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of <h1>Court approves reduction of equity share capital under Companies Act, 1956 without adverse impact on creditors</h1> The court allowed the petition for reduction of equity share capital under Sections 100 and 101 of the Companies Act, 1956. The company followed the ... Reduction of Equity Share Capital of Company – Held that:- As Petitioner has followed the required procedure as contemplated under Sections 100 and 101 of the Act for the proposed reduction of capital. The Court also finds that Article 8 of the Articles of Association of the petitioner-Company permits reduction of capital. It also appears that as there was no outlay of funds, the interest of the creditors is not adversely affected, therefore, the procedure as contemplated under Section 101(2) of the Act is not required to be followed that the petitioner has effectively met with the observations made on behalf of the Registrar of Companies in its affidavit-in-rejoinder and further affidavit. No adverse material has been pointed out by the Registrar of Companies against sanction of the reduction of share capital - Reduction of the paid up share capital proposed by the petitioner is hereby sanctioned. No further publication in the Government Gazette is required - Accordingly, the petition is allowed, in the above terms - Petitioner Company is directed to pay Rs.7500/- to Mr. Y.V. Vaghela, learned Central Government Standing Counsel, appearing on behalf of the Regional Director. Issues:Petition for reduction of equity share capital under Sections 100 and 101 of the Companies Act, 1956.Analysis:The petitioner company filed a petition seeking confirmation and sanction for the reduction of its equity share capital as approved by the shareholders in a meeting. The company cited Article 8 of its Articles of Association allowing such reduction. The history of share allotment and subsequent rejection by the Bombay Stock Exchange was presented, leading to rectification steps taken in accordance with Circular No.1 of 2003. Realizing the need to follow Sections 100 and 101 of the Act, the company obtained shareholder approval for the capital reduction by way of cancellation of shares.The company sought dispensation of the procedure under Section 101(2) due to no outlay of funds affecting creditors negatively. Following court orders, including publication of notices and obtaining consents from creditors, the company complied with the necessary requirements. Consent letters from secured and unsecured creditors were produced, along with a Chartered Accountant's certificate confirming the same. The Registrar of Companies submitted an affidavit, to which the company responded with a rejoinder and additional affidavit.After considering all documents, the court found the company had adhered to the prescribed procedures under Sections 100 and 101, with the Articles of Association permitting the capital reduction. As there was no financial impact on creditors, the court waived the need to follow Section 101(2) procedure. The court noted the absence of adverse material from the Registrar of Companies and sanctioned the proposed reduction of share capital. The court directed the publication of the order for reduction in specified newspapers within two weeks of registration with the Registrar of Companies, without the need for further publication in the Government Gazette. The petition was allowed, and the company was directed to pay fees to the Central Government Standing Counsel.
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