Share capital reduction upheld where articles authorised it, shareholders approved it, and fair value protected public shareholders.

Reduction of share capital may be sanctioned where the company's articles authorise it, the special resolution is approved by the requisite majority, and the proposal does not unfairly prejudice shareholders. Here, the company had been revived after liquidation under a restructuring scheme, the earlier preferential allotment was found lawful, and the public shareholding had been diluted to 5.47% of paid-up capital. The court accepted that the public shareholders were to receive a value well above the then-prevailing per-share value and that the resolution had overwhelming support. The proposed cancellation of public shareholders' holdings was therefore approved and the minute was permitted to be registered.

---

---

Issues: Whether the Court should sanction the special resolution for reduction of share capital by cancelling the public shareholders' holding and whether such reduction was legally permissible in the facts of the case.

Analysis: The company had earlier been in liquidation and was later revived on the basis of a scheme under which a strategic investor infused funds and the creditors were paid. The preferential allotment made pursuant to the earlier corporate approvals was not found to be illegal, and it had changed the shareholding pattern so that the public shareholders retained only 5.47% of the paid-up capital. The Court found that the public shareholders would receive a value for their shares far above the then-existing per share value and that the resolution had been passed by an overwhelming majority. In these circumstances, and in view of the power to reduce capital contained in the articles, there was no legal impediment to the proposed reduction.

Conclusion: The reduction of share capital was sanctioned and the special resolution was approved.

Final Conclusion: The petition succeeded, and the company was permitted to reduce its capital by cancelling the public shareholders' shares and to have the minute registered with the Registrar of Companies.

Ratio Decidendi: A court may sanction reduction of share capital where the reduction is authorized by the articles, approved by the requisite majority, and does not unfairly prejudice shareholders who are offered fair value for their shares.

---