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Ushacomm India Private Ltd Versus State Of West Bengal

2005 (8) TMI 712 - CALCUTTA HIGH COURT

C.A. 215 of 2005 and C.P. 154 of 2005 - Dated:- 8-8-2005 - Indira Banerjee J. JUDGEMENT- Indira Banerjee, ( 1. ) This is an application under section 78 read with sections 100 to 103 of the Companies Act, 1956, hereinafter referred to as the said Act, for confirmation of the proposed reduction of the securities premium account of the petitioner, hereinafter referred to as the company. ( 2. ) Pursuant to a notice dated 8th December, 2004, an extraordinary general metting of the company was held o .....

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adjust the aforesaid loss against its securities premium account. ( 4. ) Pursuant to an order dated 21th March, 2005 of this Court, notice of the petition was advertised in newspapers. No creditor or shareholder of the company has, however, opposed the petition. ( 5. ) The company is, under Article 25C of the Articles of Association of the company, authorised, to reduce by special resolution any securities premium account subject to the provisions of sections 100 to 103 of the said Act. ( 6. ) S .....

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] capital of a company shall, except as provided in this section, apply as if the [securities] premium account were paid-up [securities] capital of the company. (2) The [securities] premium account may, notwithstanding anything in sub- section (1), be applied by the company - (a) in paying up unissued [securities] of the company to be issued to members of the company as fully paid bonus [securities]; (b) in writing off the preliminary expenses of the company; (c) in writing off the expenses of, .....

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so applied that it does not at the commencement of this Act form an identifiable part of the company's reserves within the meaning of Sehedule VI, shall be disregarded in determining the sum to be included in the [securities] premium account. 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 authorized by its articles by special resolution, redu .....

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d up share capital which is in excess of the wants of the company; and may, if and so far as it 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". 101. Application to Court for confirming order, objections by creditors, and settlement of list of objecting creditors. - (1) Where a company has passed a resolution for .....

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entitled to any debt or claim which, if that date were the commencement of the winding up of the company, would be admissible in proof against the company, shall be entitled to object to the reduction; (b) the Court shall settle a list of creditors so entitled to object, and for that purpose shall ascertain, as far as possible without requiring an application from any creditor, the names of those creditors and the nature and amount of their debts or claims, and may publish notices fixing a day .....

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ny admits the full amount of the debt or claim, or, thought not admitting it, is willing to provide for it, then, the full amount of the debt or claim; (ii) if the company does not admit and is not willing to provide for the full amount of the debt or claim, or if the amount is contingent or not ascertained, then, an amount fixed by the Court after the like enquiry and adjudication as if the company were being would up by the Court. (3) Where a proposed reduction of share capital involves either .....

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under section 101 is entitled to object to the reduction that either his consent to the reduction has been obtained or his debt or claim has been discharged, or has determined, or has been secured, may make an order confirming the reduction on such terms and conditions as it thinks fit. (1) Where the Court makes any such order, it may - (a) if or any special reason it thinks proper so to do, make an order directing that the company shall, during such period commencing on, or at any time after, t .....

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;and reduced", those words shall, until the expiration of the period specified in the order, be deemed to be part of the name of the company. 103. Rgistration of the order and minute of reduction. - (1) The Registrar - (a) on production to him of an order of the Court confirming the reduction of the share capital of a company; and (b) on the delivery to him of a certified copy of the order and of a minute approved by the Court showing, with respect to the share capital of the company as alt .....

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Court may direct. (4) The Registrar shall certify under his hand the registration of the order and minute, and his certificate shall be conclusive evidence that all the requirements of this Act with respect to reduction of share capital have been complied with, and that the share capital of the company is such as is stated in the minute. (5) The minute when registered shall be deemed to be substituted for the correseponding part of the memorandum of the company, and shall be valid and alterable .....

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mium account with a view to set off losses, which has been done in the instant case. ( 8. ) Notice of this petition was issued to the Central Government through Regional Director, Department of Company Affairs, Eastern Region, pursuant to an order of this Court. It is, however, not in dispute that there was no requirement in law for notice of this petition either to the Regional Director or to the Registrar of Companies. ( 9. ) Section 78 provides for a separate account known as securities premi .....

