TaxTMI 
TaxTMI 
TaxTMI 
2016 (11) TMI 1134
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....of dealing in gems and jewellery, the ancillary objects of the company include investments of different kinds. The petitioner company incurred significant losses in its businesses primarily from a diminution of its investments in its subsidiaries in the preceding years as of 31-3-2015 and as per its balance sheet had accumulated losses to an extent of Rs. 264, 27, 18,509 (Rupees Two hundred and sixty four crores twenty seven lacs Eighteen thousand Five Hundred nine only) reflected in the surplus/ (deficit) head of Reserves & Surplus. However also as of 31-3-2015 the petitioner company's Securities Premium Account showed a surplus of Rs. 589, 72, 28,735 (Rupees Five hundred and Eighty Nine crores Seventy Two lacs Twenty Eight thousand Seven Hundred Thirty Five only). Article 10 of the Articles of Association of the petitioner company subject to Article 141(d) thereof authorises it to reduce its share capital in any manner by way of a special resolution subject to any incident/s and consent/s required under the Act of 1956. Intending to write off the accumulated losses amounting to Rs. 264, 27, 18,509 (Rupees Two hundred and sixty four crores twenty seven lacs Eighteen thousand Fiv....
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....t "pursuant to the provisions of Sections 78, 100 to 104 and all other applicable provisions, if any, of the Companies Act, 1956 read with Section 52 of the Companies Act, 2013 and relevant rules made thereunder, including any statutory modifications or reenactments thereof for the time being in force, relevant provisions of the Company (Court) Rules, 1959 and subject to the confirmation of High Court of Judicature at Jaipur and other appropriate authorities, if any, and subject to such approvals as may be necessary, the consent of the company be and is hereby accorded to the Board of Directors for setting off an amount of Rs. 2,64,27,18,509 (Rupees Two Hundred Sixty Four Crores Twenty Seven Lacs Eighteen Thousand Five Hundred Nine only) appearing in the surplus/ (deficit) head of the Reserves & Surplus of the Company as at 31st March, 2015 against the Securities Premium Account amounting to Rs. 589, 72, 28,735 (Rupees Five hundred and Eighty Nine crores Seventy Two lacs Twenty Eight thousand Seven Hundred Thirty Five only) to the extent of accumulated losses and consequently, leaving a balance of Rs. 3,25,45,10,226 (Rupees Three Hundred Twenty Five Crores Forty Five lacs Ten Thous....
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....her stakeholders of the petitioner company nor for that matter adversely affect the ordinary operations of the petitioner company or its ability to honour its commitments or to pay its debts in the ordinary course of its business. It has been submitted that Section 101(2) of the act of 1956 has thus not got invoked. It has been prayed in the circumstances, that the form of minutes under Section 103(1) of the Act of 1956 as set out be confirmed and the reduction of capital (Securities Premium Account) against accumulated losses in the Surplus/ (Deficit) head of Reserve and Surplus of petitioner company in terms of special resolution passed by the Equity Shareholders through postal ballot and e-voting on 16-1-2016 be approved by this court. Other prayers incidental to the approval have also been made. On 12-2-2016 notices were issued on the petition in form No.5 relatable to Rule 25 of the Companies (court) Rules, 1959 and also published in two newspapers, one vernacular and other English. Copy of the petition was also supplied to Mr. R.K.Meena, who then was acting as the Registrar of Companies. Objections to the scheme have been filed by the Registrar of Companies. It has been sub....
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....etting of accumulated losses be rejected. Another objections based on non- registration of the petitioner company under the RBI Act, 1934 was also raised in the context of investments into its subsidiaries abroad by the petitioner company. Objections of the ROC have been emphatically contested and negated by Mr. Sanjay Jhanwar, counsel appearing for the petitioner company. It has been submitted that the activity of investments by the petitioner company is inter alia set out in its objects incidental and ancillary to the main objects and therefore no approval for the such activity under Section 17 read with sub-section 2A of Section 149 of the Act of 1956 was required. Mr. Jhanwar submitted that Section 149(2A) of the Act of 1956 requires taking approval of members of the company through a special resolution only in the event where the activity proposed to be undertaken by the company falls under the head of "other objects" and not where it is covered under the head of objects ancillary to its main objects. It was further submitted that the petitioner company being in the business of gems, jewellery and lifestyle accessories acquired/ incorporated various subsidiaries for the purpo....
