TaxTMI 
TaxTMI 
2019 (8) TMI 1737
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.... A. The Petitioner Company seeks an order for reduction of its share capital as resolved by the Special Resolution dated 04th February, 2019. B. It is further averred in the Petition that the Petitioner Company was incorporated on 19th May 1997 under the name and style of Collabera Solutions Private Limited. On 03rd January 2014, the name of the Company was changed to 'Brillio Technologies Private Limited'. It bears CIN U22190KA1997FTC022250 with the Registrar of Companies, Karnataka. The Registered office of the Petitioner Company is situated at No.58, 1st Main Road, Mini Forest, JP Nagar, 3rd Phase, Bangalore- 560 078. C. The main objects of the Petitioner Company are to inter alia 'carry on business of publishing multi-media web-sites for Companies, Corporations, Institutions, Individuals and entities including text, audio, video, images, graphics, animation and other forms of information representations', etc. The detailed objects of the Company is given in the Memorandum and Articles of Association of the Petitioner Company. D. The latest authorized share capital of Petitioner Company as on 31st March 2018 is as follows: Authorise....
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....ousand Six Hundred and Thirty Seven) equity shares of Re. l/- each from non-promoter equity shareholders for a consideration of Rs. 5,61,33,034/- (Rupees Five Crores Sixty One Lakhs Thirty Three Thousand and Thirty Four only) being 89,52,637 (Eighty Nine Lakhs Fifty Two Thousand Six Hundred and Thirty Seven) equity shares of Re. 1/- each with premium of Rs. 5.27/- (Rupees Five and Twenty Seven Paisa only) per share paid out of the Securities Premium Account. The Securities Premium Account of Rs. 15,24,81,955/- (Rupees Fifteen Crores Twenty Four Lakhs Eighty One Thousand Nine Hundred Fifty Five only) shall accordingly be reduced to Rs. 10,53,01,558/- (Rupees Ten Crores Fifty Three Lakhs One Thousand Five Hundred and Fifty Eight Only). I. At the Extraordinary General Meeting held on 04th February 2019, the shareholders resolved subject to confirmation by the Tribunal, to reduce the paid up share capital to from the existing Rs. 21,72,50,000/- (Rupees Twenty One Crores Seventy Two Lakhs Fifty Thousand only) consisting of 21,72,50,000 (Twenty One Crores Seventy Two Lakhs Fifty Thousand only) equity shares of Re. l/- each by reducing 89,52,637 (Eighty Nine Lakhs Fifty Two Thous....
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....- 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/- L. It is stated that there are NIL Secured creditors and 186 Unsecured Creditors of the Petitioner Company as on 08.02.2019 and that a Certificate by the Auditor confirms the veracity of the list of Secured and Unsecured Creditors. It is further stated that there are no arrears in repayment of any deposits or interest payable thereon as on the date of this Petition and that a Declaration to the same effect has been filed by the Directors of the Company. It is stated that the Certificate by the auditor has verified that there are no arrears in repayment of any deposits or interest payable thereon. M. The Auditors of the Petitioner Company have verified the Accounting Treatment and have given a Certificate dated 21st February 2019 stating that the Accounting Treatment for reduction is in conformity with Accounting Standard under Section 133 of the Companies Act, 2013. Vide another certificate by the same Auditor also dated 21st February....
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....vii. There are no prosecutions, technical scrutiny and complaints pending against the petitioner company. 5. 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 petitioner Company for the Scheme of Reduction. b) That the Applicant Company has passed special resolution dated 04.02.2019 for reduction of share capital u/s 66(1) read with section 52 of the Companies Act, 2013 to reduce its equity share capital from Rs. 21,72,50,000/- (Rupees Twenty One Crores Seventy Two Lakhs Fifty Thousand only) consisting of Rs. 21,72,50,000/- (Twenty One Crores Seventy Two Lakhs Fifty Thousand) of Re. 1/- each to Rs. 20,82,97,363/ (Rupees Twenty Crores Eighty Two Lakhs Ninety Seven Thousand Three Hundred and Sixty Three only) consisting of 20,82,97,363 equity shares of Re. l/- each by reducing 89,52,637 equity shares of Re. 1/- each from the non-promoter equity shareholders for a consideration of Rs. 5,61,33,034/- being 89,52,637 equity shares of Re. 1/- each with premium ....