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ction 78(1) of the said Act the securities premium account may be applied by the company in paying up unissued securities of the company, to be issued to members of the company as fully paid bonus shares, in writing off the preliminary expenses of the company, in writing off the expenses of or the commission paid or discount allowed on any issue of securities or debentures of the company or in providing for the premium payable on the redemption of any redeemable preference securities or any debe .....

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f any paid up share capital which is in excess of the wants of the company, with or without extinguishing or reducing liability on any of its shares and may also, if and so far as is necessary, alter its memorandum by reducing the amount of its share capital and of its shares. The purposes listed above are only illustrative and not exhaustive. ( 12. ) Where a company has adopted a special resolution for reducing the securities capital, it may by petition to the Court apply for confirming the red .....

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a creditor, entered in the settled list of creditors, does not consent to the reduction, the Court may, if it thinks fit, dispense with the consent of that creditor, on the company securing payment of its debt or claim. Where a proposed reduction of capital either involves diminution of any liability in respect of unpaid share capital or the payment to any shareholder of any paid up share capital, the Court may if, having regard to the special circumstances of the case, it thinks proper so to d .....

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the petition to the Central Government through the Regional Director. Pursuant to the order dated 21st March, 2005, referred to above, the petition had duly been advertised No creditor or shareholder has opposed this petition. ( 15. ) The petition has, however, strongly been opposed on behalf of the Regional Director on the purported ground that the proposed reduction does not conform to accounting standard 5 read with accounting standard 26. ( 16. ) The relevant provisions of the accounting st .....

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5 (5) All items of income and expense which are recognized in a period should be included in the determination of net profit or loss for the period unless an accounting standard requires or permits otherwise." ( 17. ) Learned Counsel appearing on behalf of the Regional Director submitted that Accounting Standard 26 (72) read with Accounting Standard 5(5) provided that amortization charge would be recognized as an expense to be routed through Profit & Loss Account. Amortization of assets .....

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ted in such clauses (a) to (c) of section 100(1) are not exhaustive. This is amply clear from the said section. ( 19. ) It was further argued that the company wanted to adjust the securities premium account against tangible/intangible assets for example goodwill, copyright and trade mark which had no future benefits for the company. In reducing its securities premium against impairment value of intangible assets such as goodwill, trade mark, copyright, patent and the like the company was applyin .....

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ubmitted that the short cut method of amortization of intangible assets against reduction of securities premium account would contradict Schedule VI of the Companies Act, 1956, for if securities premium account were to be treated as capital, the company would exceed the limit of its authorized share capital as on 31st March, 2004. As on 31st March, 2004, the authorized capital was ₹ 38 crores and the paid up capital was ₹ 37 crores, there being a balance of ₹ 1 crore. The premi .....

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( 23. ) Mr . Banerjee appearing on behalf of the petitioner submitted that there being no requirement for any notice to the Central Government the Regional Director had no locus standi to oppose the reduction. It is true that notice on the Regional Director is admittedly not necessary for confirmation of a resolution for reduction of the securities premium account. This Court, however, by its aforesaid order dated 21st March, 2005 directed service of notice on the Central Government through the .....

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ny might be reduced. The said Act only prescribes the procedure for reduction. The confirmation of Court for the proposed reduction of securities premium account is necessary for safeguarding the interests of creditors and the minority shareholders. In an application for confirmation of the proposed reduction all that the Court is required to see is that the proposed reduction is fair, equitable and reasonable, the procedure by which the resolution is carried is legally correct and that no credi .....

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's case that the reduction proposals are not properly explained. The reduction is for the express purpose of balancing the loss of the value of intangible assets, that is, goodwill, trade mark and copyright. Reduction of securities premium account to balance the loss of value of intangible assets would neither projudice any creditor nor any shareholder. ( 27. ) No shareholder or creditor has opposed the reduction. The Regional Director has alleged contravention of the accounting standards. I .....

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. There is no allegation against the company of any undue gain by adoption of the procedure of balancing the loss in the value of intangible assets with the securities premium account. ( 29. ) The rule of accounting as per the Accounting Standards 26(72) and 5(5) is not inflexible. The relevant accounting standards permit deviation if allowed by any other accounting standards Reduction with a view to adjust and/or balance fall in value of intangible assets is impliedly, if not expressly permitte .....

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