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TMI Blog2019 (8) TMI 1737X X X X Extracts X X X X X X X X Extracts X X X X ..... ction of its share capital as resolved by the Special Resolution dated 04th February, 2019. B. It is further averred in the Petition that the Petitioner Company was incorporated on 19th May 1997 under the name and style of Collabera Solutions Private Limited. On 03rd January 2014, the name of the Company was changed to 'Brillio Technologies Private Limited'. It bears CIN U22190KA1997FTC022250 with the Registrar of Companies, Karnataka. The Registered office of the Petitioner Company is situated at No.58, 1st Main Road, Mini Forest, JP Nagar, 3rd Phase, Bangalore- 560 078. C. The main objects of the Petitioner Company are to inter alia 'carry on business of publishing multi-media web-sites for Companies, Corporations, Institutions, Individuals and entities including text, audio, video, images, graphics, animation and other forms of information representations', etc. The detailed objects of the Company is given in the Memorandum and Articles of Association of the Petitioner Company. D. The latest authorized share capital of Petitioner Company as on 31st March 2018 is as follows: Authorised capital 21,72,50,000 equity shares of Re. l/- each participat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sixty One Lakhs Thirty Three Thousand and Thirty Four only) being 89,52,637 (Eighty Nine Lakhs Fifty Two Thousand Six Hundred and Thirty Seven) equity shares of Re. 1/- each with premium of Rs. 5.27/- (Rupees Five and Twenty Seven Paisa only) per share paid out of the Securities Premium Account. The Securities Premium Account of Rs. 15,24,81,955/- (Rupees Fifteen Crores Twenty Four Lakhs Eighty One Thousand Nine Hundred Fifty Five only) shall accordingly be reduced to Rs. 10,53,01,558/- (Rupees Ten Crores Fifty Three Lakhs One Thousand Five Hundred and Fifty Eight Only). I. At the Extraordinary General Meeting held on 04th February 2019, the shareholders resolved subject to confirmation by the Tribunal, to reduce the paid up share capital to from the existing Rs. 21,72,50,000/- (Rupees Twenty One Crores Seventy Two Lakhs Fifty Thousand only) consisting of 21,72,50,000 (Twenty One Crores Seventy Two Lakhs Fifty Thousand only) equity shares of Re. l/- each by reducing 89,52,637 (Eighty Nine Lakhs Fifty Two Thousand Six Hundred and Thirty Seven) equity shares of Re. 1/- each from non-promoter equity shareholders for a consideration of Rs. 5,61,33,034/- (Rupees Five Crores Sixty One ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l 24,10,47,363/- L. It is stated that there are NIL Secured creditors and 186 Unsecured Creditors of the Petitioner Company as on 08.02.2019 and that a Certificate by the Auditor confirms the veracity of the list of Secured and Unsecured Creditors. It is further stated that there are no arrears in repayment of any deposits or interest payable thereon as on the date of this Petition and that a Declaration to the same effect has been filed by the Directors of the Company. It is stated that the Certificate by the auditor has verified that there are no arrears in repayment of any deposits or interest payable thereon. M. The Auditors of the Petitioner Company have verified the Accounting Treatment and have given a Certificate dated 21st February 2019 stating that the Accounting Treatment for reduction is in conformity with Accounting Standard under Section 133 of the Companies Act, 2013. Vide another certificate by the same Auditor also dated 21st February 2019, it is stated that the Company does not have any Secured Creditors. A list of the Unsecured Creditors (three in number) as on 08th February 2019 given by the auditors. It is further averred that the Petitioner Company is n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... king the following observations: a) That the articles No. 45 and 47 of the AOA allows the petitioner Company for the Scheme of Reduction. b) That the Applicant Company has passed special resolution dated 04.02.2019 for reduction of share capital u/s 66(1) read with section 52 of the Companies Act, 2013 to reduce its equity share capital from Rs. 21,72,50,000/- (Rupees Twenty One Crores Seventy Two Lakhs Fifty Thousand only) consisting of Rs. 21,72,50,000/- (Twenty One Crores Seventy Two Lakhs Fifty Thousand) of Re. 1/- each to Rs. 20,82,97,363/ (Rupees Twenty Crores Eighty Two Lakhs Ninety Seven Thousand Three Hundred and Sixty Three only) consisting of 20,82,97,363 equity shares of Re. l/- each by reducing 89,52,637 equity shares of Re. 1/- each from the non-promoter equity shareholders for a consideration of Rs. 5,61,33,034/- being 89,52,637 equity shares of Re. 1/- each with premium of Rs. 5.27/- per share paid out of the Securities Premium Account. The Securities Premium Account of Rs. 15,24,81,955/- shall accordingly be reduced to Rs. 10,53,01,558/-. c) As per Balance Sheet as at 31-03-2017, 31-03-2018, and 31.01.2019 the Applicant Company has shown a Profit of Rs. 4,11, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ities Premium account" and the provisions of this Act relating to reduction of share capital of a company shall, except as provided in this section, apply as if securities premium account were the paid up share capital of the company. (2) Notwithstanding anything contained in sub-section (1), the securities premium account may be applied by the company- (a) towards the issue of unissued shares of the company to the members of the company as fully paid bonus shares; (b) in writing off the preliminary expenses of the company; (c) in writing off the expenses of, or the commission paid or discount allowed on, any issue of shares or debentures of the company; (d) in providing for the premium payable on the redemption of any redeemable preference shares or of any