Selective reduction of share capital lawful where independent valuation is followed and offered price exceeds valuer's fair value.

Selective reduction of share capital under Sections 100-105 is permissible where articles and a special resolution authorise it, creditors are satisfied or secured, and the Court is satisfied the scheme is not unfair or inequitable; on the facts the Court accepted procedural compliance including class meetings and absence of creditor objection. Independent valuation using asset and income approaches with comparables is the accepted standard, and where an independent valuer fixed a fair value materially below the offered price, the higher offer rendered the valuation and price acceptable. Accordingly confirmation of the reduction was granted with specified amendments.

---

---

Issues: (i) Whether the proposed selective reduction of share capital, extinguishing the public shareholding and reducing the holding of a subsidiary while preserving the promoter's shareholding, is lawful and not unfair or inequitable; and (ii) Whether the valuation methodology and price offered for the shares are fair and adequate for confirming the reduction under Sections 100-105 of the Companies Act.

Analysis: Legal framework under Sections 100-105 of the Companies Act permits a company, if authorised by its articles and by special resolution, to reduce its share capital in any manner, including selectively, subject to confirmation by the Court and safeguards for creditors and dissenting shareholders. Judicial authorities establish that reduction of capital is primarily a matter for the prescribed majority, but the Court must satisfy itself that the scheme is not unfair or inequitable and that creditors entitled to object have been paid, consented, or secured. Procedural compliance including special resolution and disclosure to shareholders, and where applicable class meetings, are relevant. On valuation, independent valuation by qualified valuers applying accepted methods (asset approach and income approach, with appropriate weighting and comparables) is the accepted standard; the Court's role is to ensure valuation is by an independent body and carried out in accordance with accepted principles. Factual findings: special resolution(s) were passed, requisite class meetings were held, unsecured creditors had effectively no objection, independent valuer (using net asset and earnings per share methods and PE multiples of comparables) determined a fair value materially below the price offered, and the petitioner offered a price higher than the valuer's fair value. Further, the petitioner allowed objectors to retain shares if they did not wish to part with them, removing the practical effect of forcible extinguishment for intervening objectors.

Conclusion: (i) The proposed selective reduction of share capital is lawful and not unfair or inequitable on the facts and assurances before the Court; (ii) The valuation process and the price offered were acceptable and the offered price exceeded the independent valuer's fair value; accordingly, confirmation of the reduction (with specified amendments to share capital figures and minutes) is granted in favour of the petitioner.

---