TMI Blog2021 (3) TMI 231X X X X Extracts X X X X X X X X Extracts X X X X ..... e obligation to pay the same. When in such a situation, the Company takes its stand in a changed scenario, the Company also should follow the same principles by adopting a method of re- valuation of shares. The Company cannot take duel stand to its advantage. The public shareholders/non-promotors shareholders have not been adequately compensated for the reason that the valuation done in the year 2017 had been taken into consideration even after three years it was passed. We are of the view that there is a drastic change in the growth of the Company. It is clear that if the Company makes profits, the same need to be shared with the public shareholders/non- promotor shareholders which are exiting from the Company by surrendering their shares. As stated supra, we are not going into the veracity of the fairness of the valuation reports and not finding fault with the valuation done by the Valuers. We also hold that the reduction of the share capital is in accordance with law and we do not interfere with the same. We are concerned that the public shareholders/non-Promotor shareholders, economic interest need to be protected by paying latest fair value - The shareholders in a Compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut forth his submissions on behalf of other Appellants in a virtual mode method. He submitted that the Appellant Nos. 1 to 5 herein are the shareholders of the Respondent-Company. The 1st Appellant holds 2150 shares, Appellant No. 2 holds 150 shares, 3rd Appellant holds 1200 shares, the 4th Appellant holds 926 shares and 5th Appellant holds 500 shares. He submitted that the Respondent-Company converted into a Public Company and its shares were listed on Bombay Stock Exchange (in short BSE ). However, subsequently its shares were de-listed since June, 2007. He submitted that the Respondent-Company, after delisting its shares have public shareholders compromising 11,81,036 shares, which comes to 3.59% of total paid up by share capital. These shareholders are minority/non-promotor shareholders. 3. While so, there is change in promotor group of the Respondent-Company. The Respondent-Company intend to reduce its equity-share capital under Section 66 of the Companies Act, 2013 thereby extinguished all the non-promotor shareholders. The Respondent-Company issued notice dated 01.11.2017 calling for Extraordinary General Meeting (in short EOGM ) to be held on 08.12.2017. The said EOGM ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Respondent-Company is making good profits and therefore the reduction of share capital especially extinguishing the public shares of the Company is unjustified. In view of the aforesaid reasoning, he sought various reliefs as prayed in page-21 of the Appeal Paper Book, namely, allow the Respondent-Company to bear DDT and direct the Respondent-Company to re-value the shares of the Company considering the growth and progress in the past three years i.e., 2018, 2019 and 2020. He submitted that the valuation was done in the year 2017 and the learned NCLT passed the order allowing the Application of the Company on 27.10.2020 thereby from the date of valuation of shares three years have elapsed and profits made during these three years have not been taken into consideration. In these three years, the Company has substantially gained profits and the Appellants are entitled to share profits of the Company for the reason that the public shareholders have substantially contributed to the growth of the Company. 4. Shri Janak Dwarkadas, learned Senior Counsel appearing for the Respondent-Company replied in detail to the submissions and averments made by the Appellants herein. He submitted t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the amount payable to the public shares at the Board meeting held on 01.10.2017. The Board of Directors decided that the higher of the two valuers, arrived at by the Independent Valuers i.e., ₹ 2444.70 by PWC Auditors considered as a fair value of the equity shares, Further, the Board considered and approved the value of ₹ 2445/- per share and passed the requisite Resolution on 01.11.2017 approving reduction of the share capital. 5. Learned Senior Counsel for the Respondent submitted that Company decided to hold EOGM and issued a Notice calling for the EGM to be held on 08.12.2017 to pass special Resolution for reduction of the share capital. The EOGM was held on 08.12.2017 and in favour of the Resolution 99.87% votes were cast and against the resolution 0.13% votes were cast; thereby the Resolution was passed in the EOGM held on 08.12.2017. Thereafter, the Company filed petition before the NCLT, Mumbai seeking its confirmation to the capital reduction. 6. Learned Senior Counsel for the Respondent further submitted, in response to the Appellants objection that the Company passed the Resolution for reduction of share capital in selective method and the Compani ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e further submitted that the Courts and Tribunals in India, in a number of cases, have permitted the selective reduction of share capital treating the same as an internal matter of Company. 8. Learned Senior Counsel for the Respondent Company relied upon a judgment of Delhi High Court in the case of Reckitt Benckiser (India) Ltd., (2005) 122 DLT 612, the Hon ble High Court held as under: (i) The question of reduction of capital is a matter of domestic concern and the shareholders, passing the special resolution, can also decide the manner in which the reduction should be carried into effect. (ii) It is for the company to decide whether each member shall have his shares proportionately reduced, or whether some members shall retain their shares unreduced, the shares of others being extinguished totally receiving a just equivalent; (iii) Selective reduction is permissible within the frame work of law; and (iv) The court should be satisfied that the transaction is not unfair or inequitable, and that all the creditors entitled to object to the reduction have either consented or have been paid or secured. [Emphasis supplied] 9. Learned Senior Counsel for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Senior Counsel for the Respondent-Company, perused the records, documents and citations relied upon by them. 16. Paragraphs 28 29 of the impugned order dated 27.10.2020 passed by NCLT, Mumbai reads as under: 28. In the light of above, the bench is only concerned with the first issue of objection of the 3.59% of the minority shareholders as a whole, is with regard to their legitimate expectation to be adequately compensated with regard to value of shares. The rights of minority shareholders qua the Valuation of shares as per the two Valuers and the Fairness report has to be examined. 