debentures of the company; or (e) for the purchase of its own shares or other securities under section 68. The Securities Premium account can be utilised only for the above conditions. Whereas the company intends to pay off the Non-promoter equity shareholders i.e., 89,52,637 with premium of Rs. 5.27/- from and out of the SPA account which is not as per the provisions of Section 52 of the Companies Act. 2013. k) As p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Petitioner may be directed to clarify the same. s) As per the Scheme of reduction, the amount to be paid out will be kept in separate Escrows Account for three years and the amount remained unpaid will be transferred to IEPF. Whereas as per Section 125 such amount cannot be transferred to IEPF. The Petitioner may be directed to clarify the same. t) The Scheme of reduction is not across the border and is only for a selective group of members (Non-Promoter group) and intends to pay off at a premium of Rs. 5.27/- from and out of the Securities Premium account which is not tenable as per the provisions of Section 52 of the Companies Act, 2013 and the company ought to have gone for buy back of shares instead of the present petition. 6. The authorised signatory of the Petitioner Company has filed a reply Affidavit dated 27th June 2019 along with the list of shareholders and valuation report, giving a response to the ROC report inter alia as follows: i. In response to observation of the ROC that the Company is a subsidiary of foreign company viz., M/s GCI Global Ventures holding 94.44% shares of the company- GCI Global Ventures holds 95.88% shares of the Petitioner Company as ment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to observation of the ROC that as per Section 125 amount to be paid out cannot be kept in IEPF- the Petitioner Company has a total of 171 non-promoter shareholders. Out of the total 171 non-promoter shareholders, majority of them are untraceable. The petition for reduction of capital states that the amount to be paid to the untraceable non-promoter shareholders will be kept in an escrow account for a period of 3 years. As a good corporate governance, the proposed scheme states that any amount remaining unclaimed in the escrow account for more than 3 years pursuant to capital reduction would be transferred to the Investor Education and Protection Fund. Section 125 of the Companies Act, 2013 relating to Investor Education and Protection Fund provides that the amount in the unpaid dividend account of the Companies is to be transferred to the Investor Education and Protection Fund under Section 124(5). Since the amount being distributed pursuant to capital reduction belongs to such non-promoter shareholders, as a matter of good corporate practice, the unclaimed amount would be transferred to the Investor Education and Protection Fund. vii. In response to observation of the ROC that i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its current holding company and also return the excess capital to the non-promoter equity shareholders. ii. In response to the observation of RD regarding Related Party Transactions during the years 2017-18: The related party transactions were undertaken at arm's length and is in compliance with the provisions of Section 188 of the Companies Act, 2013. Further. point (xiii) of Annexure I of the Independent Auditor's Report of the Petitioner Company also states that transactions entered into with related parties are in compliance with section 188 of the Companies Act, 2013. iii. In response to the observation of RD regarding FEMA/RBI compliance: The Petitioner Company undertakes to comply with the applicable FEMA/RBI Regulations in case of payment to Non-resident individuals, Mutual Funds. FII, Corporate bodies and Individuals. iv. In response to the observation of RD regarding compliance of Section 203 read with Rule 8A of the Companies (Appointment and remuneration of managerial personnel) Rules 2014: The petitioner Company has a whole time Company Secretary from 26/12/2012. E-Form 32 for appointment of the whole time Company Secretary has been filed with the Registr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 52(2) of the Companies Act, 2013 then such utilisation is not regarded as reduction of share capital as per Section 66 of the Companies Act. 2013. If the Securities Premium account is utilised for any other purpose, then provisions of Section 66 must be followed. The Petitioner Company is utilising Securities Premium account for paying back the premium amount to its shareholders as part of reduction of share capital, which has not been prescribed under sub-section 2 of the Section 52 of the Companies Act, 2013 and accordingly. the Petitioner Company must follow the provisions of section 66 of the Companies Act, 2013. The utilisation of Securities Premium account for purposes other than those specified under sub section 2 of section 52 of the Act was allowed in the following decisions: a) M/s Palred Technologies Limited (formerly known as Four Soft Limited) by High Court of Telangana and Andhra Pradesh on June 09, 2015. b) M/s Rhodia Specialty Chemicals India Limited by High Court of Bombay on April 22, 2016. c) M/s SeQuent Penems Private Limited Company Petition No. 287 of 2014 before the High Court of Karnataka on February 02, 2015. d) M/s Wipro Enterprises Limited ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 31,11,022. In accordance with section 66(2) of the Companies Act, 2013 read with Rule 3 of NCLT (Procedure for Reduction of Share Capital of Company) Rules, 2016 and also the Bench Order dated 14/03/2019, individual notices were issued to creditors and newspaper advertisements in 'The Hindu' and 'Udayavani' were undertaken as well. The Petitioner Company is not in receipt of any representation or objections from any