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In Re Vaibhav Global Limited

Reduction of the share premium account - special resolution passed by the requisite majority of its equity shareholders - Held that:- From the facts of the case on record it is quite clear that the adjustment of the consolidated loss of the petitioner company as on 31-3-2015 as against the surplus in its Securities Premium Account also as on 31-3-2015 will not cause any prejudice to any creditor of the company or entail reduction in the value of its shares. The decision to adjust the consolidate .....

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mium account). The adjustment sought by the petitioner company only facilitates reflecting of the correct financial statement of the affairs of the company to its benefit in the market place. - Consequently, we allow this petition and confirm the reduction of the petitioner company’s share capital (Securities Premium Account) against the accumulated losses in the surplus/ (deficit) head of Reserves & Surplus of the petitioner company in terms of the special resolution passed by the requisite .....

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rming the approved reduction of share capital (Securities Premium Account). - S.B. Company Petition No. 4/2016 - Dated:- 18-11-2016 - Alok Sharma, J. For the Petitioner : Sanjay Jhanwar For the Registrar of Companies : Prakul Khurana, K. J. Mehta ORDER The matter comes up on a petition filed under Section 52 of the Companies Act, 2013 (hereinafter the Act of 2013 ) [corresponding to Section 78 of the Companies Act, 1956 (hereinafter the Act of 1956 ), read with 100, 101, 102, 103 and 104 of the .....

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e of the main objects of the petitioner company under its Memorandum of Association which relate to varied activities of dealing in gems and jewellery, the ancillary objects of the company include investments of different kinds. The petitioner company incurred significant losses in its businesses primarily from a diminution of its investments in its subsidiaries in the preceding years as of 31-3-2015 and as per its balance sheet had accumulated losses to an extent of ₹ 264, 27, 18,509 (Rup .....

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thereof authorises it to reduce its share capital in any manner by way of a special resolution subject to any incident/s and consent/s required under the Act of 1956. Intending to write off the accumulated losses amounting to ₹ 264, 27, 18,509 (Rupees Two hundred and sixty four crores twenty seven lacs Eighteen thousand Five Hundred nine only) in the surplus/ (deficit) under the head of Reserves & Surplus of the company against the Securities Premium Account amounting to ₹ 589, .....

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CIR/CFD/DIL/5/2013 dated 4- 2-2013 read with Circular No. CIR/CFD/DIL/8/2013 dated 21-5- 2013 was to be made. The reduction of the Share Premium Account was also made subject to sanction and approval of all laws of Central and State Government or any other public authority including that of Stock Exchanges in terms of clause 24(f) of the Listing Agreement executed between the petitioner company and the respective stock exchanges. The scheme also envisaged the mandatory approval from shareholders .....

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ns was to be obtained. The Board of Directors of the petitioner company approved the scheme for reduction of the Securities Premium Account through a resolution dated 9-12-2015. Notices of the scheme was thereupon sent to members/ equity shareholders along with explanatory statement for the purpose of passing a special resolution through postal ballot and e-voting. The special resolution considered and passed by the equity shareholders was as under:- "Reduction of Capital by setting off the .....

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eenactments thereof for the time being in force, relevant provisions of the Company (Court) Rules, 1959 and subject to the confirmation of High Court of Judicature at Jaipur and other appropriate authorities, if any, and subject to such approvals as may be necessary, the consent of the company be and is hereby accorded to the Board of Directors for setting off an amount of ₹ 2,64,27,18,509 (Rupees Two Hundred Sixty Four Crores Twenty Seven Lacs Eighteen Thousand Five Hundred Nine only) app .....

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the Securities Premium Account as per the scheme of Reduction of Capital (Scheme) with effect from the appointed dated (1 st April, 2015) or such other date as may be approved by the High Court. Resolved further that approval of the Company be and is hereby granted for execution of appropriate documents, papers, deed and other writings on behalf of the Company as may be necessary or incidental thereto in this regard and the Board of Directors be authorised to do such acts, deeds, matters, thing .....

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er to consummate the transactions contemplated therein including represent the company before any regulatory authority and the High Court, in relation to any matter pertaining to the scheme or delegate such authority to another person by a valid power of attorney in successful implementation of the Scheme of Reduction of Capital." Following the passing of the aforesaid special resolution on 16-1-2016 by the requisite majority of shareholders, e-Form MGT- 14 dated 18-1-2016 has been filed by .....

