Tribunal grants appeal, approves equity share capital reduction by special resolution

Brillio Technologies Pvt. Ltd. Versus Registrar of Companies, Karnataka, Regional Director South Eastern Region, Ministry of Corporate Affairs

Brillio Technologies Pvt. Ltd. Versus Registrar of Companies, Karnataka, Regional Director South Eastern Region, Ministry of Corporate Affairs - [2021] ... Issues Involved:
1. Genuine reason for reduction of share capital.
2. Requirement of consent affidavit from creditors.
3. Utilization of Securities Premium Account (SPA) for payment to non-promoter shareholders.
4. Consent from untraceable non-promoter shareholders.
5. Permissibility of selective reduction of shareholders.
6. Maintainability of the petition under Section 66 of the Companies Act, 2013.

Detailed Analysis:

1. Genuine Reason for Reduction of Share Capital:
The Appellant Company argued that the reduction of share capital was proposed due to requests from non-promoter shareholders for liquidity and to make the company a wholly-owned subsidiary of its current holding company. The Tribunal found that the company had provided a genuine reason for the reduction, which was supported by emails from non-promoter shareholders requesting an opportunity to dispose of their shares. The Tribunal concluded that there is no law mandating that share capital reduction can only occur to reduce accumulated losses.

2. Requirement of Consent Affidavit from Creditors:
The Tribunal held that obtaining consent affidavits from creditors is not mandatory under Section 66 of the Companies Act or the Rules. The Appellant Company had complied with the Tribunal's order to serve notices to creditors and publish notices in newspapers. No objections were received from creditors within the stipulated three-month period, leading to the presumption that they had no objections to the reduction. The Tribunal found that the observation that consent affidavits from creditors had not been obtained was erroneous.

3. Utilization of Securities Premium Account (SPA) for Payment to Non-Promoter Shareholders:
The Tribunal referred to judgments from various High Courts, including the Delhi High Court in re. Nestle India Ltd. and the Rajasthan High Court in Vaibhav Global Ltd., which held that the SPA could be utilized for purposes other than those specifically provided in Section 52(2) of the Companies Act, 2013, with appropriate approvals. The Tribunal concluded that the SPA could be used for making payments to non-promoter shareholders, rejecting the Respondents' argument that the SPA could only be used for specific purposes outlined in Section 52(2).

4. Consent from Untraceable Non-Promoter Shareholders:
The Appellant Company had proposed to keep the amount payable to untraceable non-promoter shareholders in an Escrow Account for three years, after which any unclaimed amount would be transferred to the Investor Education and Protection Fund (IEPF). The Tribunal found no issue with this provision and agreed that the rights of untraceable shareholders had been adequately secured.

5. Permissibility of Selective Reduction of Shareholders:
The Tribunal held that selective reduction of share capital is permissible under Section 66 of the Companies Act, 2013, provided it is fair and equitable. The Tribunal referred to judgments from the Bombay High Court in Sandvik Asia Ltd. and the Delhi High Court in Reckitt Benckiser (India) Ltd., which supported the view that selective reduction is allowed if non-promoter shareholders are paid fair value for their shares. The Tribunal found that none of the non-promoter shareholders had raised objections about the valuation of their shares, and the proposed reduction was for all non-promoter shareholders.

6. Maintainability of the Petition under Section 66 of the Companies Act, 2013:
The Tribunal held that Section 66 of the Companies Act, 2013, provides for the reduction of share capital without it being part of any scheme of compromise or arrangement. The Tribunal referred to the Gujarat High Court's decision in re. Maneckchowk and Ahmadabad Manufacturing Company Ltd., which supported the view that Section 66 is a complete code for the reduction of share capital. The Tribunal found that the Appellant Company had complied with the necessary provisions and that the petition was maintainable under Section 66.

Conclusion:
The Tribunal set aside the impugned order of the NCLT, Bengaluru, and confirmed the reduction of equity share capital resolved on 04.02.2019 by the special resolution. The Tribunal directed the Company to publish the reduction of share capital in specified newspapers and deliver the certified copy of the judgment to the Registrar of Companies and other statutory authorities within 30 days. The appeal was allowed with no order as to costs.