of the creditors during the period of three months from the circulation of individual notices. xi. In response to the observation of RD regarding lack of valuation report: The Petitioner Company has obtained a valuation report from M/s BDO India LLP dated 12/11/2018 and a copy of the same is furnished. xii. In response to the observation of RD regarding open charge pending against the Company: The open charge as per the master data of the petitioner company is in relation to a charge created on the asset of the account of the forex limit that the Petitioner Company has taken from the bank. Since the Petitioner company is primarily into export driven business, receipts are in USD. In this regard, to safeguard from the currency fluctuations, the Petiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... envisaged in Section 66 of the Companies Act, 2013. In case of buy-back under section 68, the offer lapses after thirty days. If the offer of buy back goes unnoticed by any shareholder intended for such exit option, the opportunity for such exit is lost. Further, section 68 restricts the Company from issue/allotment of similar kind of securities for a period of six months from end of buy back, which can be detrimental to the business of the Company as it may not be able to attract investments through the capital route. Reduction of capital is a transparent process as approval of shareholders is received. creditors are notified and the viexvs of the Regional Director are elicited, and the entire process is under the supervision of the NCLT. xv. The case of Miheer H. Mafatlal Vs. Mafatlal Industries Ltd., [1996] 23 CLA 1 SC: [1996] 10 SCL 70 (SC), has been cited to state that the jurisdiction of the Company court is peripheral and supervisory and not appellate in nature. It is also stated that the scrutiny of the scheme of reduction is best left to the parties in the realm of commercial democracy. 8. The Regional Director, Ministry of Corporate Affairs, South-East Region, H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cides to selectively reduce its capital, the articles of association of the Company ought to allow the company to reduce its capital from time to time, and in any manner for the time being authorised by law. Upon request from Non-promoter Shareholders to dispose off their shareholding in the Petitioner Company, the Board of Directors decided to provide liquidity to the non- promoter shareholders by a selective reduction in the equity share capital and also to make the Petitioner Company wholly owned subsidiary of its current holding company and also return the excess capital to them. The proposed capital reduction was approved by a special resolution by all the shareholders on 04/02/2019 and the independent accountant has confirmed that the accounting treatment is as per the accounting standards. Articles 45 and 47 of the AOA permits reduction of the share capital. Selective reduction has been has been allowed by this bench in matters of Practo Technologies Pvt Ltd. ABB Global Industries and Services Pvt Ltd, Yokogawa India Ltd, and by the Mumbai Bench in decision of Intelnet Global Services Pvt Ltd. ii. In response 10 the observation of RD regarding furnishing the copy of reques ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ections have not been received from Creditors, neither has any consent affidavits on their behalf been produced. With regard to reduction of share capital, it is relevant to refer to the following judgements. 12. In Re Panruti lndustrial Co. Private Ltd, AIR 1960 Mad 537, it was held that the Court's power to sanction any reduction is to be determined by whether such reduction is fair and equitable. It held, "10. The jurisdiction to confirm a reduction of capital is discretionary, and allows the Court to impose terms and conditions, as for instance a condition that the articles shall be so altered that the shares reduced in amount shall also be reduced in voting power: Re Pictuary [(1892) 3 CH 125]. The Court may, therefore, either confirm the reduction with or without [Re James Colmar (1897) 1 Ch 524], conditions or decline to confirm it. It is not necessarily coffined to seeing that the creditors are properly protected, but may take into account whether the reduction would work injustice between the different classes of shareholders, and although it may not fall within its function to impose conditions which amount to an alteration of the scheme, yet if the such an alteration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sure that no injustice is meted out to any class of shareholders and even to creditors. Section 52 provides utilisation of security premium Account for premium payable on redemption of redeemable preference shares or of any debentures of the company or for the purchase of its own shares or other securities under section 68 of the Companies Act, 2013. The cases cited by the Petitioner cannot come to the aid of the Petitioner as the facts and circumstances of those cases are entirely different from the present scenario. 17. The present petition moreover, also involves selective reduction in equity share capital to a particular group involving non-promoter shareholders and bring the petitioner company as wholly owned subsidiary of its current holding company and also return excess of capital to them. This is an arrangement between the company and shareholders or a class of them and hence it is also not covered under Section 66. 18. The above facts and circumstances as stated supra clearly shows that the relief as sought in the instant Company Petition under Section 66 of the Companies Act, 2013 is not covered under this Section. However, the instant case may be covered under Section ..... X X X X Extracts X X X X X X X X Extracts X X X X
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