AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2021 (4) TMI 814
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....to file a fresh Company Petition in accordance with law. 2. Brief facts for deciding this Appeal are that the Appellant 'Brillio Technologies Pvt. Ltd.' is a private Company incorporated on 19.05.1997 under the provisions of the Companies Act1956, in the name and style of Collabera Solutions Pvt. Ltd.On 03.01.2014. the name of the Company was changed to Brillio Technologies Pvt. Ltd. The registered office of the company is situated at No. 58, First Main Road, Mini Forest, J.P. Nagar, 3rd Phase, Bangalore. The main objects of the Company are to inter alia carry on business of publishing Multimedia Web-site for Companies, Corporations, Institutions individuals and entities including text, audio, video, images, graphics, animation and other forms of information representations etc. 3. The latest authorized share capital of the Company as on 31.03.2018 is as follows:- Authorized Capital 21,72,50,000 equity shares of Re. 1/- each 3,27,500 participatory convertible preference shares of Rs. 100/- each 21,72,50,000/- 3,27,50,000 Total 25,00,00,000/- Issued, Subscribed and paid up capital 21,72,50,000 equity shares of Re. 1/- each 3,27,500 participatory conver....
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....ed reduction of equity share capital as there is no reduction in the amount payable to any of the creditors, no compromise or arrangement is contemplated with the creditors and there is no reduction in the security, which the creditors may have in the Company. Further, the proposed reduction of equity share capital would not in any way adversely affect the ordinary operations of the Company or the ability of the Company to honour its commitments or to pay its debts in the ordinary course of its business. Subsequent to approval of the proposed reduction of equity share capital by the Tribunal, the proposed capital structure of the company will be as follows:- Authorized Capital 21,72,50,000 equity shares of Re. 1/- each 3,27,500 participatory convertible preference shares of Rs. 100/- each 21,72,50,000/- 3,27,50,000/- Total 25,00,00,000/- Issued, Subscribed and paid up capital 20,82,97,363 equity shares of Re. 1/- each 3,27,500 participatory convertible preference shares of Rs. 100/- each 20,82,97,363/- 3,27,50,000/- Total 24,10,47,363/- 9. As on 08.02.2019 there are no secured creditors, however, there are 186 unsecured creditors of the Company.....
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....Corporate Affairs, South-East Region, Hyderabad represented by Registrar of Companies has filed Affidavit dated 02.07.2019 inter alia making the following observations: a) That the articles No. 45 and 47 of the AOA allows the Company for the Scheme of Reduction. b) That the Company has passed special resolution dated 04.02.2019 for reduction of share capital u/s 66(1) read with section 52 of the Act. c) As per Balance Sheet as at 31-03-2017, 31-03-2018, and 31.01.2019 the Company has shown a Profit of Rs. 4,11,67,088/-, Rs. 5,10,22,964/- and Rs. 5,91,59,446/- respectively. d) The Scheme of Reduction of Capital, upon request from Non-promoter Shareholders to dispose off their shareholding in the Company, the Board of Directors decided to provide Liquidity to the Non- Promoter shareholders by a selective reduction in the equity share capital and also to make the Company Wholly Owned Subsidiary of its current holding Company and also return the Excess Capital to them. e) The Company has Related Party Transactions during the years 2017-18. Necessary compliance under Section 188 of the Companies Act, 2013 may be done by the Company. f) As per Scheme of Reduction of capital o....
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....tated above. n) The Company has furnished the Certificate dated 21.02.2019 of S.R. Batliboi& Associates LLP, Chartered Accountants, which is certifying that proposed Accounting Treatment by the Company in reduction of share capital is in conformity with Accounting Standards under section 133 of Act. o) The company has furnished a certificate dated 28.03.2019 for S.R. Batliboi& Associates LLP, Chartered Accountants certifying that the company do not have Secured Creditors and also given a certificate stating that the Company is having 186 Unsecured Creditors amounting to Rs. 14,31,11,022. No objection to the Scheme by these Unsecured Creditors be furnished by the Company before approval of the Scheme. p) The Company has furnished a certificate dated 21.02.2019 from S.R. Batliboi& Associates LLP, Chartered Accountants, certifying that the company has not accepted any deposits from the public and hence there are no arrears in repayment of deposits or the interests thereon. q) The Company has not filed the valuation report in support of the valuation arrived. r) As per the master data of the company, one open charge is pending against the company. However, as per the petition....