29. The second issue regarding method of valuation and assumptions carried out by the Valuers is examined below. The method of valuation by both valuers is as extracted below for ready reference: 17. The first Issue as framed in paragaraph-28 is that the minority shareholders adequately compensated to their legitimate expectation with regard to valuation of shares. In paragraph-29, the Second Issue is with regard to method of valuation and assumptions carried out by the Valuers was examined. Learned NCLT, Mumbai has taken into consideration the report filed by M/s Price W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 66. Reduction of share capital (1) Subject to confirmation by the Tribunal on an application by the company, a company limited by shares or limited by guarantee and having a share capital may, by a special resolution, reduce the share capital in any manner and in particular, may- (a) extinguish or reduce the liability on any of its shares in respect of the share capital not paid-up; or (b) either with or without extinguishing or reducing liability on any of its shares,- (i) cancel any paid-up share capital which is lost or is unrepresented by available assets; or (ii) pay off any paid-up share capital which is in excess of the wants of the company, alter its memorandum by reducing the amount of its share capital and of its shares accordingly: Provided that no such reduction shall be made if the company is in arrears in the repayment of any deposits accepted by it, either before or after the commencement of this Act, or the interest payable thereon. . 22. In view of the above, we are of the view that the aforesaid Section permits the Company to reduce the share capital in any manner. We are also of the view that there is no discrim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot going into the merits of the valuation. However, public shareholders expect best price for their shares. The share is a movable property and the holders of the share has every right to expect best price and fair value of its shares. 26. In this regard, Hon ble Supreme Court in the matter of Bacha F. Guzdar Vs. Commissioner of Income Tax, Bombay (AIR 1955 SC 74), at paragaraph-8 held as under: The true position of a shareholder is that on buying shares an investor becomes entitled to participate in the profits of the company in which he holds the shares if and when the company declares, subject to the Articles of Association, that then profits or any portion thereof should be distributed by way of dividends among the shareholders. He has undoubtedly a further right to participate in the assets of the company which would be left over after winding up but not in the assets as a whole as Lord Anderson puts it. 27. As per the judgment of the Hon ble Supreme Court, the shareholder has every right and entitle to participate for the profits of the Company. 28. Learned NCLT, Mumbai in paragraph-36 has reproduced the judgement of the Hon ble Bombay High Court in Wartsila I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2020, thereby the Company will not be in any obligation to pay DDT. In the Written Submission filed by the Respondent, vide diary No. 23805 dated 03.12.2020 at paragraph-4, page-2 it is stated that provision of Income Tax, 1961 as amended by the Finance Act, 2020, the obligation of the Respondent-Company to pay DDT has been abolished by an amendment in the provision of the Income Tax, Act, 1961. Unless the said amendment is challenged and declared as illegal, the amendment made in the Income Tax will exist and the same is enforceable and in operation by the said amendment. We agree with the submissions of the learned Senior Counsel for the Respondent. The Appellants have not questioned/challenged the amendment to the DDT. Therefore, we do not interfere with the said provision of law as amended unless the same is abolished and declared as void by the Competent Courts. 31. The stand of the Respondent that the statement made by the Respondent-Company in 2017 in its explanatory statement regarding payment of DDT was to be in compliance of its legal obligation and applicable law as in 2017 and cannot by any means considered promise/estoppel made by the Respondent-Company to its share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2,90,475 Other Income 21,641 16,869 13,066 9,197 10,589 Total Income 3,13,154 2,88,672 3,00,422 3,01,933 3,01,064 Profit before tax 73,897 44,003 45,087 46,519 46,086 Provision for tax 23,545 15,724 16,254 14,854 7,043 Profit after tax (excluding other comprehensive income) 50,352 28,279 28,833 31,665 40,043 Dividend (including distribution tax) 1,986 1,982 1,982 1,982 1,982 Dividend percentage 100 100 100 100 100 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction to the resolution. 37. We are of the view that the public shareholders/non-promotors shareholders have not been adequately compensated for the reason that the valuation done in the year 2017 had been taken into consideration even after three years it was passed. We are of the view that there is a drastic change in the growth of the Company. We are also of the view that the public shareholders kept away from participation in the profits, which is against the principle laid down by the Hon ble Apex Court in Bacha F. Guzdar case. 38. As held by the Hon ble Supreme Court in Bacha F. Guzdar Vs. Commissioner of Income Tax, Bombay (AIR 1955 SC 74), supra, on buying the shares an Investor becomes entitled to participate in the profits of the Company in which he holds the share if and when the Company declares, subject to the Articles of Association that the profits or any portion thereof should be distributed by way of dividends among the shareholders. 39. The principle laid down by the Hon ble Supreme Court is that the shareholders are entitled to the profit of the Company, the only way to do justice to the public shareholders/non-promotor shareholder is to revalue the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... majority shareholders i.e. promotor group having majority, passed the resolution in favour of reduction of share capital. CONCLUSION: 41. In view of the foregoing reasons, we pass the following orders: i) The Company is hereby directed to revalue the shares by a registered/independent valuers to value the shares of the Company and the Company shall pay the fair price arrived at by the valuer based on the latest audited accounts of the Company; ii) The Company is directed to place all the audited accounts of the Company as required by the valuer to value the shares; iii) Further the Company is directed to pay higher value of share arrived at by the valuer. iv) We accordingly modify the order dated 27th October, 2020 passed by National Company Law Tribunal, Mumbai in above terms. 42. We clarify that we do not interfere with the reduction of share capital as allowed by the learned NCLT Mumbai. However, we only direct to revalue the shares by taking into consideration the latest balance sheet and statement of accounts. Further, we do not interfere with respect to the Dividend Distribution Tax (DDT) since there is an amendment to the Income Tax Act, 196 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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