TMI Blog2021 (8) TMI 388X X X X Extracts X X X X X X X X Extracts X X X X ..... the beneficiaries and other matters incidental or ancillary thereto. In this regard provisions has contained in section 89 of the Companies Act, 2013 and rules made there under, in so far as it pertains to declaration in respect to beneficial interest. This Tribunal comes to an irresistible conclusion that the consolidation of shares is free from any legal infirmities and falls within the contours of section 61(1)(b) of the Companies Act, 2013 - this Tribunal is of the view that it is just and proper to confirm the consolidation of share capital of the applicant-company. The application for reduction of share capital is approved. - C. P. Nos. 1408 and 1409 of 2019 and M. A. Nos. 1366 and 1367 of 2019. - - - Dated:- 13-7-2021 - R. Sucharitha Judicial Member And B. Anil Kumar Technical Member For the Applicant : P. H. Arvindh Pandian, Senior Advocate, and A. R. Ramanathan For the Objectors : Karthik Seshadri, R. Venkatavardhan, Chandramouli Prabhakar, Kaushik Chatterjee and D. Peruman Saranyan ORDER B. ANIL KUMAR (TECHNICAL MEMBER). - 1. C. P. No. 1409 of 2019 filed under provisions of section 61(1)(b) of the Companies Act, 2013 read w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mber 17, 2019 by this Tribunal vide an order dated December 27, 2019 and hence notice to unsecured creditors have been dispensed with. The petitioner-company has no secured creditors. In this regard the petitioner-company has furnished the certificate from the auditor of the company that the liability in respect of secured creditors is nil. 5. Brief averments of this company petitions ; the applicant-company, namely, M/s. Simpson and Co. Ltd., is an unlisted public limited company, which was originally incorporated on February 3, 1925 under the Companies Act, 1913 and constitutes to be a company under the Companies Act, 1913 (hereinafter referred to as the Act ) vide CIN : U65991TN1925PLC002345, having its registered office at 861/862, Anna Salai, Chennai-600 002. The main objects of the applicant-company are set out in the memorandum of association which, inter alia, the applicant-company is to carry on the business as follows : (i) To take over as a going concern the business Coach Builders and Motor Engineers carried on by Messrs MacDougall and Green under the style or name of Simpson and Co., as from the first day of December, 1924. (ii) To carry on in India or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny also provides for reduction of share capital. 9. Learned counsel for the applicant has submitted that the consolidation of share and consequential reduction of capital in respect of the fractions if any on consideration of shares as follows : (a) The board of directors of the applicant-company has at its meeting held on September 25, 2019 subject to the approval of the shareholders and this Tribunal, approved the proposal to consolidate its share capital into shares of a larger amount than its existing shares by increasing the nominal value of the equity shares from 10 per share to ₹ 2,500 per share so that every 250 equity shares with nominal value of ₹ 10 held by a member are consolidated into 1 (one) equity share with nominal valued of ₹ 2,500 each on the terms and conditions with effect from the record date after approval of this Tribunal as follows : (i) In case of shares held by in physical form, the existing share certificate issued to the holders of the equity shares of company will be treated as cancelled from the record date to be determined for this purpose by the Board after approval of this Tribunal and fresh share certificates be i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 to ₹ 2,500 within 30 days of the record date to be determined for this purpose by the Board after the approval of this Tribunal for the consolidation and confirmation of reduction arising out of such consolidation. The reduction amount on account of the fractional shares is also considered in excess of the wants of the company. 12. Learned counsel for the applicant submitted that neither section 61 nor 66 of the Act or the relevant Rules mandates valuation by registered valuer as per section 247 of the Companies Act. However, the applicant-company in all fairness and also in the interest of the shareholders has obtained the valuation from such valuer to ascertain the value. 13. The rationale and benefits for consolidation and consequential reduction of capital in respect of fractions if any on consolidation of shares are stated hereunder : (a) The share capital of the company as on September 24, 2019 is as under : Sl. No. Description Details No. of persons No. of shares % 1. Amalgamations P. Ltd. (pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uting 99.86 per cent. in value have approved and passed the said special resolutions for consolidation and reduction. However, 47 shareholders holding 10,492 shares constituting 0.14 per cent. have voted against the said resolutions. Votes polled by 4 shareholders holding 117 shares were declared invalid. Hence it is submitted that shareholders constituting 99.86 per cent. being the overwhelming majority has approved the said resolutions. 