TMI Blog2017 (10) TMI 1348X X X X Extracts X X X X X X X X Extracts X X X X ..... ear that the proposal for the reduction of the share capital is not contrary to any regulations or the provisions of the Companies Act, 2013. It is not for the court to suspect the correctness or bonafides of the valuation report as long as there is no inherent defect or other vitiating factor in the valuation and it is well settled principle that court must not sit in judgment over the commercial wisdom of Directors. In view of this, the objections raised by the Objectors are devoid of merits, and the same are rejected. Therefore, we allow the Application for reduction of the share capital of the Company. We confirm the reduction of share capital of Applicant Company - CP/21/66(1)/CB/2017 - - - Dated:- 4-10-2017 - CH. MOHD SHARIED TARIQ, MEMBER (JUDICIAL) AND S. VIJAYARAGHAVAN, MEMBER (TECHNICAL) For The Applicant (s) Mr. R. Murari, Ms. Hema, Srinivasan And Ms. Sushmita Udayasankar, Sr. Counsel For The Objector (s) : Mr. Balu Sridhar, PCS ORDER Per : CH. MOHD SHARIEF TARIQ, MEMBER (JUDICIAL) 1. We have heard both the Counsels appearing for the Petitioner and the Objectors, and perused the record placed on the case file. 2. Under consideration is an Ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y) was pending as on 31.03.2016 and the amount outstanding to the State Bank of India towards the Working Capital facility, as on 31.01.2017. 8. It has also been mentioned in the Application that the company has not accepted any deposits from any person and hence, there is no question of default in repayment of deposits or interest thereon. The list of creditors duly certified by the managing Director of the company is enclosed, which is placed at page 92 of the typed set filed with the Application. The certificate obtained from M/s. R. Subramanian Company, Chartered Accountants, the auditors of the company, stated that the accounting treatment proposed for the reduction of the share capital is in conformity with the applicable accounting standards; the certificate is placed at page 95 of the typed set filed with the Application. 9. It has been stated that during year 1988, the Applicant Company made an Initial Public Offering (IPO) of its shares and it listed its shares in the then Madras Stock Exchange (MSE). At the time of listing, the company has opted to list only in MSE, as then the concept of compulsory listing on Regional Stock Exchange (RSE) was necessary and at th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Accountants, after carrying out the valuation, submitted their report and the value that they presented as per Discounted Free Cash Flow (DCF) method of valuation is ₹ 107/- (Rupees One Hundred and Seven Only) per share. Based on this, a decision was taken that the same shall be the value to be paid to every share held by non-promoter shareholder of the company, as a part of the reduction in the share capital of the company. The company dispatched notices on 27.10.2016 together with an explanatory statement to the shareholders with the Resolution for Reduction of Capital by cancelling 6,41,962/- (Six Lakhs Forty One Thousand Nine Hundred and Sixty Two Only) ( cancelled shares ) out of 10,76,809/- (Ten Lakh Seventy Six Thousand Eight Hundred and Nine Only ) and paying of sum of Rs.l07(Rupees One Hundred and Seven Only) for each cancelled share of face value ₹ 10/- each. Since the amount to be paid off to the shareholders, is more than the face value of the shares of the company, the remaining amount is to be paid from the securities premium account and also from the general reserves of the company. Thus, the total amount to be paid for the reduction of capital is a sum o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and promoters have not been counted separately which would have shown the defeat of the resolution passed on the proposed reduction of share capital. It has also been added that the scrutinizer s report is completely biased and opaque. It has further been stated that the valuation of shares has not been done in consultation with the designated stock exchange and by an independent valuer from the panel of expert valuers of the designated stock exchange as prescribed in the SEBI circular dated 10.10.2016 and it was prayed that the notice should also be sent to SEBI. The Applicant company has rebutted the objections raised by the Objectors, which we will deal in subsequent paragraphs. This Bench also issued notice to SEBI through the Registry. 14. Thereafter, a rejoinder was filed by the Objectors reiterating the earlier objections, wherein a relief has been sought to direct the Applicant Company to list the Company s shares in a nationwide stock exchange or offer exit opportunity to the public shareholders as mandated by SEBI circular dated 10.10.2016. The Objectors have also filed the written arguments specifically stating that the appointment of M/s. P. Pattabiramen and Company, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is agreed otherwise, makes his own inquiries, applies his own expertise and decides on the basis of his own expert opinion. 18. In an earlier ruling given by the Hon ble Supreme Court in Hindustan Lever Employees Union v. Hindustan Lever Ltd. AIR 1995 SC 470 , court rejected the argument that if some other method was adopted, probably the determination of valuation would have been more in favour of the shareholders. Merely because some other method of valuation could be resorted to which would possibly be more favourable, that alone cannot militate against granting approval to the Scheme propounded by the company. The court s obligation is to be satisfied that valuation was in accordance with law and it was carried out by an independent body. 19. The Objectors have not challenged the legality of the report of the Valuer on the basis of fraud, collusion or partiality. It is stated while determining the value, the present available cash and bank balance, non-current investment and liabilities are not considered in enterprise value calculation and impact of this on the share shall be an incremental amount of ₹ 207 per equity share. In the light of the above stated c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... NSE and SEBI. The soft copy of the above notice was sent by the Applicant Company through e-mail to NSE and reply has been sent by NSE on 18.08.2017 stating that they have no comments to offer. In other words, the reply of the NSE refers that they do not have any objection to the methodology of exit opportunity given by the 1st Respondent Company. 22. In the light of the above, it is quite clear that the proposal for the reduction of the share capital is not contrary to any regulations or the provisions of the Companies Act, 2013. It is not for the court to suspect the correctness or bona fides of the valuation report as long as there is no inherent defect or other vitiating factor in the valuation and it is well settled principle that court must not sit in judgment over the commercial wisdom of Directors. In view of this, the objections raised by the Objectors are devoid of merits, and the same are rejected. Therefore, we allow the Application for reduction of the share capital of the Company and order as follows:- ORDER 23. We confirm the reduction of share capital of Applicant Company by approving the minutes of Special Resolution dated 12.12.2016 passed by the sha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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