TaxTMI 
TaxTMI 
TaxTMI 
2009 (11) TMI 506
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....e kept in the paid up capital of the Company and the balance 90 per cent of the value of the equity sharesholding in rupee terms held by each shareholder will be transferred to his credit in the unsecured loan account of the Company. There will be a corresponding reduction of the equity shares held by each shareholder without any reduction of the face value of the equity shares. (b )By converting 90 per cent of the existing issued, subscribed and paid up share capital of the company amounting to Rs. 12,69,00,810 as unsecured loans from respective shareholders, the issued, subscribed and paid up share capital of the Company would stand reduced to 1/10th of the present existing capital of Rs. 1,41,00,090. Consequently the debt equity ratio will be brought down from the massive under geared 1:9 to 1:05:1. (c )Upon coming into force of the Scheme, with effect from the Appointed Date, to the extent of the amount of unsecured loans of respective shareholders arising under this Scheme, the same would stand credited to their respective accounts in the books of the Company and these loans shall remain with the Company for a minimum period 5 (five) years from the Appointed Date and shall c....
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.... 3. The chairman has reported that the scheme of arrangement proposed by the petitioner company has been approved by the equity shareholders without any modification. The notice on this company petition was given to the Registrar of Companies as required under section 394A of the Companies Act, who has filed objections to the effect that after reducing the share capital, the company proposes to hold the reduced share capital as loans received from the shareholders for which the company would pay to the shareholders interest at a rate not exceeding 18 per cent. The Registrar of Companies submits that as a result of this, there is reciprocal arrangements. There is no cash outflow which should normally be the result of reduction of share capital. He would submit that in the said circumstances, the scheme propounded is not in accordance with law and that the provisions of section 100 of the Companies Act have not been complied with. 4. In view of the issues raised by the Registrar of Companies, this Court appointed Advocate Sri P. Gopinatha Menon as Amicus curiae to assist the Court on the questions of law involved. Accordingly, he has addressed the Court on the legal aspects involved....
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....t between the company and its shareholders and not a reduction of share capital simpliciter. Therefore he contends that the petitioner has rightly followed the procedure prescribed under Rules 246 and 265 of the Companies (Court) Rules for obtaining sanction of the Court under sections 391 and 394 of the Companies Act. 6. I have considered the issues involved in this company petition. 7. I shall first deal with the question as to whether it was proper on the part of the petitioner to seek sanction for reduction of share capital under section 100 of the Companies Act as a compromise or arrangement under sections 391 and 394 of the Act. As rightly pointed out by the counsel for the petitioner, what is involved here is not merely reduction of the share capital. If it was a mere reduction of share capital the released capital has to be returned to the shareholders. Instead of refunding the money released on reduction of the share capital, the company has entered into a compromise or arrangement with the shareholders of the company to retain the money so released as unsecured loans from the shareholders to the company, on which the company is to pay interest to the shareholders at a r....
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....ether the reduction is fair between classes of shareholders. But the Courts should be slow to interfere with the decision of the shareholders acting honestly and who are usually better judges of what is to their commercial advantage than the Court. The Court has the discretion to sanction any reduction which is fair and equitable, which has to be exercised on the basis of accepted principles. But subject to the Court's discretion, any loss is to be borne among the members in such manner as a loss in respect of capital is to be borne under the constitution of the company, and if money is to be returned, it is to be returned in the same way as capital is returnable. Where a reduction process to pay off one class of shareholders, e.g., preference shareholders, the fact that that class might have obtained a future benefit beyond what they will receive on reduction does not in itself render the scheme inequitable. When exercising discretion in such matters, the Court is concerned to see that the reduction is fair and equitable, but is not concerned to consider the motive for the reduction, as for example, that it was to avoid the effects of a threatened nationalisation or to distribute ....