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Issues: (i) Whether a company could lawfully effect a selective reduction of share capital by reducing the holding of one class of shareholders while leaving another class unaffected under the Companies Act, 1956. (ii) Whether the proposed reduction was unfair or inequitable, particularly in light of the alleged motive to oust public shareholders and the valuation offered for their shares.
Issue (i): Whether a company could lawfully effect a selective reduction of share capital by reducing the holding of one class of shareholders while leaving another class unaffected under the Companies Act, 1956.
Analysis: The statutory scheme under Sections 100 to 105 permits reduction of share capital by special resolution, subject to court confirmation and protection of creditors. The power is treated as a matter of internal corporate concern, where the majority may decide not only whether to reduce capital but also the manner and incidence of reduction. A company is not bound to reduce all shares of the same class in the same way, and selective reduction is permissible if it is not unfair or inequitable. On that footing, the reduction did not become a buy-back so as to attract Section 77A, nor did it require the procedure under Section 391.
Conclusion: Selective reduction of share capital was legally permissible and the objections based on Sections 77A and 391 were not accepted.
Issue (ii): Whether the proposed reduction was unfair or inequitable, particularly in light of the alleged motive to oust public shareholders and the valuation offered for their shares.
Analysis: The scheme was scrutinised on the touchstone of fairness, since a reduction affecting only some shareholders must not operate oppressively or unjustly. The court noted the earlier exit offers, but the decisive factor was that the objectors were allowed to retain their shares if they so desired. The valuation was also supported by an independent report using recognised methods, including net asset value and earnings-based valuation, and the offered price was higher than the fair value arrived at by the valuer. With overwhelming shareholder approval and no demonstrated prejudice to the objectors, the scheme could not be said to be unfair or inequitable.
Conclusion: The reduction was not shown to be unfair or inequitable, and the valuation was accepted as reasonable.
Final Conclusion: The reduction of paid-up share capital was confirmed with modification of the figures in the minutes, and the petition was disposed of in favour of the company.
Ratio Decidendi: A court may confirm a selective reduction of share capital if it is authorised by special resolution, satisfies creditor protection requirements, and is shown to be fair and equitable on the facts, with the majority entitled to determine the manner of reduction subject to judicial scrutiny for oppression or unfairness.
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