TaxTMI 
TaxTMI 
2021 (4) TMI 814
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....s') has been dismissed with the liberty 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 equ....
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....paid share capital. The Creditors of the Company are also in no way affected by the proposed 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. A....
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....Scheme is allowed. vii. There are no prosecutions, technical scrutiny and complaints pending against the company. 13. The Regional Director, Ministry of 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 ....
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.... of reduction of capital and none voted against the scheme. Whereas as per the scheme issued and paid capital of the company is 20,82,97,363 equity shares of Re.1/- each,theCompany may be advised to clarify as to the difference in the figures as stated 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 ....
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....d bringing the company as a 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 not covered under Section 66 of the Act. However, the case may be covered under Sections 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.....
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.... SPA, for their application, must comply to the provisions reduction of share capital of the Company except when the Application is one or more of the four specific instances in Section 78 of the Companies Act, 1956.The High Court of Rajasthan reiterated the same view in Vaibhav Global Ltd. (Company Petition No. 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 ....
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....he prospective investors. 28. It is further submitted that Financial Statements of the Company does not show any kind of accumulated loss which will prompt the Appellant Company to reduce the capital. Instead of taking the route of reduction of capital by the way of pick and choose formula, company may go for buyback of shares. 29. It is 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 Se....
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.... shareholders." 36. In support of this pleadings the Appellant has filed certain emails received from the non-promoter shareholders with the request to provide them an opportunity to dispose of their shareholding in the petitioner company. (Please see Pg. 500 to 509 Vol. 3 of Appeal Paper Book) 37. There is no law that a Company can reduce its capital only to reduce any kind of accumulated loss. 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, prop....
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....f the view that the observation of Ld. Tribunal in Para 11 of the impugned order "It is observed that while objections have not been received from creditors, neither has any consent affidavits on their behalf been produced. With regard to reduction of share capital." is erroneous. Ground No. iii 46. Ld. Tribunal held that SPA cannot be utilized for making payment to non-promoter shareholders. In this regard, we would like to refer the 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 Prem....
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....in sub-Section (1) of Section 78. The entire Section 78 has to be read as a whole and all the sub-Sections of this Section have to be read and interpreted so as to give a meaningful interpretation. Sub- Section (1) & (2) of Section 78 when read together clearly show that they form part of the same scheme. As aforesaid, the scheme is that the amounts collected as premium while issuing shares, which are required to be transferred to a separate account called the "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 ....
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....cation/ utilisation of the share premium account treated thereunder as paid up capital for purposes other than the purposes set out in clauses (a) to (e) of Section 52(2) and Section 52(3) of the Act of 2013. Contrarily it actively so permits as evident from its plain language. And when so done the reduction of the share premium account has to be compliant with Sections 100-104 of the Act of 1956. 16. The provisions for reduction of share capital presently obtaining 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....
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....it could be so utilised as the purposes set out in then extant Section 78 of the Act of 1956 (new section 52 of the Act of 2013) were in any event merely illustrative. Such was also the view of the Calcutta High court in the case of Ushacomm India (P) Ltd. [(2006) 2 CHN 473] where the scheme for reduction of the securities premium account for the business reconstruction of the petitioner company was approved. Finally in the case of re: Zee Telefilms Ltd. [2004(6) Bom. Comp. Cases 270] 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.....
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....ve considered whether selective reduction (non-promoter shareholders) of share capital of the Appellant Company is permissible. As per Section 66 of the Act, reduction of share capital can be done in 'any manner'. Clause (a) & (b) of Section 66 of the Act, mere illustration and not the only manner in which share capital may be reduced. For the purpose it is useful to refer the Judgment of Hon'ble Bombay High Court in the case of Sandvik Asia Ltd. (Supra) In this case the company had proposed a resolution 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 n....
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....the non-promoter shareholders having voted in favour of the Resolution shows that the court will not be justified in with holding its sanctioned to the resolution. As the Supreme Court has recognized that the Judgment of House of Lords in the case of British American Trustee and financial corporation Ltd. Is a leading Judgment on this subject, we are justified in considering ourselves bound by the law laid down in that judgment. As we find that there is similarity in the facts in which the observation is made in the judgment 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. (....
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....attracted. 57. In the light of aforesaid proposition of law we can safely held that selective reduction is permissible if the non-promoter shareholders are being paid fair value of their shares. In the present case, none of the non-promoter shareholders of the Company have raised objection about the valuation of their shares. It is nobody's case that the proposed reduction is unfair or inequitable. It is also made clear that the proposed reduction is for whole non-promoter shareholders of the company. Ground No. vi 58. Ld. Tribunal in Para 17 of the impugned order held as under: "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,....
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....in the Companies Act and a which has not been carried out. It, therefore, appears that section 391 is a complete code which provides for sanctioning of thescheme of compromise and arrangement. If such a scheme of compromise and arrangement includes increase of share capital, it can be done as a part of the reorganization of the share capital, which would be part of the arrangement that would be brought about between the company and its members. In case of reduction of share capital, in view of rule 85, the procedure prescribed under section 100 and onwards will have to be gone through. Looking at the 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 ....