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hare capital (Securities Premium Account) does not entail diminution of any liabilities of the company in respect of any unpaid capital nor entails payment to any shareholder of any paid-up capital. It has been submitted that hence the reduction of capital (Securities Premium Account) does not result in any prejudice to the shareholders, creditors, or any other stakeholders of the petitioner company nor for that matter adversely affect the ordinary operations of the petitioner company or its abi .....

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passed by the Equity Shareholders through postal ballot and e-voting on 16-1-2016 be approved by this court. Other prayers incidental to the approval have also been made. On 12-2-2016 notices were issued on the petition in form No.5 relatable to Rule 25 of the Companies (court) Rules, 1959 and also published in two newspapers, one vernacular and other English. Copy of the petition was also supplied to Mr. R.K.Meena, who then was acting as the Registrar of Companies. Objections to the scheme have .....

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rated that such investments by the petitioner company in subsidiaries was required to comply with the provisions of Section 149(2A) of the Act of 1956 and this the petitioner company did not, as neither e-form 20 and/ or 23 were filed with the competent authority. Contravention of Section 372A of the Act of 1956 has also been alleged. It has been also submitted that the scheme for reduction of the share premium account under consideration be rejected as is purpose is also not covered by any of t .....

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ares from unissued shares of the company, writing off preliminary expenses, writing off the expenses or commission paid or discount allowed on any issue of shares or debentures of the company or providing for the premium payable on the redemption of any redeemable preference shares or of any debenture of the company and for the purchase of its own shares or other securities under Section 68, but for no other purpose. The diminution in value of investments in the subsidiaries of the petitioner co .....

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rejected. Another objections based on non- registration of the petitioner company under the RBI Act, 1934 was also raised in the context of investments into its subsidiaries abroad by the petitioner company. Objections of the ROC have been emphatically contested and negated by Mr. Sanjay Jhanwar, counsel appearing for the petitioner company. It has been submitted that the activity of investments by the petitioner company is inter alia set out in its objects incidental and ancillary to the main o .....

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It was further submitted that the petitioner company being in the business of gems, jewellery and lifestyle accessories acquired/ incorporated various subsidiaries for the purpose of expansion of the said business. The losses accumulated on the said activity resulting from the diminution of the share value of the subsidiaries are now lawfully sought to be set off against surplus in the securities premium account. Section 52 of the act of 2013 permits/ treats as it does the Securities Premium Acc .....

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llery and other related items. Importantly and tellingly at no point of time such registration was ever required by the competent authority under the RBI Act. Yet oddly the said issue has been raised by the ROC quite mechanically, arbitrarily and palpably without jurisdiction which verges on the malafide. Mr. Jhanwar further submitted that the approval from the shareholders of the petitioner company as required under Section 372A of the Act 1956 has indeed been obtained by the petitioner company .....

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ed as if it were the paid-up share capital of the company. He submitted that the Securities Premium Account can be statutorily utilised for purposes set out in Section 52(2) and 52(3) of the Act of 2013 and hence reduced without the court s approval. But for other purposes it can be utilised by resort to the provisions for reduction of share capital as provided in the Act of 1956 i.e. Sections 100-104 of the Act of 1956. In this context, Mr. Jhanwar submitted that Article 10 of the petitioner co .....

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2015 it is evident that it had accumulated loss to an extent of ₹ 2,64,27,18509/- as shown in its surplus/ (deficit) under the head of Reserves & Surplus. At the same time in its Securities Premium Account, the petitioner company as on the aforesaid date had a surplus balance of ₹ 589,72,28,735/-. The Board of Directors of the petitioner company in the circumstance proposed and its equity shareholders at the meeting on 16-1-2016 passed a special resolution approving, with the re .....

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the Act of 1956, inter alia with reference to which the special resolution for reduction of the petitioner company s Securities Premium Account was passed on 16-1-2016 read as under:- It would be in place to record that Section 52 of the Act of 2013 as notified has replaced Section 78 of the Act of 1956. Act of 2013: "Section 52. Application of premiums received on issue of shares.-(1) Where a company issues shares at a premium, whether for cash or otherwise, a sum equal to the aggregate am .....

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o the members of the company as fully paid bonus shares; (b) in writing off the preliminary expenses of the company; (c) in writing off the expenses of, or the commission paid or discount allowed on, any issue of shares or debentures of the company; (d) in providing for the premium payable on the redemption of any redeemable preference shares or of any debentures of the company; or (e) for the purchase of its own shares or other securities under Section 68. (3) The securities premium account may .....

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(c) for the purchase of its own shares or other securities under section 68. Act of 1956: 100. Special resolution for reduction of share capital (1) Subject to confirmation by the Court a company limited by shares or a company limited by guarantee and having a share capital, may, if so authorised by its articles, by special 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 liabilit .....

