TaxTMI 
TaxTMI 
2021 (3) TMI 1374
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.... 4. That the Petitioner Company has passed a Special Resolution on 7th December 2019 whereby the shareholders have approved the reduction in the equity share capital by proportionately returning capital to the shareholders to the tune of an amount of INR 0.10/- (Indian Ten Paisa Only) per share aggregating to INR 3,20,00,000 (Indian Rupees Three Crores Twenty Lakhs Only). Further, the difference between the face value of the equity shares so cancelled and the amount to be paid to the shareholders, shall be first adjusted against the debit balance of Profit and Loss Account and balance if any, shall be credited to the Capital Reserve in the books of the Petitioner Company and shall be deemed to form part of the reduction of capital. 5. The Regional Director has filed a Report dated 16th October 2020 stating therein, the following in para 7 and 9 of the said Report: "7. ROC, Mumbai in the Report No. ROC/STA/255807/U/s. 66/1921 dated 31.08.2020 inter-alia mentioned at para No. 18 that there is no complaints received against the company/Scheme of reduction. However, the status of the complaint verified from Portal of MCA website, it is observed that one SRN for complaint ....
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.... A. Apropos observation made in para 7 of the Report of the Regional Director is concerned, there are no complaints received against the Petitioner Company/scheme of reduction but there is one SRN reflected on the MCA portal in relation to some complaint for which the status is unknown. The complaint against the Petitioner Company relates to a matter unconnected with the reduction of capital. B. Apropos observation made in para 9(a) of the Report of the Regional Director is concerned, the Petitioner Company states that the interest of the creditors, all stakeholders and Government Revenue will be protected and undertakes that statutory dues will be paid off in due course. C. Apropos observation made in para 9(b) of the Report of the Regional Director is concerned, the Petitioner Company states that tax issues, if any, arising out of the proposed reduction of capital shall be subject to final decision of Income Tax Authorities. The approval of this petition by the Tribunal will not deter the Income Tax Authorities to scrutinize the tax return filed by the Petitioner Company after giving effect to the proposed reduction and the decision of the Income Tax Author....
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....e payment of share capital to the shareholders by way of reduction of share capital is not envisaged by section 66 of the Act and that the same is in the guise of buy-back is contradictory to the judicial precedents available on the subject matter. d. In this regard reliance is placed on the following rulings, wherein despite the company having accumulated losses, the Hon'ble Bombay High Court/NCLT, Mumbai has allowed payout to shareholders pursuant to reduction of share capital, since the company demonstrated sufficient liquidity to discharge the consideration to be paid as a result of capital reduction. * Times Global Broadcasting Company Limited (Company Scheme Petition No. 445 of 2016) (@Page 2-4, Para 4 and 6 of the Judgement) "4. The Counsel for the Petitioner Company states that the shareholders of the Petitioner Company have at its Extra Ordinary General Meeting held on 3rd June, 2016 consented for the reduction of the issued, subscribed and paid up share capital of the Petitioner Company from Rs. 2,85,00,00,000 (Rupees Two Hundred and Eighty Five Crores only) comprising of 8,57,89,606 (Eight Crores Fifty Seven Lakhs Eighty Nine Thousand Six H....
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....or Counsel for the Petitioner Company further submits that the Company Petition was filed for providing the non-promoter public shareholders an opportunity to liquidate their shareholding at a fair and equitable price. 4. ...The Learned Senior Counsel for the Petitioner Company further submits that the Petitioner Company have passed a special resolution on 25th October 2018 whereby the shareholders had approved the reduction in the issued, subscribed and paid-up equity Share Capital of the Petitioner Company by cancelling and extinguishing the equity shares held by the non-promoter in the Company. Consequent to the reduction, the issued, subscribed and paid-up equity share capital of the Petitioner Company would get reduced from INR 22,56,15,640 (Indian Rupees Twenty Two Crores Fifty Six Lakhs Fifteen Thousand Six Hundred and Forty Only) comprising 22,561,564 fully paid up equity shares of INR 10 (Indian Rupees Ten Only) each to INR 21,73,19,510 (Indian Rupees Twenty One Crores Seventy Three Lakhs Nineteen Thousand Five Hundred and Ten Only), comprising of 2,17,31,951 fully paid up equity shares of INR 10 (Indian Rupees Ten Only) each... 20. Application for the re....
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....r submits that the Petitioner Company having passed a special resolution on 18th March, 2019 whereby the shareholders had approved the reduction in the equity share capital on a proportionate basis from the shareholders from INR 49,85,720/- (Indian Rupees Forty Nine Lakhs Eighty Five Thousand Seven Hundred and Twenty only) divided into 4,98,572 (Four Lakhs Ninety Eight Thousand Five Hundred and Seventy Two only) equity shares of INR 10/- (Indian Rupees Ten only) each to INR 29,95,720/- (Indian Rupees Twenty Nine Lakhs Ninety Five Thousand Seven Hundred and Twenty only) divided into 2,99,572 (Two Lakhs Ninety Nine Thousand Five Hundred and Seventy Two only) equity shares of INR 10/- (Indian Rupees Ten only) each, and that such reduction is effected by returning capital to the shareholders on a proportionate basis of an aggregate amount of INR 77,11,34,950/- (Indian Rupees Seventy Seven Crores Eleven Lakhs Thirty Four Thousand Nine Hundred and Fifty only). Further, the difference between the face value of the equity shares so cancelled and the amount to be paid to the shareholders, shall be adjusted in the Capital Reserves of the Petitioner Company and such shall be deemed to form pa....
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.... because of the reason that it is a 'majority decision' which prevails. One of the oldest judgements on the subject is the judgement of the House of Lords of England in the case of British and American Trustee and Finance Corporate v. Couper, (1894) AC 399. In this case, the Court held that the prescribed majority of the shareholders of a company is entitled to decide whether there should be a reduction of capital, and if so, in what manner and to what extent it should be carried into effect. The Court observed that: "..It will be observed that neither of these statutes prescribes the manner in which the reduction of capital is to be effected. Nor is there any limitation of the power of the Court to confirm the reduction..." "I do not see any danger in conclusion that the Court has power to confirm such a scheme as that now in question, or any reason to doubt that this was the intention of the Legislature. The interest of the creditors are not involved, and I think it was the policy of the Legislature to entrust the prescribed majority of the shareholders with the decision whether there should be reduction of capital, and if so, how it should be carried in....
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....n without prejudice to the generality of the foregoing "in any way" (Re. Ratters Group Plc). The Statute has not prescribed the manner in which the reduction is to be carried out nor has it prohibited any method effecting the object..." j. In view of the above, the Petitioner Company respectfully submits that Section 66 of the Act allows the company to pay-off the share capital to the shareholders pursuant to reduction of share capital and thus, it would be inappropriate to re-characterize the same as buy-back. E. Apropos observation made in para 9(d) of the Report of the Regional Director is concerned, the Petitioner Company states that the inquiry under section 206 of the Act is an ongoing proceeding and that the application for reduction of share capital under section 66 of the Act does not come in way of the inquiry. Since both are independent matters, the scheme should be allowed irrespective of the pendency of inquiry. 7. It is further submitted that one of the creditors namely, Shapoorji Pallonji (Complainant) has raised a claim against the Petitioner Company for which it has not filed any affidavit and it is the subject matter of a pending arbitration i....