TaxTMI 
TaxTMI 
2021 (3) TMI 231
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....P. No. 771 of 2017 allowed the Company Petition for reduction of share capital as sought by Respondent No. 1 herein who is the Petitioner before the NCLT. Factual Matrix of the case: 2. The First Appellant Party in person herein put forth his submissions on behalf of other Appellants in a virtual mode method. He submitted that the Appellant Nos. 1 to 5 herein are the shareholders of the Respondent-Company. The 1st Appellant holds 2150 shares, Appellant No. 2 holds 150 shares, 3rd Appellant holds 1200 shares, the 4th Appellant holds 926 shares and 5th Appellant holds 500 shares. He submitted that the Respondent-Company converted into a Public Company and its shares were listed on Bombay Stock Exchange (in short 'BSE'). However, subsequently its shares were de-listed since June, 2007. He submitted that the Respondent-Company, after delisting its shares have public shareholders compromising 11,81,036 shares, which comes to 3.59% of total paid up by share capital. These shareholders are minority/non-promotor shareholders. 3. While so, there is change in promotor group of the Respondent-Company. The Respondent-Company intend to reduce its equity-share capital under Section 66 o....
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....ent-Company is financially sound and has positive networth. The reduction of the Capital may arise in different circumstances namely, accumulated business loss, erosion of networth etc. In the present case, as stated above, the Respondent-Company is making good profits and therefore the reduction of share capital especially extinguishing the public shares of the Company is unjustified. In view of the aforesaid reasoning, he sought various reliefs as prayed in page-21 of the Appeal Paper Book, namely, allow the Respondent-Company to bear DDT and direct the Respondent-Company to re-value the shares of the Company considering the growth and progress in the past three years i.e., 2018, 2019 and 2020. He submitted that the valuation was done in the year 2017 and the learned NCLT passed the order allowing the Application of the Company on 27.10.2020 thereby from the date of valuation of shares three years have elapsed and profits made during these three years have not been taken into consideration. In these three years, the Company has substantially gained profits and the Appellants are entitled to share profits of the Company for the reason that the public shareholders have substantiall....
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....ependent Valuers is fair and reasonable from a financial point of view. The Board of Directors of the Respondent-Company considered the expert reports for the purpose of arriving at a conclusion for consideration of the amount payable to the public shares at the Board meeting held on 01.10.2017. The Board of Directors decided that the higher of the two valuers, arrived at by the Independent Valuers i.e., Rs. 2444.70 by PWC Auditors considered as a fair value of the equity shares, Further, the Board considered and approved the value of Rs. 2445/- per share and passed the requisite Resolution on 01.11.2017 approving reduction of the share capital. 5. Learned Senior Counsel for the Respondent submitted that Company decided to hold EOGM and issued a Notice calling for the EGM to be held on 08.12.2017 to pass special Resolution for reduction of the share capital. The EOGM was held on 08.12.2017 and in favour of the Resolution 99.87% votes were cast and against the resolution 0.13% votes were cast; thereby the Resolution was passed in the EOGM held on 08.12.2017. Thereafter, the Company filed petition before the NCLT, Mumbai seeking its confirmation to the capital reduction. 6. Lea....
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....l wisdom of the Company and while reducing the share capital, the Company can decide to extinguish the some of its shares without dealing with the same manner as with all other shares of the same class. He further submitted that the Courts and Tribunals in India, in a number of cases, have permitted the selective reduction of share capital treating the same as an internal matter of Company. 8. Learned Senior Counsel for the Respondent Company relied upon a judgment of Delhi High Court in the case of Reckitt Benckiser (India) Ltd., (2005) 122 DLT 612, the Hon'ble High Court held as under: "(i) The question of reduction of capital is a matter of domestic concern and the shareholders, passing the special resolution, can also decide the manner in which the reduction should be carried into effect. (ii) It is for the company to decide whether each member shall have his shares proportionately reduced, or whether some members shall retain their shares unreduced, the shares of others being extinguished totally receiving a just equivalent; (iii) Selective reduction is permissible within the frame work of law; and (iv) The court should be satisfied that ....
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....ellants failed to prove the same. 14. In view of the reasons above, learned senior Counsel submitted that the Appeal is devoid of merits and liable to be dismissed. Appraisal: 15. Heard Appellants in person and learned Senior Counsel for the Respondent-Company, perused the records, documents and citations relied upon by them. 16. Paragraphs 28 & 29 of the impugned order dated 27.10.2020 passed by NCLT, Mumbai reads as under: ... "28. In the light of above, the bench is only concerned with the first issue of objection of the 3.59% of the minority shareholders as a whole, is with regard to their legitimate expectation to be adequately compensated with regard to value of shares. The rights of minority shareholders qua the Valuation of shares as per the two Valuers and the Fairness report has to be examined. 29. The second issue regarding method of valuation and assumptions carried out by the Valuers is examined below. The method of valuation by both valuers is as extracted below for ready reference: 17. The first Issue as framed in paragaraph-28 is that the minority shareholders adequately compensated to their legitimate expectation with regar....