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....ions 230-232 of the Act. Wherein compromise or arrangement between the Company and its creditors or any class of them or between a Company and its members or any class of them is permissible. Therefore, the Company failed to make out any case under Section 66 of the Act and thus, the petition is dismissed with the liberty to file appropriate application as per extant provisions of the Act. 19. Being aggrieved with this order, the Appellant has filed this Appeal. 20. Ld. Counsel for the Appellant submitted that there is no mandatory requirement to secure consent affidavits from the creditors under Section 66 of the Act or Rules. Section 66(2) of the Act, provides that Tribunal shall give notice of every application made under Section 66(1) to the Central Government, ROC, SEBI and Creditors of the Company and shall take into consideration the representation, if any, made to it. Accordingly, the Tribunal while its order dated 14.03.2019 directed to issue individual notice to Respondents and Creditors and also directed to cause newspaper publication in "The Hindu" and "Udayavani" and file proof of the same. The order of the Tribunal was fully complied with and as per Rule 3(1) of the....
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....4 of 2016). 23. Ld. Counsel for the Appellant submitted that the reduction of share capital of the Appellant Company is being proposed consequent to request received from non-promoter shareholders, who have no liquidity. Apart from non-promoter shareholders, only M/s GCI Global Ventures Company holds 95.88% share of the Appellant Company, which has categorically agreed to the reduction. Further, non-promoter shareholders are being paid face value plus premium for their shares. Section 66 of the Act, provides that subject to confirmation by the Tribunal on an application by the Company having share capital may by a special resolution, reduce the share capital in any manner. Clause (a), (b) of Section 66(1) of the Act are mere illustrations and not the only manner in which share capital may be reduced. In support cited the Judgment of Hon'ble Bombay High Court in the case of Sandvik Asia Ltd. Vs. Bharat Kumar Padamsi & Ors. (2009) SCC Online Bom. 541 and Hon'ble Delhi High Court in the case of Re. Reckitt Benchkiser (India) Ltd. (2005) SCC Online Del. 674. 24. It is further submitted that only reduction of share capital cannot be constituted as arrangement or compromise under Secti....
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....also submitted that 171 non-promoter shareholders were untraceable thereby no consent has been taken from them. Claim of such shareholders has not been secured or determined. Hence, without taking consent from such shareholders and securing their rights will prejudice their shareholding in future. 30. It is further submitted that in the EGM even though special resolution has been passed with the intention to reduce the capital but no proper genuine reason has been given by the Appellant Company to substantiate their proposed reduction of share capital. The Pick and choose formula has been adopted to eliminate the role of non-promoter minority shareholders. No reason has been given as to why Appellant Company has not offered this scheme to all class of shareholders. 31. Ld. Counsel for the Respondents submitted that funds lying in the Security Premium Account (SPA) can only be used for the dedicated purpose but not for the purpose of reduction of share capital and sub-Section 2 of Section 52 of the Act, clearly states that in which manner funds can be utilized. 32. It is also submitted that in view of the facts and circumstances of the case the interest of minority shareholders h....
