Tribunal denies capital reduction petition by Precious Energy Services Ltd.

The Tribunal denied the capital reduction petition filed by Precious Energy Services Ltd. under section 66 of the Companies Act, 2013. Despite shareholder approval and compliance with procedural requirements, the Tribunal found the company's negative net worth and high borrowings indicated that the proposed reduction was not in the company's best interest. Consequently, the petition was disallowed due to the negative financial indicators and lack of overall benefit to the company and stakeholders.

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Issues:
Capital reduction petition under section 66 of the Companies Act, 2013.

Detailed Analysis:
The petitioner-company, Precious Energy Services Ltd., filed a petition for reducing its share capital by cancelling 69,75,000 equity shares of Rs. 10 each and paying Rs. 77.49 per share to the holders, totaling Rs. 54,04,92,750 as approved by shareholders. The company cited article 44 of its articles of association allowing share capital reduction. The authorized share capital was Rs. 7,51,00,000, and the issued, subscribed, and paid-up capital was Rs. 6,98,50,050 as of March 31, 2019.

The company passed a board resolution confirming the reduction and held an AGM where the special resolution was unanimously approved. Notices were issued to secured and unsecured creditors, and shareholders. The Tribunal directed notices to the Central Government, Registrar of Companies, and creditors, with newspaper publications. The petitioner complied with these directives.

The Regional Director raised concerns regarding compliance, foreign shareholders, liquidity, creditor letters, and notice to the Income-tax authority. The company responded, clarifying that RBI approval was not needed for reduction involving non-resident shareholders. No objections were received from creditors after notices were published and sent.

The Tribunal reviewed the financials showing negative net worth and high borrowings, indicating that the proposed capital reduction was not in the company's best interest. Due to the negative net worth and book value per share, the Tribunal disallowed the petition for capital reduction under section 66 of the Companies Act, 2013.

The Tribunal disposed of the petition, C. P. No. 4 of 2020, as not allowed, based on the negative financial indicators and lack of overall benefit to the company and stakeholders.

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