TMI Blog2020 (9) TMI 55X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the shares carried out by the valuer appointed by the petitioner-company. The objector has questioned the valuation report with reference to the fair market value and the offer of ₹ 3,400 to the non-promoter share value being offered by the petitioner-company. Such objections cannot be considered as the petitioner-company is not a listed company and as such the shares are not marketable and that the shareholders themselves registered the grievance that they are not able to find buyers and hence the petitioner-company would justify such shareholders who are unable to find buyers by consolidation of share. In the light of the corporate structure of the petitioner-company wherein the promoters hold 90 per cent. of the equity shares, some shareholders are not able to find buyers for their shares and hence, consolidation will be the best exit option available to the shareholders more particularly to the small shareholders. Each consolidated share will rank pari passu in all respect of each other, with no impact on effective dividend yield of the company shares and therefore, it can be said that the shareholders will have the more liquidity in their hands and reasonable r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioner-company in the past several years received several applications from individual shareholders with the request to purchase their shareholding in the petitioner-company. In view of this request, various methods of exit to the public shareholders were discussed during the board meeting on June 5, 2017 pursuant to which the petitioner-company proposed to reorganize the share capital by way of consolidation of equity shares into larger denomination. The resolution is as follows : Resolved that pursuant to the provisions of section 61(1)(b) and all other applicable provisions, if any, of the Companies Act, 2013 read with Rules made thereunder (including any statutory modification, amendment or re-enactment thereof for the time being in force), read with article 9 of the articles of association of the company and subject to the approval of shareholders, the National Company Law Tribunal and such other approval(s), consent(s), permission(s) and sanction(s) as may be necessary or required from any authority and subject to such conditions as may be agreed to by the board of directors of the company (hereinafter referred as the board which term shall be deemed to include any commi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ructions for release from the trustee, release the funds to the fractional shareholders as provided herein. 9. The petitioner submits that proposed consolidation of shares would not cost reduction of share capital and would not cost in any way detrimental to the creditors of the petitioner. 10. The share capital of the petitioner upon consolidation of shares is set out hereinabove : Particulars No. of equity shares of ₹ 5,000 each Amount (Rs.) Authorized share capital : 1,000 50,00,000 Issued, subscribed and paid-up capital : 886 44,30,000 11. The below extracted is article 9 of the articles of association of the petitioner which permits the petitioner to consolidate its share capital to a higher face value : Subject to the provisions of section 94 of the Act, the company in general meeting may, from time-to-time, by ordinary resolution sub-divide or consolidate its shares, or any of them. Subject as aforesaid, the company in general meeting may also cancel shares which have not been taken or agr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed at ₹ 3,400 per fully paid-up equity share of ₹ 10 each. The copy of the valuation report is annexed as exhibit D in its petition by the petitioner. (e) The petitioner had passed the special resolutions at the extraordinary general meeting held on July 18, 2017 (exhibit E of the petition) for reclassification and for consolidation of shares. The members of the petitioner also passed another resolution for resultant increase in the issued, subscribed and paid-up share capital by ₹ 520 in the annual general meeting held on September 28, 2017 (exhibit E of the petition). (f) The present market value of the underlying assets of the company (at the time of passing of resolution) was not considered for the purpose of valuation of shares. If the value of the underlying assets was considered, the value per share would have been much higher even than the exit price offered by the petitioner-company. (g) The non-promoter shareholding was being paid ₹ 3,400 per equity share as share price as per consolidation scheme which is much less than the fair market value. The non-promoter shareholders would have been liable to pay capital gains tax on the difference o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity shareholders. The equity interest, justice and good conscience have been totally ignored by the company and its directors in order to protect and enrich the promoter shareholders in the said resolution. Reply to the objection by the petitioner-company : 14. The petitioner-company made the following objections in reply to the above raised objections by the shareholders : (a) The petitioner-company has given the detailed distribution of shareholding in the petition which is annexed as exhibit A to the petition. He further submits that for ready reference given below is the shareholding pattern : Shareholding No. of shareholders No. of shares % of shareholding Promoters shareholding 8 3,95,076 89.19 Total public shareholding 9,458 47,872 10.81 Total 9,466 4,42,948 100 Public shareholding (others than promoters) No. of shareholders No. of sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stream of income and however, the petitioner-company is in the business of providing financial services and its assets primarily comprise of investment and financial assets and there is an element of uncertainty attached to the future stream of income as in case of investment, the gains/loss/dividend cannot be ascertained with certainty over future, they further say that under the market value approach, the valuer had arrived at a fair value considering the volume weighted average price of the share over a suitable period of time and however, the equity shares of the petitioner-company are not listed on any stock exchange and therefore the market value approach is not relevant. They further say that the same has been provided in the valuation report. (e) The valuation report was made available for inspection by the members of the company at the registered office of the company on all working days between 11:00 a.m. to 1:00 p.m. till the date of the extraordinary general meeting. The objector had not requested the valuation report and the objector has also not attended the annual general meeting and extraordinary general meeting and has not voted against the scheme and as such t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... small. (c) Due to small shareholding of many shareholders, the dividend amount payable to such shareholders are also small and negligible owing to which, many of them don't encash the dividend amounts. (d) The proposed share consolidation does not involve any payment to be made by any shareholders. (e) Each consolidated share will rank pari passu in all respects with each other. There will be no impact on the effective dividend yield of the company's shares. (f) The shareholders will have good liquidity in their hands and rea sonable return on their investments. 19. The extraordinary general meeting further captured the aspect that the consolidation of the equity shares of the company would require approval of the shareholders and further confirms that this consolidation of the equity shares of the company are in the best interest of the members and recommended the special resolutions to be passed. With the above observations, a special resolution was passed by the members of the petitioner-company at the extraordinary general meeting which was held on July 18, 2017. 20. The objector having received the notice failed to participate in the extraordinary gen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ms of section 61(1)(b) of the Companies Act, 2013. 24. The objections raised by two shareholders who have failed to attend the extraordinary general meeting despite receipt of notice have not been able to make tenable grounds to oppose such consolidation, which is proposed and resolved by the members in the extraordinary general meeting dated July 18, 2017 in the best interest of the shareholders and in view of the valuation of the shares carried out by the valuer appointed by the petitioner-company. The objector has questioned the valuation report with reference to the fair market value and the offer of ₹ 3,400 to the non-promoter share value being offered by the petitioner-company. Such objections cannot be considered as the petitioner-company is not a listed company and as such the shares are not marketable and that the shareholders themselves registered the grievance that they are not able to find buyers and hence the petitioner-company would justify such shareholders who are unable to find buyers by consolidation of share. Conclusion : 25. In the light of the corporate structure of the petitioner-company wherein the promoters hold 90 per cent. of the equity shar ..... X X X X Extracts X X X X X X X X Extracts X X X X
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