Fair and equitable reductions require genuine options for differing shareholder subgroups; compulsory extinguishment of a minority can be denied sanction.

A court examined whether a reduction of paid-up equity capital that extinguishes shares of a non promoter minority without offering a genuine option is lawful. Applying the statutory power to reduce capital and principles requiring reductions to be fair and equitable, the court found two distinct shareholder subgroups and that the non promoter minority (4.46%) were to be compulsorily extinguished without real choice. The process was held to deny protections available under a scheme of arrangement and to risk unfairness; accordingly the reduction proposal was not acceptable and the petition for sanction was dismissed.

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Issues: Whether the Court should sanction and confirm a company s reduction of paid-up equity share capital under Section 100 where a promoter majority approves extinguishment of shares held by a non-promoter minority without offering a genuine option to continue, and whether the reduction is fair and equitable.

Analysis: The Court examined the statutory framework under Section 100(1)(a) to (c) and the wider power to "reduce its share capital in any way", and considered authorities on whether reduction may be effected without uniform treatment of all members of a class. The Court reviewed competing positions: the petitioner s reliance on the broad power under Section 100, English authorities permitting differential treatment where transactions are not unfair, and prior decisions holding that buy-back need not be limited to Section 77A; and the respondents contention that where a distinct subgroup within a class is to be treated differently, protections of a scheme under Sections 391/394 (including meetings of classes and two-fold majority protection) ought to apply and that the minority must be given a real option and fair treatment. The Court found as factual and legal matters that (a) two distinct groups existed among equity shareholders (promoters and non-promoters), (b) the non-promoter minority (4.46%) were not afforded a genuine option to remain and were to be compulsorily extinguished at the offered price, and (c) such a process denied the statutory protections that a scheme under Sections 391/394 would provide and exposed the minority to possible unfairness. Applying the principle that reductions must be fair and equitable and the authorities holding that differential treatment of sub-groups within the same class is narrowly scrutinised, the Court concluded that the petitioner's method was not acceptable in the circumstances.

Conclusion: The petition for sanction of the reduction of share capital is dismissed; the Court declines to confirm the reduction because the proposal was not fair and equitable to the minority shareholders and denied statutory protections available under a scheme of arrangement.

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