Equity shares consolidated with increased face value, shareholders' best interest upheld.

The Tribunal approved the petitioner's request to consolidate equity shares by increasing the face value from Rs. 10 to Rs. 5,000 per share under section 61(1)(b) of the Companies Act, 2013. The consolidation was deemed permissible as the company adhered to the legal process and obtained necessary approvals. Objections raised by two shareholders were dismissed as they did not attend the general meeting and lacked substantial grounds for opposition. The consolidation was found to be in the best interest of shareholders, offering liquidity and a reasonable return on investment.

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Issues Involved:
1. Whether the consolidation of shares can be approved in terms of the Companies Act, 2013.
2. Whether the objections raised by two shareholders are tenable.

Issue-wise Detailed Analysis:

1. Whether the consolidation of shares can be approved in terms of the Companies Act, 2013:

The petitioner-company, Macrofil Investments Ltd., filed an application under section 61(1)(b) of the Companies Act, 2013, read with rule 71 of the National Company Law Tribunal Rules, 2016, seeking approval to consolidate equity shares by increasing the face value from Rs. 10 to Rs. 5,000 per share. The company is authorized under its articles of association (article 9) to consolidate its shares by passing a valid resolution after following the due process of law. A special resolution to this effect was passed on June 5, 2013, and the company carried out a valuation of shares.

The valuation report was made available for inspection by the members at the registered office of the company on all working days between 11:00 a.m. to 1:00 p.m. until the date of the extraordinary general meeting. The extraordinary general meeting held on July 18, 2017, captured several key aspects, including the non-listing of the petitioner-company's shares, the high cost involved in handling a large number of shareholders, and the negligible dividend amounts payable to small shareholders. The consolidation was seen as providing an exit option to shareholders with small holdings and was deemed to be in the best interest of the members.

The Companies Act, 2013, under section 61(1)(b), allows a limited company to consolidate and divide its share capital into shares of a larger amount than its existing shares, provided that no consolidation and division result in changes in the voting percentage of shareholders unless approved by the Tribunal. The petitioner-company duly followed the legal process and passed the necessary resolutions for consolidation.

2. Whether the objections raised by two shareholders are tenable:

Two shareholders objected to the consolidation, raising several points:

(a) The petitioner had 13,063 members, with 13,053 belonging to the non-promoter group holding 10.81% of the share capital, while the promoter group held 89.19%.
(b) The request for consolidation was surprising given that shareholders holding up to 4 shares requested the purchase of their shares.
(c) The consolidation aimed to reduce costs involved in handling a large number of shareholders with small holdings.
(d) The valuation report was not submitted to shareholders along with the consolidation scheme.
(e) The scheme was seen as an improper and forcible exit of public shareholders.
(f) The whole process was alleged to be against the exit opportunity specified in the Companies Act.
(g) The company failed to provide adequate information and disclosure on the shareholding pattern.
(h) The scheme was in violation of the Companies Act, 2013, and prejudicial to the interest of non-promoter shareholders.

In response, the petitioner-company provided detailed distribution of shareholding, stating that 99.38% of public shareholders held 50 shares or less. The company argued that the shares were not traded on any securities exchange and could not be sold in the open market. The valuation report was based on the asset-based approach, deemed appropriate given the company's investment nature. The report was made available for inspection, and the objectors did not request it or attend the general meetings. The company followed the legal process and applicable sections of the Companies Act, 2013.

Findings:

The Tribunal found that the consolidation is permissible under law, as the company followed the due process and passed the necessary resolutions. The objections raised by the two shareholders were not tenable, as they failed to attend the extraordinary general meeting and did not provide substantial grounds to oppose the consolidation. The consolidation was in the best interest of the shareholders, providing liquidity and reasonable return on investment.

Conclusion:

The Tribunal approved the petitioner's prayer to consolidate equity shares by increasing the face value from Rs. 10 to Rs. 5,000 per share under section 61(1)(b) of the Companies Act, 2013. Consequently, the paid-up share capital of the company will increase from Rs. 44,29,480 to Rs. 44,30,000, with necessary changes in the records of the company and the Ministry of Corporate Affairs.

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