TMI Blog2021 (6) TMI 687X X X X Extracts X X X X X X X X Extracts X X X X ..... r rate on the date of payment), respectively - The capital reduction shall not adversely affect the company's ability to honour its commitments or meet its liabilities or settle the dues of all the creditors in the ordinary course of business and the company would continue to have a positive net worth after giving effect to the capital reduction. Therefore, the present reduction of the share capital shall not prejudice any creditors of the company. The reduction of share capital is contemplated as under the articles of association of the company - the settled law as laid down in several judicial decisions and the vital aspect that the outgoing shareholder, Mr. Gopi Suri Babu, has no objection to the proposed scheme of reduction, but has consented to receive the said consideration upon negotiations and mutual agreement between the parties, this Bench approves the reduction of capital without valuation of actual shares, by carving out an exception considering the extraordinary circumstances of this case. Application disposed off. - C. P. No. 3950 of 2019. - - - Dated:- 3-12-2020 - Smt. Suchitra kanuparthi (Judicial Member) And Chandra Bhan Singh (Technical Member) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thousand) equity shares of INR 100 (one hundred) each to INR 76,000 (Indian rupees seventy six thousand) divided into 760 (seven hundred and sixty) equity shares of INR 100 each fully paid-up, by cancelling and extinguishing paid-up equity share capital of INR 24,000 (Indian rupees twenty four thousand) divided into 240 (two hundred and forty) equity shares of INR 100 (one hundred) each fully paid-up, being in excess of wants/requirements of the company and by returning to Gopi Suri Babu, a shareholder of the company, an aggregate amount of INR 54,75,000 (Indian rupees fifty four lakhs and seventy five thou sand) and an approximate amount of INR 22,813 (Indian rupees twenty two thousand eight hundred and thirteen) per equity share (subject to adjustment based on the actual dollar rate on the date of payment). Resolved further that post obtaining all approvals for the proposed reduction of the share capital of the company subject to the confirmation of the National Company Law Tribunal, the existing share certificates held by Gopi Suri Babu in relation to the existing equity shares of the face value of INR 100 (Indian rupees one hundred) each held in physical form shall be deem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nformation be filed with the Registrar of Companies in accordance with the Companies Act, 2013. Resolved further that the board be and is hereby authorised, in their absolute discretion, to make the reduction and cancellation of the share capital (as set out above) on such other terms and conditions as they may consider appropriate and to accept such other conditions and modifications as may be prescribed by the National Company Law Tribunal, and other appropriate bodies/authorities while according their confirmation to the proposed reduction and cancellation of share capital. And resolved that a certified true copy of the aforesaid resolution be issued as and when necessary under the signature of any of the directors of the company. 4. The board of the petitioner, after considering the business model, profitability, positive cash flow, its capital requirements, reserves and surplus and other business factors, is of the opinion that the petitioner has surplus capital and free reserves which are in excess of the needs of the petitioner for its business operations. The board was also of the view that the business operations of the petitioner would continue to generate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assets (1) Non-current assets (a) Property, plant and equipment 135.26 (b) Deferred tax assets (net) 158.62 (c) Other non-current financial assets 0.05 (d) Current tax assets (net) 0.23 Total non-current assets 294.16 (2) Current assets (a) Inventories 1,955.15 (b) Financial assets (i) Trade receivables 3,200.07 (ii) Cash and cash equivalents 440.49 (iii) Other bank balances 939.56 (iv) Other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 26 lakhs. 11. Further, prior to and after capital reduction, the net worth of the company shall remain positive and therefore, the reduction of capital would not in any way have any adverse effect on the company's ability to honour its commitments or meet its obligations in the ordinary course of business. 12. Post reduction of share capital of the company, Gopi Suri Babu being 24 per cent. shareholder of the company, would receive his entire investment in share capital of the company given that such amounts are in excess of the needs of the company. 13. All three shareholders of the petitioner have provided their unanimous consent to the proposed scheme by way of a special resolution of the shareholders and consent in writing, and it is not prejudicial to the interest of any shareholder of the petitioner. 14. The outgoing shareholder, Mr. Gopi Suri Babu has executed an affidavit of consent on October 6, 2020 stating that he has consented to the share capital reduction and the consideration amount offered under the proposed scheme. 15. The petitioner-company is authorized by way of the articles of association to undertake reduction of its share capital. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l not prejudice the outgoing share-holder, other shareholders, creditors or any other liability of the petitioner. There are no objections received from either of the shareholders, creditors or any statutory authority against the proposed scheme. Finding : 23. The legal question arises for consideration is whether the proposed reduction of capital by way of extinguishing the shareholding of 24 per cent. shareholder is just and equitable and not prejudicial to the interest of the outgoing shareholder ? 