TaxTMI 
TaxTMI 
2021 (6) TMI 687
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....of the petitioner from INR 1,00,000 (Indian rupees one lakh) divided into 1,000 (one thousand) equity shares of INR 100 (Indian rupees one hundred) each to INR 76,000 (Indian rupees seventy six thousand) divided into 760 (seven hundred and sixty) equity shares of INR 100 (Indian rupees one hundred) each by cancelling and extinguishing paid-up equity share capital of INR 24,000 (Indian rupees twenty four thousand) divided into 240 (two hundred and forty) equity shares of INR 100 (Indian rupees one hundred) each. 3. The board had sent a notice and explanatory statement dated October 25, 2019 convening an extraordinary general meeting to the shareholders of the company on October 30, 2019. By a special resolution of the company, duly passed in accordance with section 66(1) of the Companies Act 2013, at the extraordinary general meeting thereof held after due notice as provided under the Companies Act, 2013 on October 30, 2020 the shareholders unanimously accorded their approval to the reduction of the equity share capital : "Resolved that pursuant to the provisions of section 66 of the Companies Act, 2013 read with the National Company Law Tribunal (Procedure for Reduction....
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....he Accounting Standards applicable to the company. Resolved further that any director of the company, be and is hereby authorized severally to do all such acts, matters, deeds and things as may be necessary or desirable including any directions for settling any question or doubt or difficulty whatsoever that may arise, for the purpose of giving effect to the proposed reduction of the share capital of the company as placed before the board or to any modification thereof in particular : (i) file application with the National Company Law Tribunal for directions and confirmation of the proposed reduction of equity share capital, signing, affirming and verifying affidavit, applications, petitions, vakalatnama, etc., before the National Company Law Tribunal ; (ii) to appoint or engage any counsel, advocate, legal advisors, attorney, representatives and any other persons in connection with the proposed reduction of equity share capital ; (iii) make representation on their own or through legal counsels before the National Company Law Tribunal or other authorities for confirmation of the proposed reduction of equity share capital ; and (iv) do al....
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....dian rupees fifty four lakhs and seventy five thousand only) which is in excess of the wants of the petitioner (consideration amount) be paid and returned from the free reserves of the petitioner to Gopi Suri Babu, a shareholder of the petitioner (outgoing shareholder), under the proposed scheme of capital reduction, as consideration in lieu of the cancellation and extinguishment of 240 (two hundred and forty) equity shares of INR 100 (Indian rupees one hundred) each held by the outgoing share-holder. Accordingly, the outgoing shareholder would receive a premium of approximately INR 22,700 (Indian rupees twenty two thousand seven hundred only) on each share being returned by him and a total premium of INR 54,48,000 (Indian rupees fifty four lakhs and forty eight thousand only). 7. The board of directors examined and analyzed various options available to the company and after detailed deliberations came to the conclusion that reduction of the equity share capital in accordance with section 66 of the Companies Act, 2013 read with the National Company Law Tribunal (Procedure for Reduction of Share Capital of Company) Rules, 2016 and other applicable laws, would be the most appropri....
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....565.26 lakhs. 11. Further, prior to and after capital reduction, the net worth of the company shall remain positive and therefore, the reduction of capital would not in any way have any adverse effect on the company's ability to honour its commitments or meet its obligations in the ordinary course of business. 12. Post reduction of share capital of the company, Gopi Suri Babu being 24 per cent. shareholder of the company, would receive his entire investment in share capital of the company given that such amounts are in excess of the needs of the company. 13. All three shareholders of the petitioner have provided their unanimous consent to the proposed scheme by way of a special resolution of the shareholders and consent in writing, and it is not prejudicial to the interest of any shareholder of the petitioner. 14. The outgoing shareholder, Mr. Gopi Suri Babu has executed an affidavit of consent on October 6, 2020 stating that he has consented to the share capital reduction and the consideration amount offered under the proposed scheme. 15. The petitioner-company is authorized by way of the articles of association to undertake reduction of its share capital. Artic....
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....the outgoing share-holder, other shareholders, creditors or any other liability of the petitioner. There are no objections received from either of the shareholders, creditors or any statutory authority against the proposed scheme. Finding : 23. The legal question arises for consideration is whether the proposed reduction of capital by way of extinguishing the shareholding of 24 per cent. shareholder is just and equitable and not prejudicial to the interest of the outgoing shareholder ? 24. The petitioner-company proposed that an aggregate share capital of INR 54,75,000 (Indian rupees fifty four lakhs and seventy five thousand) which is in excess of the wants of the petitioner (consideration amount) be paid and returned from the free reserves of the petitioner-company to Gopi Suri Babu, a shareholder. Under the proposed scheme of capital reduction, as consideration in lieu of cancellation and extinguishment of 240 equity shares of INR 100 each held by the outgoing shareholder. A premium of INR 22,700 on each share is offered and hence a total amount of Rs. 54,48,000 is being offered to him. 25. The outgoing shareholder has consented to the share capital reduction and fil....
