Tribunal Invalidates Share Capital Reduction, Orders Exit for Non-Promoter Shareholders

The Tribunal found that the Single Member Bench was competent to hear the matter post-remand. It determined that the Special Resolution for reduction of share capital was invalid as it did not follow SEBI Exit Circulars, and the valuation of shares was flawed. The company was directed to provide voluntary exit to non-promoter shareholders as per SEBI's guidelines, engaging an independent valuer for revaluation and ensuring timely payment with interest.

---

---

Issues Involved:
1. Competence of Single Member Bench to hear the matter after remand.
2. Validity of Special Resolution under sections 100-104 of the Companies Act, 1956 and section 52 of the Companies Act, 2013.
3. Obligation of the company to follow SEBI Exit Circulars for providing exit to non-promoter shareholders.
4. Adequacy of share valuation protecting public shareholders' interests.
5. Legality of using company funds for buy-back of shares instead of promoters' funds.

Detailed Analysis:

1. Competence of Single Member Bench:
The Tribunal determined that the Single Member Bench was legally competent to hear the matter post-remand. The bench was constituted by the President of NCLT under section 419(3) of the Companies Act, 2013. The appellant did not raise any objection during the hearing, validating the bench's authority.

2. Validity of Special Resolution:
The Special Resolution for reduction of share capital under sections 100-104 of the Companies Act, 1956, was scrutinized. The Tribunal noted that the reduction of share capital was not in excess of the company's wants but was due to the delisting of the company from the Madras Stock Exchange. The company should have followed SEBI's Exit Circulars, particularly the one dated 10.10.2016, which outlined the procedure for providing exit to non-promoter shareholders. The application under section 66 of the Companies Act, 2013, was found inappropriate as it was used for buy-back, which should have been done under SEBI regulations.

3. Obligation to Follow SEBI Exit Circulars:
The Tribunal emphasized that the company was obligated to follow SEBI Exit Circulars issued for providing exit to non-promoter shareholders. The procedure outlined in these circulars, particularly the one dated 10.10.2016, was not followed by the company. Instead, the company used its Securities Premium Account for buy-back, which was against SEBI guidelines that mandated promoters to use their funds.

4. Adequacy of Share Valuation:
The valuation of shares at Rs. 107 per share was found to be flawed due to significant assumptions and limitations in the valuer's report. The valuer's report indicated that if cash reserves and bank balances were considered, the valuation would be Rs. 351 per share. The company's Board did not address these discrepancies, adversely affecting the interests of the exiting shareholders.

5. Legality of Using Company Funds:
The Tribunal found that using the company's Securities Premium Account for buy-back was not in accordance with SEBI guidelines. The procedure mandated that promoters should use their funds for buy-back. The company's action resulted in promoters becoming 100% shareholders, which was not the intention of SEBI's voluntary exit guidelines.

Conclusion:
The Tribunal set aside the impugned order and directed the company to provide voluntary exit to its non-promoter shareholders as per SEBI's Exit Circular dated 10.10.2016. An independent valuer from the SEBI-approved panel should be engaged to revalue the shares based on financials as of 10.10.2016. Non-promoter shareholders who have already accepted payment should receive the difference if the new valuation exceeds Rs. 107 per share. Those who have not accepted payment should receive the full revalued amount plus interest at 9% p.a. from 10.10.2016 until the date of the order. The entire process must be completed within 75 days from the date of the order. No order as to costs was made.

---