Tribunal Upholds Share Capital Reduction Approval by Shareholders, Emphasizes Majority Rule

The tribunal allowed the appeal, confirming the reduction of share capital as approved by the shareholders. It concluded that the company had sufficient liquidity and that the reduction was a domestic affair to be decided by the majority of shareholders. The tribunal set aside the NCLT's order and directed compliance with the law.

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Issues Involved:
1. Negative net worth and high borrowings of the company.
2. Compliance with Section 66 of the Companies Act, 2013.
3. Approval and objections regarding the reduction of share capital.
4. Financial health and liquidity of the company.
5. Commercial wisdom of shareholders in approving the reduction.

Issue-wise Detailed Analysis:

1. Negative Net Worth and High Borrowings:
The NCLT rejected the confirmation of the scheme for the reduction of share capital proposed by the appellant company due to its negative net worth and high borrowings. The balance sheets showed a negative net worth/shareholders' funds of Rs. 1609.66 lakhs and borrowings and inter-corporate loans amounting to Rs. 11354.43 lakhs. The book value per share was also negative. The NCLT concluded that the proposed capital reduction was not in the overall interest of the company and its stakeholders.

2. Compliance with Section 66 of the Companies Act, 2013:
Section 66(1) allows a company to reduce its share capital by a special resolution, provided it is confirmed by the tribunal. The NCLT noted that the company proposed to return capital to its shareholders at Rs. 77.49 per share, totaling Rs. 5404.93 lakhs, despite having a negative net worth and high borrowings. The tribunal held that the reduction of share capital was not in compliance with the overall interest of the company and its stakeholders.

3. Approval and Objections Regarding the Reduction of Share Capital:
The appellant company argued that the reduction of share capital was approved unanimously by the shareholders by way of a special resolution. The Regional Director raised several observations, including the compliance with Section 61, the presence of foreign shareholders, and the company's liquidity for making payments towards the reduction of share capital. The appellant company responded to these observations, emphasizing that the reduction was a domestic affair and should be permitted when there were no objections from shareholders and creditors.

4. Financial Health and Liquidity of the Company:
The appellant company contended that it had sufficient funds and regular sources of cash flow from its Power Purchase Agreement (PPA) with GUVNL. The company had investments and cash balances aggregating to Rs. 5618.26 lakhs, which exceeded the amount proposed for the reduction of share capital. The appellant argued that the negative net worth was due to depreciation on the assets of the solar power plant and did not reflect the company's liquidity position.

5. Commercial Wisdom of Shareholders in Approving the Reduction:
The appellant company argued that the reduction of share capital was a matter of domestic concern and should be decided by the majority of shareholders. The tribunal referred to various precedents, emphasizing that the court should not interfere with the commercial wisdom of shareholders unless the reduction was unfair or inequitable. The tribunal noted that the reduction was approved unanimously by the shareholders and did not cause any prejudice to creditors.

Assessment and Conclusion:
The tribunal concluded that the reduction of share capital was approved by the shareholders unanimously and that the company had sufficient liquidity to undertake the reduction. The tribunal referred to various precedents, emphasizing that the reduction of share capital is a domestic affair and should be decided by the majority of shareholders. The tribunal set aside the NCLT's order and allowed the appeal, confirming the reduction of share capital as approved by the shareholders. The tribunal directed the NCLT to proceed in accordance with the law.

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