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....out of the Securities Premium Account, thereby reducing to the Securities Premium Account from Rs. 15,24,81,955/- to Rs. 10,53,01,558/-. j) As per Section 52(1) where a company issues shares at a premium, whether for cash or otherwise, a sum equal to the aggregate amount of the premium received on those shares shall be transferred to a "Securities Premium account" and the provisions of this Act relating to reduction of share capital of a company shall, except as provided in this section, apply as if securities premium account were the paid up share capital of the company. (2) Notwithstanding anything contained in sub-section (1), the securities premium account may be applied by the company- (a) towards the issue of unissued shares of the company to the members of the company as fully paid bonus shares; (b) in writing off the preliminary expenses of the company; (c) in writing off the expenses of, or the commission paid or discount allowed on, any issue of shares or debentures of the company; (d) in providing for the premium payable on the redemption of any redeemable preference shares or of any debentures of the company; or (e) ....
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....tered 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 petitioner 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 there are no secured creditor. The Petitioner may be directed to clarify the same. s) As per the Scheme of reduction, the amount to be paid out will be kept in separate Escrows Account for three years and the amount remained unpaid will be transferred to IEPF. Whereas as per Section 125 such amount cannot be transferred to IEPF. The Petitioner may be directed to clarify the same. t) The Scheme of reduction is not across the border and is only for a selective group of members (Non-Promoter group) and intends to pay off at a premium of Rs. 5.27/- from and out of the Securities Premium account which is not tenable as per the provisions of Section 52 of the Companies Act, 2013 and the company ought to have gone for buy back of shares instead of the present petition.....
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....ompany is in relation to a charge created on the asset of the account of the forex limit that the Petitioner Company has taken from the bank. Since the Petitioner company is primarily into export driven business, receipts are in USD. In this regard, to safeguard from the currency fluctuations. the Petitioner Company, against which these hedges are booked for which the bank has created a charge on the assets. It is just a facility arrangement and there is no loan involved. vi. In response to observation of the ROC that as per Section 125 amount to be paid out cannot be kept in IEPF- the Petitioner Company has a total of 171 non-promoter shareholders. Out of the total 171 non-promoter shareholders, majority of them are untraceable. The petition for reduction of capital states that the amount to be paid to the untraceable non-promoter shareholders will be kept in an escrow account for a period of 3 years. As a good corporate governance, the proposed scheme states that any amount remaining unclaimed in the escrow account for more than 3 years pursuant to capital reduction would be transferred to the Investor Education and Protection Fund. Section 125 of the Companies Act, 2013....
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....-holders to provide them with an opportunity to dispose off their shareholding in the Petitioner Company and provide liquidity to the shares held by them in the Petitioner Company. Taking the requests of the non-promoter shareholders into consideration, the Board of Directors decided to provide liquidity to the non-promoter shareholders by a reduction in the equity share capital of the Petitioner Company. Also, the proposed reduction of equity share capital is to make the Petitioner Company a wholly owned subsidiary of its current holding company and also return the excess capital to the non-promoter equity shareholders. ii. In response to the observation of RD regarding Related Party Transactions during the years 2017-18: The related party transactions were undertaken at arm's length and is in compliance with the provisions of Section 188 of the Companies Act, 2013. Further. point (xiii) of Annexure I of the Independent Auditor's Report of the Petitioner Company also states that transactions entered into with related parties are in compliance with section 188 of the Companies Act, 2013. iii. In response to the observation of RD regarding FEMA/RBI complian....
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....ervices Pvt Ltd. vi. In response to the observation of RD regarding Section 52: as provided under Section 52(1) of the Companies Act, 2013 for reduction of share capital of the company in accordance with the provisions of Companies Act, 2013 (except for the purposes specified under Section52(2) of the Companies Act, 2013), the Securities Premium account shall be treated as paid-up share capital of the company. In a nutshell, the provisions of Section 52 states that if Securities Premium account is utilised for any of the purpose(s) specified in Section 52(2) of the Companies Act, 2013 then such utilisation is not regarded as reduction of share capital as per Section 66 of the Companies Act. 2013. If the Securities Premium account is utilised for any other purpose, then provisions of Section 66 must be followed. The Petitioner Company is utilising Securities Premium account for paying back the premium amount to its shareholders as part of reduction of share capital, which has not been prescribed under sub-section 2 of the Section 52 of the Companies Act, 2013 and accordingly. the Petitioner Company must follow the provisions of section 66 of the Companies Act, 2013. The uti....