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....rpose. And when passed as a special resolution by the requisite majority of shareholders it satisfies the precondition under Section 100(1) of the Act of 1956 for reduction of share capital--also constituted of the Share Premium Account as provided under Section 52(1) of the Act of 2013. Heard counsel for the parties and perused the material available on record. From the balance sheet of the petitioner company as of 31-3- 2015 it is evident that it had accumulated loss to an extent of Rs. 2,64,27,18509/- as shown in its surplus/ (deficit) under the head of Reserves & Surplus. At the same time in its Securities Premium Account, the petitioner company as on the aforesaid date had a surplus balance of Rs. 589,72,28,735/-. The Board of Directors of the petitioner company in the circumstance proposed and its equity shareholders at the meeting on 16-1-2016 passed a special resolution approving, with the requisite majority, the adjustment of the accumulated loss of the petitioner company against its Securities Premium Account. From the record it is apparent that in terms of the Article 10 of the Articles of Association of the petitioner Company it could reduce its share capital subject ....
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....by the Court a company limited by shares or a company limited by guarantee and having a share capital, may, if so authorised by its articles, by special resolution, reduce its share capital in any way; and in particular and without prejudice to the generality of the foregoing power, may- (a) extinguish or reduce the liability on any of its shares in respect of share capital not paid up; (b) either with or without extinguishing or reducing liability on any of its shares cancel any paid-up share capital which is lost, or unrepresented by available assets; or (c) either with or without extinguishing or reducing liability on any of its shares, pay off any paid-up share capital which is in excess of the wants of the company; and may, if any so far as is necessary, alter its memorandum by reducing the amount of its share capital and of its shares accordingly. (2) A special resolution under this section is in this Act referred to as "a resolution for reducing share capital". From a reading of Section 52 of the Act of 2013 it is apparent that this provision equates a Share Premium Account of a company to its paid up share capital. For specified purposes as set out in sub- section ....
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....on 52 of the Act of 2013, In the context of aforesaid legal position obtaining from the interpretation of Section 52 of the Act of 2013 and Sections 101-104 of the Act of 1956, I find wholly untenable the contention of Mr. K.J. Mehta appearing for the ROC that the share premium account albeit deemed to be part of paid up share capital as per Section 52 of the Act of 2013 cannot be utilized for the purpose of adjustment of accumulated loss of the petitioner company. The aforesaid conclusion as to utilisation of the Securities Premium Account for any purpose outside Section 52(2) of the Act of 2013--(old Section 78 of the Act of 1956) after due approval of the requisite majority of equity shareholders finds support from the judgment of the Andhrapradesh High Court in the case of re: Hyderabad Industries Limited [2004 (3) ALD 832]. A similar view has been taken in the case of re: Prashanth Textiles (P) Ltd [(2015) 192 Company Cases 184 (Madras)]. So too in the case of re-Koyo Bearings India Private Limited [Manu (ka) 3792/2015] and in the case of Tmeic Power Electronics Systems India Private Limited [Manu/Ka/ 2570/ 2014]. This legal position is also buttressed by the judgment in the c....
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....ank Limited (supra) relied upon by Mr. K.J.Mehta was based in the context of reduction of the share premium account of a banking company governed by the provisions of Banking Regulations Act, 1949 and Reserve Bank of India Act, 1934. This factual scenario does not obtain in the present case, and consequently the said judgment in the case of Global Trust Bank Ltd. [2004(5) ALD 667] is wholly inapposite to the issue at hand i.e. of the reduction of the share premium account of the company engaged in the business of gems/ gold/ jewellery by adjustment of its consolidated losses arising out of diminution in the investments/ shares in related subsidiaries incorporated for the same purpose. Further even otherwise the view taken in the case of Global Trust Bank Limited (supra) is an isolated view against a plethora of judgments to the contrary by different high courts across the country holding that the share premium account of a company can be reduced or utilised for adjustment of the company's consolidated losses where the concerned company's articles of association provide for reduction of share capital and a special resolution for the purpose has been passed by the requisite majority ....