15. It is further submitted that the consolidation results in changes in voting percentage of shareholders, the applicant-company have approached this Tribunal for approval. The applicant, having stated the rationale for consolidation, supra to submit that due to consolidation there may be a very meagre change in voting percentage of shareholders and such meagre change is 0.15 per cent., which is not even a whole integer number of 1. The applicant-company has taken out a list of shareholders holding equity shares of face value of ₹ 10 each as of September 24, 2019 and has applied the consolidated face value of ₹ 2,500 on the shares of ₹ 10 each held by them and has made out a comparison chart containing (i) present sharehold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n excess of the wants of the company and consequentially would be falling under section 66(1)(b)(ii) of the Companies Act, 2013. 18. Hence, this application is filed under section 66 for confirmation and the reduction of capital if any consequent to consolidation of shares in respect of any fractions arising thereof, would result in the payment at a consideration of ₹ 14,860 per share (rupees fourteen thousand eight hundred and sixty only) of the pre-consolidated equity share of ₹ 10 each to all the eligible fraction holders. 19. In compliance with the procedural requirements the Regional Director has filed a common report dated September 16, 2020 in both the company petitions. In the said report it is submitted that the Regional Director has received certain complaints from certain shareholders of the applicant-company and the same were sent to the applicant-company for their comments. The applicant-company has sent detailed replies to those alleged complaints. The Regional Director in his report has recorded the said three complaints and the reply of the applicant-company and has further offered his comments to the said complaints. 20. The Regional Dire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ame was not attached to the notice of the extraordinary general meeting. Further the Regional Director in his report dated September 16, 2020 filed before this Tribunal has annexed the valuation report and the same is available to the said objecting shareholder as a copy of it can be obtained from the registry as per procedure. Further this Tribunal permitted inspection of the report at the office of the petitioner vide order dated September 18, 2020 to inspect the valuation report and fairness certificate and 2 shareholders, viz., Mr. M. A. A. Annamalai and another inspected the same on September 30, 2020 and had taken extensive notes and reproduced the entire valuation report of the registered valuer as annexure R4 of the objection petition of Mr. M. A. A. Annamalai. 23. With respect to the observations of the objector Mr. M. A. A. Annamalai on the valuation and also with respect to the observations of the practising company secretary (appointed by the objector) in their report dated October 15, 2020 the registered valuer appointed by the petitioner-company has paragraph wise clarification forming part of the written submissions filed by the applicant-company on April 5, 202 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are protected/secured, considering the financial position of the company. In any event, though wide advertisements of notice of petitions were issued in leading newspapers Indian Express and Dinamani, none of the creditors of the applicant have filed any objections for either the consolidation or the consequential reduction before this Tribunal. 26. It was further submitted that, no one will be prejudiced if the proposed reduction of capital if any in respect of fractions if any arising out of consolidation of shares is approved and the approval of the said reduction of capital if any in respect of fractions if any arising out of consolidation of shares will benefit the company and is in the interests of the shareholders of the company and the general public. It would, therefore, be just and equitable that consolidation of shares and reduction of capital if any in respect of fractions if any arising out of consolidation of shares be approved as the same is bound to benefit both the company and its shareholders. 27. The applicant submits that there is no direct reduction of equity share capital by the applicant. However, reduction is arising only on account of consolidati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unfair . . . These observations in our view represent the correct legal position on this aspect. We may also keep in view that in the present case not only expert like C. C. Chokshi and Co., had suggested the ratio but another independent body ICICI Security and Finance Co. Ltd., reached the same conclusion which was conveyed by its letter dated November 10, 1993 to the company approving of the entire scheme along with the suggested ratio. A mere look at the report of the chartered accountants C. C. Chokshi and Co., shows that various factors underlying the scheme of compromise and arrangement were taken into consideration while suggesting the exchange ratio by the said reputed firm of chartered accountants. 