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....d equipment for waste-water treatment, liquid processing and handling equipment. The petitioner-company is a closely held company with 76 per cent. share-holding being held by affiliated Pentair companies. 29. The petitioner-company has surplus share capital and free reserves which are in excess of needs of the petitioner-company for its business operations. 30. Senior counsel for the petitioner relied on the judgment this hon'ble Tribunal in the case of Better World Technology P. Ltd., In re (C. P. No. 278 of 2019) [2021] 225 Comp Cas 428 (NCLT) wherein it was has held that, where all the shareholders have approved the reduction including shareholders whose shares are being cancelled as per the law as laid down, the petition for reduction of share capital should be allowed. In the aforementioned case, this hon'ble held (page 433) : "The resolution for capital reduction has been passed unanimously at the meeting of the board of directors. All the shareholders of the petitioner-company have participated in the special resolution approving the capital reduction and voted in favour of the resolution at the shareholders' extraordinary general meeting held on ....
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.... of the majority which prevails. (ii) If majority by special resolution 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 shares of others being extinguished totally, receiving a just equivalent. (iv) The company limited by shares is permitted to reduce its share capital in any manner, meaning thereby a selective reduction is permissible within the framework of law. (v) When the matter comes to court, before confirming the pro posed reduction the court has to be satisfied that (i) that there is no unfair or inequitable transaction and (ii) all the creditors entitled to object to the reduction have either consented or been paid or secured." 34. The Chennai Bench of this hon'ble Tribunal in the case of Green House Promoters P. Ltd., In re (C. A. No. 374/66(1)/201....
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.... 176 Comp Cas 156 (AP) wherein it was held that in the case of a reduction of capital, a court cannot interfere with the discretion and commercial wisdom of the stakeholders and the board of directors. If the reduction is one which is properly passed by the shareholders who are treated equitably and have had the facts explained to them, and provided the creditors are safeguarded, the court will habitually sanction reductions. It was of the following opinion that : "Either in the case of a reduction of capital or a scheme of arrangement or both, the court cannot interfere with the discretion and commercial wisdom of the stakeholders and the board of directors. If the reduction is one which is properly passed by the shareholders who are treated equitably, have had the facts explained, and provided the creditors are safeguarded, the court will habitually sanction reductions and exercise its discretion in favour of them unless the act is a pointless and hollow act. Provided those requirements are satisfied, the company may reduce its capital in any way that it thinks fit. The court does not exercise any appellate power over the decision of the company or its management. The co....
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....might reasonably consider to be fair and equitable. The principles upon which the court will require to be satisfied are, that all share holders are treated equitably in any reduction. That usually means that they are treated equally but may mean that they are treated equally save as to some who have consented to their being treated unequally. The next principle to be applied is that the shareholders, at the general meeting, had the proposals properly explained to them so that they could exercise an informed judgment upon them; that the creditors of the company are safeguarded so that money cannot be applied in any way which would be detrimental to creditors, and the reduction is for a discernible purpose." 39. It is relevant to refer to section 66 of the Companies Act, 2013 which contemplates the reduction of capital. Section 66 is extracted below : "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 respe....
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.... under the articles of association of the company. 44. The petitioner-company has published notice (in form No. RSC-4) in English Paper Navhind Times and Konkani Newspaper Bhaagnagar Bhuin on November 21, 2019. Notice to creditors (in form No. RSC-3) was issued on October 26, 2019. The petitioner has filed additional affidavit of service. There is no opposition to the proposed reduction from any creditor and the shareholders have unanimously consented to the proposed reduction. 45. In the light of the above facts, the settled law as laid down in several judicial decisions aforesaid referred to and the vital aspect that the outgoing shareholder, Mr. Gopi Suri Babu, has no objection to the proposed scheme of reduction, but has consented to receive the said consideration upon negotiations and mutual agreement between the parties, this Bench approves the reduction of capital without valuation of actual shares, by carving out an exception considering the extraordinary circumstances of this case. Such selective reduction is permissible under law in view of ratio laid down in several decisions of courts and hence the objection of Regional Director/Registrar of Companies, Goa is unte....