Tribunal Dismisses Petition on Equity Share Consolidation, Emphasizes Compliance

The Tribunal dismissed the petition seeking approval for the consolidation and division of equity shares under Section 61(1)(b) of the Companies Act, 2013. The Tribunal found that the proposal aimed to circumvent SEBI regulations and the Companies Act by using share consolidation to provide an exit to public shareholders. It emphasized that promoters should have followed SEBI guidelines for acquiring shares not offered under the exit offer within one year. Concerns were raised about potential non-compliance and the arbitrary reduction of minority shareholders' voting percentages. The petition was dismissed with no order as to costs.

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Issues Involved:
1. Consolidation and division of equity shares under Section 61(1)(b) of the Companies Act, 2013.
2. Compliance with SEBI regulations and circulars.
3. Objections from minority shareholders.
4. Alternative methods for reducing the number of shareholders.

Issue-wise Detailed Analysis:

1. Consolidation and Division of Equity Shares:
The Petitioner Company filed a petition under Section 61(1)(b) of the Companies Act, 2013, seeking approval for the consolidation and division of its equity shares. The proposal included increasing the nominal value of equity shares from Rs. 10 to Rs. 60,550, thereby consolidating every lot of 6055 shares into one share. The consolidation aimed to provide an exit opportunity for public shareholders holding small numbers of shares. The proposal was approved by the majority of shareholders in an Extra-Ordinary General Meeting held on 14th April 2018, with 95.12% voting in favor.

2. Compliance with SEBI Regulations and Circulars:
The Objector argued that the Company could not adopt Section 61(1)(b) for providing an exit to public shareholders as separate guidelines had been prescribed by SEBI. Specifically, SEBI’s Circular dated 10th October 2016, and SEBI (Delisting of Equity Shares) Regulations, 2009, required that the promoters acquire shares out of their own funds. The Objector contended that the Company's method of using Section 61(1)(b) to consolidate shares and provide an exit was against SEBI regulations and guidelines.

3. Objections from Minority Shareholders:
The Objector, holding 9,515 equity shares, raised several issues, including:
- The Company’s misuse of Section 61(1)(b) to forcefully acquire shares from minority shareholders.
- The unfair and unreasonable exit offer price of Rs. 76 per share, which was below the fair market value.
- The improper valuation process and lack of adequate information in the explanatory statement.
- The violation of SEBI regulations and the Companies Act, 2013, and the potential oppression and mismanagement of minority shareholders.
- The proposed consolidation being against public policy and principles of equality under the Constitution of India.

4. Alternative Methods for Reducing the Number of Shareholders:
The Registrar of Companies suggested that the Company could consider a buyback of securities under Section 68 of the Companies Act, 2013, as an alternative to consolidation. This would align with the intention to reduce the number of shareholders and save costs without violating SEBI regulations.

Judgment:
The Tribunal noted that the petition appeared to be an attempt to circumvent SEBI regulations and the Companies Act, 2013, by using the pretext of share consolidation to provide an exit to public shareholders. The Tribunal emphasized that the Promoters should have utilized the provision in SEBI’s Circular dated 10th October 2016, to acquire shares not offered under the exit offer within one year. The Tribunal expressed concern about the arbitrary reduction of minority shareholders' voting percentages and potential non-compliance with necessary legal provisions.

Conclusion:
The Tribunal dismissed the petition, CP No. 459/BB/2018, stating that the relief sought could not be granted due to the reasons mentioned. The petition was dismissed with no order as to costs.

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