30. Further, reliance was also placed upon in the matter of Sandvik Asia Ltd. v. Bharat Kumar Padamsi [2009] 151 Comp Cas 251 (Bom), by the hon'ble Division Bench of the Bombay High Court, wherein it was held (page 262) : In our opinion, the above quoted observation of the House of Lords from its judgment in the case of Poole v. National Bank of China Ltd. [1907] AC 229 (HL), referred to above, squarely apply to the present case. In our opinion, once it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ost of the shareholders, who objected for consolidation of shares, have sold their shares to the director of the appellant-company. Considering and taking into consideration the transfer of shares, more than 95 per cent. of shareholding, appears to be in favour of consolidation of shares. From the records, only two share holders holding 172 and 335 shares respectively remained as share holders of the company and unequivocally their percentage is very minimal and their rights are well protected. 33. This Tribunal examined the main company petitions, viz., C. P. No. 1408 of 2019 and C. P. No. 1409 of 2019 and also M. A. No. 1366 of 2019 in C. P. No. 1408 of 2019 and M. A. No. 1367 of 2019 in C. P. No. 1408 of 2019 and objections filed by the objectors, viz., common objections filed under sections 61 and 66 of the Companies Act, 2013, adoption memo filed on behalf the objectors of 23 and written submissions, additional written submissions and compilation of judgments in respect of C. P. No. 1408 of 2019 and C. P. No. 1409 of 2019 and in respect to M. A. No. 1366 of 2019 in C. P. No. 1408 of 2019 and M. A. No. 1367 of 2019 in C. P. No. 1408 of 2019 filed written submissions respe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mman 1301740000003840 394 2. A. Meyyappan and A. Ulagammai 1301740000011100 84 3. A. Ulagammai and M. A. A. Annamalai 1301740000003830 1 4. M. Nachammai and A. Meyyappan 1301740000117320 1 5. M. A. A. Annamalai (HUF) 1301740000122590 1 6. M. Krishna (minor) 1301740000165400 1 7. A. Meyyappan (HUF) 1301740000179540 1 8. Arun Lakashman (minor) 1301740000180620 1 9. R. Rajan 3665 10. Karthik Seshadri (H.) 1301740000189310 140 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8. Sarju Bhupendra Shah 824 9. Jigisha Sarju Shah 83 Total No. of shares held by objectors 1573 (vii) In respect to above the common objections were filed by 9 minority shareholders holding 1,573 shares in total as seen from the list of objectors. Total minority shareholding of above objectors is 0.02133 per cent. (viii) One of counsel Mr. Koushik Chatterjee appearing for another objector namely, Mr. Mahendra Girdharilal Wadhwani submitted that the valuation is not in accordance with provisions of section 247 of the Companies Act, 2013 and the relevant Companies (Registered Valuer and Valuation) Rules, 2017 as the valuer in his report has stated the valuation analysis has been carried out without a detailed due diligence based on full, fair and complete disclosure by Simpson on all matters that affect the valuation exercise. In this regard learned counsel for the petitioner submits that fore mostly provisions of section 247 would be made applicable, only if the valuation is required un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is negligible, the resolution could not be defeated. It clearly depicts the intention of the minority shareholders that they were against this proposed consolidation. (ii) They have submitted that the decision to consolidate the 250 shares of ₹ 10 into one ₹ 2,500 per share is with the sole object of sim ply expropriating the shares of the smaller shareholders. Such a decision has no rational or basis. It is completely arbitrary and oppressive to the minority shareholders. The decision appears to be with the sole object of getting rid of the smaller shareholders from the register of members by force. This decision per se appears to be motivated. No explanation is provided as to why and for reason the board decided to all of a sudden to con solidate shares into 250 shares as 1 share of face value of ₹ 2,500. No explanation is provided how this will be beneficial to the company or the shareholders. The object of this exercise is evidently to only create fractional shareholding for a large number of minority shareholders. (iii) Secondly, as a direct consequence of such consolidation, the fractional shareholders are require to be paid off. The value arrived ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ufacturing facility in Mount Road, Chennai spread across at least 10 acres on a conservative estimate. This asset alone will give a fair value of ₹ 700 crores for the company. The subsidiary companies also have enormous assets which have not been properly valued. Apart from this, the company has a huge manufacturing facility at Sembiam and many such business assets across subsidiaries which have been valued at book value or historical purchase costs which are irrelevant now. (viii) Apart from the above, highlights of the written submissions filed on behalf of the common objectors are elucidated hereunder : -What is foremost to be kept in mind in this case is : The shares of the petitioner-company is not listed in any stock exchange. The market value of the shares is therefore not immediately ascertainable. -Assets of the company which are used for business have been