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..../- Total 25,00,00,000/- The paid up equity share capital of the Petitioner Company is 21,72,50,000 equity shares of Re. l/- each out of which 7 members having 20,98.35,163 equity shares of Re. l/- each have attended the meeting and voted in favour of the scheme of reduction of capital and none voted against the scheme. x. In response to the observation of RD regarding Unsecured Creditors of the Petitioner Company: The Petitioner Company has furnished a Certificate dated 21.02.2019 for S.R. Batliboi & Associates LLP, Chartered Accountants stating that the Petitioner Company is having 186 Unsecured Creditors amounting to Rs. 14,31,11,022. In accordance with section 66(2) of the Companies Act, 2013 read with Rule 3 of NCLT (Procedure for Reduction of Share Capital of Company) Rules, 2016 and also the Bench Order dated 14/03/2019, individual notices were issued to creditors and newspaper advertisements in 'The Hindu' and 'Udayavani' were undertaken as well. The Petitioner Company is not in receipt of any representation or objections from any of the creditors during the period of three months from the circulation of individual notices. xi....
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....uidity to the respective holdings in any way legally framed. The Company has the option of either reducing its share capital as per Section 66 or to opt for buy back of shares under Section 68, subject to approval of authorities. In absence of any specific provisions in the Companies Act, 2013 and the rules thereon to mandatorily follow one option over another, the Company shall adopt any of the methods set under the act for meeting the request of the shareholders to provide an exit opportunity. In the Board Meeting on 24/01/2019 and the Extraordinary General Meeting held on 04/02/2019, it was decided that repayment of excess capital through reduction of share capital method is envisaged in Section 66 of the Companies Act, 2013. In case of buy-back under section 68, the offer lapses after thirty days. If the offer of buy back goes unnoticed by any shareholder intended for such exit option, the opportunity for such exit is lost. Further, section 68 restricts the Company from issue/allotment of similar kind of securities for a period of six months from end of buy back, which can be detrimental to the business of the Company as it may not be able to attract investments through the cap....
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....authorised signatory of the Petitioner Company has filed a reply Affidavit dated 02^nd August 2019, giving a response to the Additional Affidavit of RD inter alia as follows: i. In response to the observation of RD regarding reduction of capital by paying to a selective group i.e, Non Promoter Group: Section 66 of the Companies Act, 2013 provides that a company can reduce its share capital in 'any manner' subject to, among other things, (i)the approval of the shareholders by way of special resolution; (ii)the approval of the National Company Law Tribunal; and (iii)the accounting treatment for such reduction being in conformity with the accounting standards specified under the Companies Act, 2013. Further, if a Company decides to selectively reduce its capital, the articles of association of the Company ought to allow the company to reduce its capital from time to time, and in any manner for the time being authorised by law. Upon request from Non-promoter Shareholders to dispose off their shareholding in the Petitioner Company, the Board of Directors decided to provide liquidity to the non- promoter shareholders by a selective reduction in the equity share capital a....
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.... is started that Petitioner Company has obtained a valuation report from M/s BDO India LLP dated November 12, 2018 and the valuation methodology adopted by M/s BDO India LLP is Discounted Cash Flow ("DCF") method which is an internationally accepted pricing methodology. c. Petitioner Company has undertaken to file Form FC-TRS with the Authorised Dealer Banker ("AD Banker") within the prescribed timelines as well as to comply with all the other FEMA/RBI regulations in case of payment to non-residents. 11. We have seen the opinion given by the Registrar of Companies, Karnataka and Regional Director in their Affidavits as well as the reply of the Petitioner Company. We have heard the advocates appearing for the Petitioner Company. 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, it is relevant to refer to the following judgements. 12. In Re Panruti lndustrial Co. Private Ltd, AIR 1960 Mad 537, it was held that the Court's power to sanction any reduction is to be determined by whether such reduction is fair and equitable. It held, ....
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....he argument and hearing of the petitioner." 15. As per Section 52(2) on Application of Premiums Received on Issue of Shares, it is stated: (2) Notwithstanding anything contained in sub-section (1), the securities premium account may be applied by the company- (a) towards the issue of unissued shares of the company to the members of the company as fully paid bonus shares; (b) in writing off the preliminary expenses of the company; (c) in writing off the expenses of, or the commission paid or discount allowed on, any issue of shares or debentures of the company; (d) in providing for the premium payable on the redemption of any redeemable preference shares or of any debentures of the company; or (e) for the purchase of its own shares or other securities under section 68. 16. It is the bounden duty of the Tribunal to ensure that no injustice is meted out to any class of shareholders and even to creditors. Section 52 provides utilisation of security premium Account for premium payable on redemption of redeemable preference shares or of any debentures of the company or for the purchase of its own shares or other securities under....