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.... 38. With the aforesaid it cannot be said that the Appellant Company has not given any genuine reason for reduction of share capital. Ground No. ii 39. Now we have considered that whether obtaining of consent affidavit from the creditors is required. It is useful to refer the relevant Provisions, Sub- Section 3 of Section 66 of the Act, reads as under: (3) The Tribunal may, if it is satisfied that the debt or claim of every creditor of the company has been discharged or determined or has been secured or his consent is obtained, make an order confirming the reduction of share capital on such terms and conditions as it deems fit: Provided that no application for reduction of share capital shall be sanctioned by the Tribunal unless the accounting treatment, proposed by the company for such reduction is inconformity with the accounting standards specified in section 133 or any other provision of this Act and a certificate to that effect by the company's auditor has been filed with the Tribunal. 40. Sub-Rule 6 of Rule 3 of National Company Law Tribunal (Procedure for Reduction of Share Capital of Company) Rules 2016 reads as under:- "(6) Where the Tribunal is satisfied that ....
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....e Judgment of Hon'ble High Court of Delhi in re. Nestle India Ltd. (Supra) it is held as under:- 19. At the outset, I consider it appropriate to analyze the relevant provisions of the Act on my own. The aspect of issue of shares at a premium or at a discount is dealt with in the Act in Sections 78, 79 & 79A. I am only concerned with Section 78 for the present. Section 78(1) states that the premium collected by the company while issuing shares shall be transferred to a separate account called the "Securities Premium Account". The manner in which the amount lying in the "Securities Premium Account" can be utilized and the purposes for which it can be utilized is also provided for by Section 78. Section 78(1) states that the "Securities Premium Account" would be regulated by the provisions of the Act, which deal with the aspect of reduction in the securities capital of a company. However, the provisions of the Act relating to reduction of securities capital would not apply to the "Securities Premium Account", when the same is utilized as provided in the Section itself. Section 78(2) enumerates four specific purposes for which the amount lying in the "Securities Premium Account" may ....
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....he "Securities Premium Account" are governed by provisions of the Act relating to reduction of securities capital of a company. That is the general rule. However, an exception is carved out. The exception is that the provisions of the Act relating to reduction in securities capital would not apply "as provided in this section". Therefore, in respect of the specific applications of the "Securities Premium Account" provided in sub-section (2) of Section 78, the general procedure prescribed in sub-section(1) of Section 78 would not apply. If the submission of Ms. Manisha Dhir, Advocate, is accepted that the Securities Premium Account can be utilized only for the four specific purposes, which are enumerated in Section 78(2) and for no other purpose, it could lead to absurd situations. Take for instance, the case of a company which has issued shares at a premium and which does not have any unissued shares, which it proposes to issue as bonus share or any outstanding preliminary expenses which could be written off or any expenses towards commission or discount paid or allowed on issue of shares or debentures of the company, which could be written off and any obligation for payment of pre....
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....ing are Section 100 to 105 of the Act of 1956. Section 100(1) of the Act of 1956 states that where the Articles of a company provide and where a special resolution of its equity shareholders has been passed a company can reduce its share capital in any way. This general power is followed by illustrative cases where the share capital can be reduced. The illustrations however do not negate reduction of share capital for other purposes. The special resolution for reduction of share capital passed by the requisite majority of equity shareholders has however to be approved by the court. As such where reduction of share capital of a company authorised by its Articles of Association is supported by a special resolution of equity shareholders, the court of which approval is sought is merely to evaluate whether it is reasonable, just and fair and not prejudicial to the interest of the shareholders, creditors or any other stakeholders of the company. If the aforesaid conditions are satisfied, it is not for the ROC or the company court to sit over the judgment of the requisite majority of shareholders as if in appeal. 17. In the instant case Article 10 of the Articles of Association of the....
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....] the Mumbai High court having considered the scheme and purpose of reduction of share premium found no illegality or breach of any provision of law in approving its reduction where it was just, fair and proper and wholly within the framework of the law. 48. Hon'ble High Court of Gujarat whilst allowing the reduction of share capital by reducing the Share/Securities Premium Account in Re. Alembic Ltd. (2007) SCC Online Guj. 242 held as under:- "6. It is further pointed out in the Petition that the proposed reduction does not involve diminution of any liability or repayment of paid up capital. In fact, no reduction is envisaged in the issue, subscribed or paid up share capital of the company. Since, the share premium account forms the part of the capital in the terms of section 78 of the Companies Act 1956, the utilization of the amount laying in this account also needs to be treated as reduction of capital. In view this, while admitting the petition this court granted dispensation of the procedure as required under Section 101 (2) of the Act and under Rules 48 to 64 of the Companies (Court) Rules 1959." 49. Hon'ble High Court of Delhi in Nestle India Ltd. (Supra) and Hon'ble ....