taken at book value and not fair value. -Valuation report has completely given a go by to the Companies (Registered Valuer and Valuation) Rules, 2017. -Lack of bona fides on the part of the petitioner. -Failure to exercise power for proper purpose. -Action amounts to expropriatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich could be the one projected by the objectors, falling in the range of ₹ 50,000 to ₹ 5,00,000 per equity share of ₹ 10 each in the applicant-company. (f) The next question before us is, whether the applicant-company has arrived at the value per equity share in a fair and transparent manner. We find that valuation of the shares has been done by registered valuers and the appropriateness of the value has been confirmed by a SEBI approved Category-I Merchant Banker. (g) The objectors have alleged that discounted cash flow (DCF) method of valuation which is one of the robust methods of valuation has been discarded completely. It is a well accepted principle that DCF is a direct valuation technique which values a company by projecting its future cash flows and then using the net present value method to value those cash flows. The task of projecting future cash flows of any corporate entity is based on a series of assumptions about how the business will perform in future and then forecasting how this business performance translates into the cash flow generated by the business. Even this is also challengeable and according to the view of this Tribunal, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment made was that in the event of the consolidation of the share capital, any fractional entitlements, which arise from such consolidation should be aggregated and transferred to a trustee and the resultant shares sold to the person determined by the board of the company. Resultantly, the amount owed to the petitioner was held by the trustees appointed by the company after selling the fractional entitlements belonging to the petitioner. This arrangement of appointment of trustee and disposing of the fractional entitlements was made pursuant to article 62A of the articles of association of the company which is reproduced hereunder for ready reference : Whenever as a result of any bonus issue of shares or as a result of consolidation of shares, any members would become entitled to fractions of a share, such fractions shall be consolidated (to the extent possible) and the shares resulting therefrom shall be held by the directors of the company (or by any person nominated by the board in this behalf), in trust for the members so entitled to the said fractions in proportion to their respective entitlements. The directors (or such person or persons, as the case may be) may, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n relation to C. P. No. 1408 of 2019, wherein reduction of share capital is being prayed by the applicant-company, after considering the objections as raised by the shareholders, this Tribunal is also of the considered view that the reduction in the paid-up share capital can be allowed to the extent of the equity shares held by the objecting minority shareholders as are offered to the applicant-company for cancellation and consequential reduction by accepting the price offered by the applicant-company. 40. The special resolution of the company duly passed in accordance with section 66(1) of the Companies Act, 2013 at the extraordinary general meeting held on November 7, 2019 which is same in paragraph 21 of the application is modified by the Tribunal as follows : Resolved further that the consent of shareholders is hereby accorded under the provisions of section 66 and other applicable pro visions if any, of the Companies Act, 2013 read with the National Company Law Tribunal (Procedure for reduction of share capital of Company) Rules, 2016 (including any statutory modification or reenactment thereof for the time being in force) and subject to the confirmation and conditi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng reduction of share capital and security premium reserve shall be duly complied with in relation the SEBI, FEMA and Income-tax laws as may be applicable. 44. In relation to M. A. No. 1367 of 2019 in C. P. No. 1408 of 2019, the applicant-company has sought to permit the applicant, under section 66(3) and (4) of the Act, to file form of minutes in the main application under section 66 of the Act, subsequent to the record date to be fixed by the board of directors of the applicant or within such time period to be fixed by this Tribunal. In view of the reasons stated in the preceding paragraphs that the transactions in the shares of the company are in dematerialised form there is a possibility of trading in shares till the approval for consolidation is granted by this Tribunal and also till the record date is fixed by the board of directors, as per the said resolution passed by the shareholders and approval to be accorded by this Tribunal, only on such record date, the applicant can arrive at exact number of shares that are in fraction and that are to be reduced by making appropriate payment, as per the orders of this Tribunal. Thus, in view of the same M. A. No. 1367 of 2019 st ..... 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