TMI Blog2022 (7) TMI 1282X X X X Extracts X X X X X X X X Extracts X X X X ..... d be carried into effect - This Tribunal in RHI INDIA PRIVATE LIMITED, RHI CLASIL PRIVATE LIMITED, ORIENT REFRACTORIES LIMITED VERSUS UNION OF INDIA [ 2021 (1) TMI 725 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL , NEW DELHI] , has held that it is not for the Courts to reject Schemes on grounds not required to be delved into for the determination of the Scheme In the instant case, admittedly, the reduction of this Share Capital was approved unanimously by the Shareholders by way of a Special Resolution. It is seen from the record that the Company has complied with all the statutory requirements as per the directions of the Tribunal and has also filed necessary Affidavits to that effect. It is also pertinent to mention that none of the Creditors objected to the reduction of the Capital. Section 66(1)(b) of the Act enables a Company to reduce its Share Capital in any manner provided it is approved by the majority of Shareholders through a Special Resolution. The Appellant Company operates a 15MW power generating station and supplies electricity to GUVNL under a long-term PPA and is a going concern . Having regard to the fact that the Appellant had deposed in a Clarificatory ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nance Cost) is Rs. 1019.37 lakhs. 20. Based on the accounting treatment, on capital reduction, the negative net worth/ Shareholders Funds of the Company as per Books may go to Rs. 7014.59 lakhs (Share Capital of Rs. 1 lakh + Other Equity of Rs. (-) 7015.59 lakhs), the Book value per share to Rs. (-) 70110.81 and the Companies Borrowings and Inter Corporate Loans to the tune of Rs. 11354.43 lakhs. 21. Section 66(1) of the Companies Act, 2013 with respect to capital reduction is reproduced 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 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 am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are. iv. The Company does not have sufficient liquidity for making of payment towards reduction of share capital. v. 3 Letters are received by office of Regional Director from certain persons claiming to be creditor of the Company. vi. The notice of reduction of capital should have been sent to the Income Tax Authority; The NCLT has also recorded the response of the Appellant Company with respect to these observations. 3. Submissions of the Learned Sr. Counsel Mr. Arun Kathpalia appearing on behalf of the Appellant: It is submitted that the reduction of the Share Capital was approved by the Shareholders of the Appellant Company unanimously by way of a Special Resolution with the objective of reducing the overall weighted average cost of capital and improving the earning per share. The said approval was issued by the Shareholders in their Commercial Wisdom, keeping in view the financial health of the Appellant Company and the expected Cash Flows from the sale of electricity to GUVNL under its long term Power Purchase Agreement ( PPA ). It is submitted that the NCLT has failed to look into the complete records of the Financial and Valuation Report ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e negative in its books of account only due to depreciation being charged on the assets of the capital-intensive industry i.e., the Solar Power Plant. The Appellant Company has investments of Rs.810.62 Lakhs/- and Rs.1181.29 Lakhs/- with Banks and liquid mutual funds, respectively. The Appellant Company also has cash and balances of Rs.56.45 Lakhs/- and Rs.3569.90 Lakhs respectively. The Appellant Company operates a 15MV Power Generating Station at Gujarat and supplies electricity to GUVNL on a long term basis. In solar power plants, the practice in the industry is to have a single asset owning Company and therefore there is no requirement of any growth capital. Hence, the annual Cash Flows available remain unutilized. Accordingly, substituting equity by debt helps to take cash to the Shareholder as and when additional cash is available, which ultimately helps to reduce the cost of capital for the Appellant Company and its Shareholders. The statement for projected Cash Flows depicts sufficient liquidity which the Tribunal should have taken into consideration. 4. Submissions of the Learned Counsel Mr. Ankit Shah appearing on behalf of the Respondent: The Regional Directo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 6. It is the case of the Appellant that the Appellant Company is a going concern having sufficient arrangement of Cash Flows to undertake the reduction of Share Capital and that the Company s negative net worth is not linked to its liquidity position and should not have any adverse impact on the Company s ability to honour its obligation towards the shareholders in case of Reduction of Share Capital. It is the further case of the Appellant Company that the net worth is appearing to be negative in its Books of Accounts due to depreciation being charged on the assets of the capital-intensive industry i.e., the Solar Power Plant. It is their case that the Appellant Company has Revenue from operations amounting to Rs.3233 Lakhs from April 2020 to March 2021 and Rs.1211 Lakhs from April 2021 to August 2021. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al' is a 'Domestic Affair' of a particular Company in which, ordinarily, a Tribunal will not interfere because of the reason that it is a 'majority decision' which prevails... 10. The Hon ble Andhra Pradesh High Court while allowing a Scheme of Reduction in the matter of IL FS Engineer and Construction Company Limited Vs. Wardha Power Company Limited , (2013) 176 Comp. Cas 156, held as follows: 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. (Re Ratners Group Plc; In Re Hindalco Industries Ltd). 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. (Re Rafter Group plc; Re Ratners Group plc; In Re Hindalco Industries Ltd2). The court does not exe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al of the Company, which also has the right to decide as to how this reduction should be carried into effect . In the instant case, admittedly, the reduction of this Share Capital was approved unanimously by the Shareholders by way of a Special Resolution. 12. This Tribunal in RHI India Pvt. Ltd. , 2021 SCC Online NCLAT 12, has held that it is not for the Courts to reject Schemes on grounds not required to be delved into for the determination of the Scheme: It is stated by the learned counsels for the Appellant that all the relevant documents/information were duly placed before all the stakeholders of 3rd Appellant. The NCLT has ignored the fact that basis the entire information placed before the general public and other stakeholders of 3rd Appellant, the scheme has been accorded an approval by an overwhelming majority of 99.95% of the relevant stakeholders (which includes 96.05% of the Public Shareholders). Thus the finding by the NCLT that the scheme being in the interest of certain shareholders and is against public policy is contrary to law. .. 4 ..15.The learned counsel for the Appellants contended that a bare perusal of the impugned order, would make it evid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is legally correct and the shareholders and creditors are not prejudiced. It is also the duty of the Court that it had to see that the scheme is fair and equitable between the different classes of shareholders. It is no doubt true that it is the duty of the Court to protect the interests of the creditors and it must be safeguarded. Public interest is also a paramount consideration . 14. It is seen from the record that the Company has complied with all the statutory requirements as per the directions of the Tribunal and has also filed necessary Affidavits to that effect. It is also pertinent to mention that none of the Creditors objected to the reduction of the Capital. Section 66(1)(b) of the Act enables a Company to reduce its Share Capital in any manner provided it is approved by the majority of Shareholders through a Special Resolution relevant extracts of Section 66(1) is reproduced hereunder for ready reference: 66(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- ..... X X X X Extracts X X X X X X X X Extracts X X X X
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