24. The petitioner-company proposed that an aggregate share capital of INR 54,75,000 (Indian rupees fifty four lakhs and seventy five thousand) which is in excess of the wants of the petitioner (consideration amount) be paid and returned from the free reserves of the petitioner-company to Gopi Suri Babu, a shareholder. Under the proposed scheme of capital reduction, as consideration in lieu of cancellation and extinguishment of 240 equity shares of INR 100 each held by the outgoing shareholder. A premium of INR 22,700 on each share is offered and hence a total amount of ₹ 54,48,000 is being offered to him. 25. The outgoing shareholder has consented to the sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he business of trading in components and equipment for waste-water treatment, liquid processing and handling equipment. The petitioner-company is a closely held company with 76 per cent. share-holding being held by affiliated Pentair companies. 29. The petitioner-company has surplus share capital and free reserves which are in excess of needs of the petitioner-company for its business operations. 30. Senior counsel for the petitioner relied on the judgment this hon'ble Tribunal in the case of Better World Technology P. Ltd., In re (C. P. No. 278 of 2019) [2021] 225 Comp Cas 428 (NCLT) wherein it was has held that, where all the shareholders have approved the reduction including shareholders whose shares are being cancelled as per the law as laid down, the petition for reduction of share capital should be allowed. In the aforementioned case, this hon'ble held (page 433) : The resolution for capital reduction has been passed unanimously at the meeting of the board of directors. All the shareholders of the petitioner-company have participated in the special resolution approving the capital reduction and voted in favour of the resolution at the shareholders' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... concern, i. e., the decision of the majority which prevails. (ii) If majority by special resolution decide as to how this reduction should be carried into effect. (iii) While reducing the share capital company can decide to extinguish some of its shares without dealing in the same manner as with all other shares of the same class. Consequently, it is purely a domestic matter and is to be decided as to whether each member shall have his share proportionately reduced, or whether some members shall retain their shares unreduced, the shares of others being extinguished totally, receiving a just equivalent. (iv) The company limited by shares is permitted to reduce its share capital in any manner, meaning thereby a selective reduction is permissible within the framework of law. (v) When the matter comes to court, before confirming the pro posed reduction the court has to be satisfied that (i) that there is no unfair or inequitable transaction and (ii) all the creditors entitled to object to the reduction have either consented or been paid or secured. 34. The Chennai Bench of this hon'ble Tribunal in the case of Green House Promoters P. Ltd., In re (C. A. No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ardha Power Co. Ltd. [2013] 176 Comp Cas 156 (AP) wherein it was held that in the case of a reduction of capital, a court cannot interfere with the discretion and commercial wisdom of the stakeholders and the board of directors. If the reduction is one which is properly passed by the shareholders who are treated equitably and have had the facts explained to them, and provided the creditors are safeguarded, the court will habitually sanction reductions. It was of the following opinion that : Either in the case of a reduction of capital or a scheme of arrangement or both, the court cannot interfere with the discretion and commercial wisdom of the stakeholders and the board of directors. If the reduction is one which is properly passed by the shareholders who are treated equitably, have had the facts explained, and provided the creditors are safeguarded, the court will habitually sanction reductions and exercise its discretion in favour of them unless the act is a pointless and hollow act. Provided those requirements are satisfied, the company may reduce its capital in any way that it thinks fit. The court does not exercise any appellate power over the decision of the company or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly approve and might reasonably consider to be fair and equitable. The principles upon which the court will require to be satisfied are, that all share holders are treated equitably in any reduction. That usually means that they are treated equally but may mean that they are treated equally save as to some who have consented to their being treated unequally. The next principle to be applied is that the shareholders, at the general meeting, had the proposals properly explained to them so that they could exercise an informed judgment upon them; that the creditors of the company are safeguarded so that money cannot be applied in any way which would be detrimental to creditors, and the reduction is for a discernible purpose. 39. It is relevant to refer to section 66 of the Companies Act, 2013 which contemplates the reduction of capital. Section 66 is extracted below : 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the articles of association of the company. 44. The petitioner-company has published notice (in form No. RSC-4) in English Paper Navhind Times and Konkani Newspaper Bhaagnagar Bhuin on November 21, 2019. Notice to creditors (in form No. RSC-3) was issued on October 26, 2019. The petitioner has filed additional affidavit of service. There is no opposition to the proposed reduction from any creditor and the shareholders have unanimously consented to the proposed reduction. 45. In the light of the above facts, the settled law as laid down in several judicial decisions aforesaid referred to and the vital aspect that the outgoing shareholder, Mr. Gopi Suri Babu, has no objection to the proposed scheme of reduction, but has consented to receive the said consideration upon negotiations and mutual agreement between the parties, this Bench approves the reduction of capital without valuation of actual shares, by carving out an exception considering the extraordinary circumstances of this case. Such selective reduction is permissible under law in view of ratio laid down in several decisions of courts and hence the objection of Regional Director/Registrar of Companies, Goa is untenab ..... X X X X Extracts X X X X X X X X Extracts X X X X
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