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....ellants that the Company adopted a selective method for the reduction of the share capital is concerned, we are not in the agreement with the submission of the Appellants. Sub-Section 1 of Section 66 of the Companies Act, 2013 reads as under: "66. Reduction of share capital (1) Subject to confirmation by the Tribunal on an application by the company, a company limited by shares or limited by guarantee and having a share capital may, by a special resolution, reduce the share capital in any manner and in particular, may- (a) extinguish or reduce the liability on any of its shares in respect of the share capital not paid-up; or (b) either with or without extinguishing or reducing liability on any of its shares,- (i) cancel any paid-up share capital which is lost or is unrepresented by available assets; or (ii) pay off any paid-up share capital which is in excess of the wants of the company, alter its memorandum by reducing the amount of its share capital and of its shares accordingly: Provided that no such reduction shall be made if the company is in arrears in the repayment of any deposits accepted by it, either ....
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....rcise any appellate functions. It is not a valuer. It does not have necessary skills or expertise. It cannot substitute its own opinion for that of the shareholders. Its jurisdiction is peripheral and supervisory, not appellate. 25. Having observed, we have already indicated that we are not going into the merits of the valuation. However, public shareholders expect best price for their shares. The share is a movable property and the holders of the share has every right to expect best price and fair value of its shares. 26. In this regard, Hon'ble Supreme Court in the matter of Bacha F. Guzdar Vs. Commissioner of Income Tax, Bombay (AIR 1955 SC 74), at paragaraph-8 held as under: 'The true position of a shareholder is that on buying shares an investor becomes entitled to participate in the profits of the company in which he holds the shares if and when the company declares, subject to the Articles of Association, that then profits or any portion thereof should be distributed by way of dividends among the shareholders. He has undoubtedly a further right to participate in the assets of the company which would be left over after winding up but not in the assets as a whol....
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....00, Volume-1 of the Appeal Paper Book that the Company will be liable to pay DDT in accordance with the provision of Section 115-O of the Income Tax, 1961. However, in the changed circumstances, the Company has stated that the DDT was abolished by the Central Government under the Finance Act, 2000 w.e.f. 01.04.2020, thereby the Company will not be in any obligation to pay DDT. In the Written Submission filed by the Respondent, vide diary No. 23805 dated 03.12.2020 at paragraph-4, page-2 it is stated that provision of Income Tax, 1961 as amended by the Finance Act, 2020, the obligation of the Respondent-Company to pay DDT has been abolished by an amendment in the provision of the Income Tax, Act, 1961. Unless the said amendment is challenged and declared as illegal, the amendment made in the Income Tax will exist and the same is enforceable and in operation by the said amendment. We agree with the submissions of the learned Senior Counsel for the Respondent. The Appellants have not questioned/challenged the amendment to the DDT. Therefore, we do not interfere with the said provision of law as amended unless the same is abolished and declared as void by the Competent Courts. 31. T....
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.... Financials: Five years' highlights Year 2018-19 2017-18 2016-17 2015-16 2014-15 Sales 2,91,513 2,71,803 2,87,356 2,92,736 2,90,475 Other Income 21,641 16,869 13,066 9,197 10,589 Total Income 3,13,154 2,88,672 3,00,422 3,01,933 3,01,064 Profit before tax 73,897 44,003 45,087 46,519 46,086 Provision for tax 23,545 15,724 16,254 14,854 7,043 Profit after tax (excluding other comprehensive income) 50,352 28,279 28,833 31,665 40,043 Dividend (including distribution tax) 1,986 1,982 1,982 1,982 1,982 Dividend percentage 100 100 100 100 100 Share capital 1,647 1,647 1,647 1,647 1,647 Reserves/Surplus (excluding capital reserves) 3,24,997 2,76,570 2,50,660 2,24,100 1,94,105 Net worth (excluding capital reserves) 3,26,645 2,78,217 2,52,307 2,25,747 1,95,752 Capital employed-a 3,26,645 2,78,217 2,52,307 2,25,747 1,95,752 ROCE(percentage)-b 15.41 10.16 11.43 14.03 20.46 RONW (percentage)-c 15.41 10.16 11.43 14.03 20.46 ....
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....-promotor shareholder is to revalue the shares of the Company by appointing independent valuers and whatever the fair price arrived at by independent valuers, the same shall be paid to the public shareholders. It is clear that if the Company makes profits, the same need to be shared with the public shareholders/non- promotor shareholders which are exiting from the Company by surrendering their shares. As stated supra, we are not going into the veracity of the fairness of the valuation reports and not finding fault with the valuation done by the Valuers. We also hold that the reduction of the share capital is in accordance with law and we do not interfere with the same. We are concerned that the public shareholders/non-Promotor shareholders, economic interest need to be protected by paying latest fair value arrived at by the independent valuers whichever is higher. 40. One of the submissions made by the learned Senior Counsel for the Respondent that post 2017 if the Company makes losses whether the public shareholders/non-promotor shareholders will bear the losses. In answer to the said query in a share market, the shareholders always expect better price. For example, if the shar....