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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". From a reading of Section 52 of the Act of 2013 it is apparent that this provision equates a Share Premium Account of a company to its paid up share capital. For specified purposes as set out in sub- section (2) and (3), the Share Premium Account can be statutorily utilised without any approval of a court. For other purposes the pr .....

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language. And when so done the reduction of the share premium account has to be compliant with Sections 100-104 of the Act of 1956. The provisions for reduction of share capital presently obtaining are Section 100 to 105 of the Act of 1956. Section 100(1) of the Act of 1956 states that where the Articles of a company provide and where a special resolution of its equity shareholders has been passed a company can reduce its share capital in any way. This general power is followed by illustrative c .....

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whether it is reasonable, just and fair and not prejudicial to the interest of the shareholders, creditors or any other stakeholders of the company. If the aforesaid conditions are satisfied, it is not for the ROC or the company court to sit over the judgment of the requisite majority of shareholders as if in appeal. In the instant case Article 10 of the Articles of Association of the petitioner company allows reduction of share capital in any manner. In the exercise of the aforesaid powers the .....

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Mehta appearing for the ROC that the share premium account albeit deemed to be part of paid up share capital as per Section 52 of the Act of 2013 cannot be utilized for the purpose of adjustment of accumulated loss of the petitioner company. The aforesaid conclusion as to utilisation of the Securities Premium Account for any purpose outside Section 52(2) of the Act of 2013-(old Section 78 of the Act of 1956) after due approval of the requisite majority of equity shareholders finds support from .....

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s India Limited [Manu/PH/3561/2010], which followed the ratio in the case of Hindalco Industries Limited [(2009)151 Company Cases 446] where the Bombay High court held that since all the shareholders had consented for the utilisation of the securities premium account towards the BRR account, it could be so utilised as the purposes set out in then extant Section 78 of the Act of 1956 (new section 52 of the Act of 2013) were in any event merely illustrative. Such was also the view of the Calcutta .....

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ly within the framework of the law. As against the weight of the authorities detailed hereinabove as relied upon by Mr.Jhanwar, counsel for the petitioner company, the sole judgment relied upon by Mr. K.J. Mehta, counsel for the ROC while objecting to the approval of the special resolution passed by the equity shareholders of the petitioner company for reduction of the securities premium account by adjusting it with accumulated losses, submitted that the Securities Premium Account can not in any .....

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of Hyderabad Industries Limited [2004(3) ALD 832] relied upon by the AP High Court in rendering its decision in Global Trust Bank Limited, CP No.57 of 2004 [2004(5) ALD 667] was over ruled by the Division Bench of the said High Court in the case of re:Hyderabad Industries Limited [(2005) 123 Comp. Case 458 AP]. Even otherwise the judgment in the case of Global Trust Bank Limited (supra) relied upon by Mr. K.J.Mehta was based in the context of reduction of the share premium account of a banking c .....

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ares in related subsidiaries incorporated for the same purpose. Further even otherwise the view taken in the case of Global Trust Bank Limited (supra) is an isolated view against a plethora of judgments to the contrary by different high courts across the country holding that the share premium account of a company can be reduced or utilised for adjustment of the company s consolidated losses where the concerned company s articles of association provide for reduction of share capital and a special .....

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etitioner company was required to comply with the provisions of Section 17 read with 149(2) of the Act of 1956 for the purpose of making investment in the shares of its subsidiaries. Further the petitioner company has filed a reply to the ROC s objections to the approval of the special resolution of the Securities Premium Account along with extracts of the minutes of Extraordinary General Meeting (EGM) on 5-9-2005 whereunder requisite approval of its equity shareholders under Section 372A of the .....

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overwhelming majority of equity shareholders is sought from this court is absolutely unwarranted, unjustified and unsustainable. In any event competent statutory authorities remain free to exercise their power if any wrong doing is established. A theoretical possibility however cannot obstruct approval of the scheme for reduction of share capital (Securities Premium Account) as approved by a special resolution within Article 10 of the petitioner Company s Articles of Association by the requisit .....

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th the approval by the Shareholders with the required majority by way of a special resolution. It is in consonance with the Articles of Association of the petitioner company. There is no outflow of any fund or assets of the petitioner company nor any disability resultantly obtains to the company s working in its day to day business, or otherwise, from the reduction of the share capital) (securities premium account). The adjustment sought by the petitioner company only facilitates reflecting of t .....

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