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....on for reduction of paid equity share capital. The Resolution was to the effect that the share capital of the Company be reduced by paying off /returning to the holders of equity share other than the promoters at rate of Rs. 850 per share i.e. Rs. 100 by way of face value plus Rs. 750 premiums per share, whereby extinguishing all such share. The Petition was opposed by the Respondents who are nonpromoter shareholders of the Company. Hon'ble Division Bench held as under:- "8. Perusal of Section 100 further shows that a company can reduce its share capital in any way. 54. In the present case, it is nobody's case that the special resolution passed by the company is invalid or has not been passed by following the procedure laid down by the Act. It is also nobody's case that in the Article of the Association of the Company there is no provision authorizing the company to reduce its share capital. It is also nobody's case that the amount i.e. being offered to the non-promoter shareholders is not just or fair. The only objections is that the scheme for reduction of share capital proposed by the special resolution wipes out a class of shareholders namely the non-promoter shareholders an....
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....in the case of British and American Trustee and Finance Corporation, we will be well advised to follow the law laid down in that case. In our opinion, therefore, the Ld. Single Judge was in error in declining to grant sanction to the special resolution. 56. Hon'ble High Court of Delhi in the case of Reckitt Benckiser (India) Ltd. (Supra). After considering many Judgments held as under:- 21. The principles, which can be distilled from the aforesaid judicial dicta, are summarized as under: (i) The question of reduction of share capital is treated as matter of domestic concern, i.e. it is the decision of the majority which prevails. (ii) If majority by special resolution decides to reduce share capital of the company, it has also right to decide as to how this reduction should be carried into effect. (iii) While reducing the share capital company can decide to extinguish some of its shares without dealing in the same manner as with all other shares of the same class. Consequently, it is purely a domestic matter and is to be decided as to whether each member shall have his share proportionately reduced, or whether some members shall retain their shares unreduced, the share....
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....er: "The present Petition moreover, also involves selective reduction in equity share capital to a particular group involving non-promoter shareholders and bring the petitioner company as wholly owned subsidiary of its current holding company and also return excess of capital to them. This is an arrangement between the company and shareholders or a class of them and hence it is also not covered under Section 66 of the Act." 59. Hon'ble Gujarat High Court in re. Maneckchowk and Ahmadabad Manufacturing Company Ltd. (Supra) while dealing a case under Section 391 (2) of the Companies Act, 1956, for sanctioning a scheme for compromise and arrangement between the creditors and members of the Company and the compromise proposed by the Company dealt with the scope of Section 391 of the Companies Act, 1956. (Section 230 of the Companies Act, 2013) held as under :- 23................................................................................................... ...................................................................................................... ............................. Section 391 provides a complete code of putting through a scheme of compromise and arrangem....
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....e matter from a slightly different angle, it appears that section 391 is a special provision for sanction of a scheme of reconstruction of companies, of amalgamation of companies and for a scheme of compromise and arrangement. The scheme of compromise and arrangement, or for that matter even the scheme of amalgamation of two companies, may envisage reorganisation of share capital of one or the other company. The Companies Act no doubt makes provision for reduction of share capital simpliciter, increase of share capital simpliciter, or fresh issue of capital simpliciter without its being part of any scheme of compromise and arrangement. The scheme of compromise and arrangement can be brought about only between the company which is liable to be wound up under the Companies Act and its members or creditors. The special provision contained in section 391, namely, sanction of the scheme of compromise and arrangement would in my opinion exclude general provisions for reduction of share capital or for issue of fresh capital. It is well settled that a special provision should be given effect to the extent of its scope, leaving the general provision to control cases where the special provis....