power qua reduction of share capital is contained in Article 4 of its Articles of Association; a fact which is noted in this court s very first order dated 26.08.2014. In other words, a reference to Article 6A was a mistake, which had crept in inadvertently and was noticed by the court on the said date of hearing. 5.1 The petitioner company goes on to assert tha .....

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brought forward profits are after tax profits. 6. Mr Awnish Kumar, learned counsel for the petitioner company, and Ms Aparna Mudiam, Asstt. ROC, made their submissions, broadly, in line with their respective pleadings in the matter. 7. A perusal of the record and the submissions made before me would clearly demonstrate that the petitioner company seeks reduction of its share capital from ₹ 49,00,000/- to ₹ 11,28,520/-. The reason put forth by the petitioner company is to utilize the .....

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ir approval at the EOGM held on 19.12.2013. There are, in all, three shareholders; all of whom have given their consents to the reduction in share capital. Furthermore, as certified by M/s S.C. Verma & Co., CA, there are no secured and unsecured debts owed by the petitioner company. 9. Having regard to the same, in my view, there is no legal impediment in the petitioner company seeking a reduction in its share capital, which is to be utilized towards distribution of assets which are in exces .....

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n the assets side of the balance sheet. 9.1 Even as per the RD, the petitioner company had no accumulated loss on the date of the preparation of the provisional balance sheet. 9.2 As to the observation of the RD, that the reduction in share capital is being sought to distribute brought forward profits of the petitioner company, to escape payment of tax on distribution of profits, is an observation which is not backed by any relevant provision of the Income Tax Act, 1961. As a matter of fact, bec .....

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