Court Approves Share Capital Reduction for Company; 8,89,169 Shares Canceled, Rs. 183/Share Returned, 99.5% Approval.

The HC approved the reduction of share capital for the Petitioner, a public limited company, under section 101 of the Companies Act, 1956. The reduction involved canceling 8,89,169 shares and returning capital at Rs. 183 per share. Despite objections from the BSE, the court found the selective reduction legally permissible, fair, and equitable, with 99.5% shareholder approval. The court allowed the reduction while noting that Stock Exchanges could address any listing agreement violations. The Company Petition was granted in full as requested.

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Issues Involved:
1. Reduction of Share Capital
2. Validity of Selective Reduction
3. Compliance with Legal Procedures
4. Objections by Stock Exchange
5. Fairness and Equity of the Scheme

Issue-Wise Detailed Analysis:

1. Reduction of Share Capital:
The petition was instituted under section 101 of the Companies Act, 1956, seeking an order for the reduction of the capital of the Petitioner, a public limited company incorporated on 27-7-1962. The Petitioner proposed to reduce its share capital by Rs. 88,91,690, constituting 25% of its issued and paid-up share capital. The reduction involved extinguishing and canceling 8,89,169 shares held by shareholders and returning capital at Rs. 183 per equity share of Rs. 10 each.

2. Validity of Selective Reduction:
The principal reasons for the reduction included the sale of the isolator division, generating surplus funds, and the need to readjust the relation between capital and assets. The Board of Directors passed a resolution for the reduction on 27-1-2006. The scheme proposed that the reduction would apply to shareholders who either vote in favor or do not object to the resolution. The law permits selective reduction, as highlighted by the House of Lords in British and American Trustee and Finance Corporation Ltd. v. John Couper, and affirmed by Indian courts in cases like Ramesh B. Desai v. Bipin Vadilal Mehta.

3. Compliance with Legal Procedures:
The reduction was approved by a special resolution passed by the requisite majority through a postal ballot. The result showed 99.5% of the voted shares in favor. The scheme was approved by 95.76% in number and 99.62% in value of the creditors. The company provided an exit opportunity to shareholders, with the price per share determined by external valuers and set at a premium over the market price.

4. Objections by Stock Exchange:
The Bombay Stock Exchange (BSE) objected, suggesting the scheme should apply to all shareholders or only those who positively assented. BSE's objections included a substantial increase in share price and potential benefits to promoters. The company responded that selective reduction is permissible and provided an undertaking to maintain non-promoter shareholding as required by regulations.

5. Fairness and Equity of the Scheme:
The court emphasized that selective reduction is legally permissible and must be fair and equitable. The exit price of Rs. 183 per share was higher than the market price on relevant dates. The court found no unfair or inequitable transaction and noted that no shareholders objected to the reduction. The speculative increase in share price did not invalidate the resolution.

Conclusion:
The court allowed the reduction of share capital, clarifying that the Stock Exchanges could still exercise their rights regarding any potential violations of the listing agreement. The Company Petition was made absolute in terms of the requested reliefs.

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