TaxTMI 
TaxTMI 
2022 (7) TMI 1282
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....oposed by the Appellant Company on the following grounds: "19. From the Balance Sheets submitted by the Company, it is noted that as on 24.08.2020 as per books, the Company is having negative net worth/ Shareholders Funds of Rs. 1609.66 lakhs (Share Capital of Rs. 698.50 lakhs + Other Equity of Rs.(-) 2308.16 lakhs) and Borrowings and Inter Corporate Loans are to the tune of Rs. 11354.43 lakhs. Other Equity consists of Share Premium Account and Accumulated Losses. The Book value per share as on 24.08.2020 is Rs. (-) 23.04. Further, for the Previous Financial year 2019-20, the Company's Total Income is Rs. 1962.45 lakhs and Interest Payments (Finance Cost) is Rs. 1019.37 lakhs. 20. Based on the accounting treatment, on capital reduction, the negative net worth/ Shareholders Funds of the Company as per Books may go to Rs. 7014.59 lakhs (Share Capital of Rs. 1 lakh + Other Equity of Rs. (-) 7015.59 lakhs), the Book value per share to Rs. (-) 70110.81 and the Companies Borrowings and Inter Corporate Loans to the tune of Rs. 11354.43 lakhs. 21. Section 66(1) of the Companies Act, 2013 with respect to capital reduction is reproduced below: ....
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.... Share capital by cancelling Rs.69,75,000/- Equity Shares of Rs.10 each and paying to the holder of such Equity, the agreed amount of Rs.77.49 per Equity Share. Pursuant to the receipt of Notices in Form RSC - 2, the Regional Director made a representation dated 29.05.2020 observing as follows: "i. Compliance of Section 61 of the Companies Act, 2013; ii. There are foreign shareholders in the Petitioner Company; iii. The foreign shareholder of the Company has purchased shares of this company at Rs. 57.27 per share and reduction of capital is proposed on Rs. 77.49 per equity share in favour of shareholder, which clearly reflect that the foreign shareholder will have benefit of Rs. 20.22 per share. iv. The Company does not have sufficient liquidity for making of payment towards reduction of share capital. v. 3 Letters are received by office of Regional Director from certain persons claiming to be creditor of the Company. vi. The notice of reduction of capital should have been sent to the Income Tax Authority;" The NCLT has also recorded the response of the Appellant Company with respect to these observations. 3. Submission....
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.... details of the Creditors of the Company, class-wise indicating their names, addresses and amounts owed to them. In support of his contention, the Learned Counsel also placed reliance on the following Judgements: o 'Hyderabad Industries Limited' High Court of Andhra Pradesh - OSA 35/2004 o 'RHI India Pvt. Ltd. & Ors.' Vs. 'Union of India' Company Appeal (AT) No. 128 of 2020 o 'Lily Realty Private Limited', CP No. - 5415/MB-I/2019 o 'Times Global Broadcasting Company Ltd.', Company Scheme Petition No. 445 of 2016 * It is strenuously argued that the Appellant Company had sufficient funds and regular sources of Cash Flow arising out of the Power Purchase Agreement entered into with GUVNL. It is contended that the net worth of the Appellant Company appeared to be negative in its books of account only due to depreciation being charged on the assets of the capital-intensive industry i.e., the Solar Power Plant. The Appellant Company has investments of Rs.810.62 Lakhs/- and Rs.1181.29 Lakhs/- with Banks and liquid mutual funds, respectively. The Appellant Company also has cash and balances of Rs.56.45 Lakhs/- and Rs.3569.90 Lakhs respectively. ....
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....o the provisional Balance Sheet prepared as on August 24, 2020 and has also not objected to the clarificatory Affidavit filed by the Appellant Company before the NCLT. Assessment: 5. Section 66(1) of the Companies Act, 2013 reads as hereunder: "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 respect of the share capital not paid up; or b) either with or without extinguishing or reducing liability on any of its shares, - (i) cancel any paid-up share capital which is lost or is unrepresented by available assets; (ii) pay off any paid-up share capital which is in excess of the wants of the Company, alter its memorandum by reducing the amount of its share capital and of its shares accordingly. Provided that no such reduction shall be made if the Company is in arrears in the repayment of any deposits accepted by it, either before or after the commencement of this Act, or ....
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.......the question of reduction of capital has been treated as a matter of domestic concern, one for the decision of the majority of the shareholders of the company." 8. The principles distilled from the aforesaid precedents were summarized in 'Reckitt Benckiser (India) Ltd. (CP 206 of 2004) (Delhi High Court)' that has further been upheld by several courts: "(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 reduction decides to reduce share capital of the Company, it has also the right to decide as to how this reduction should be carried into effect...." 9. In a recent Order of this Tribunal in 'Economy Hotels India Services Limited' Vs. Registrar of Companies', it is observed that: "Be it noted, that 'Reduction of Capital' is a 'Domestic Affair' of a particular Company in which, ordinarily, a Tribunal will not interfere because of the reason that it is a 'majority decision' which prevails..." 10. The Hon'ble Andhra Pradesh High Court while allowing a Scheme of Reduction in the matter of 'IL&FS Engineer and Constr....
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.... ... might reasonably approve" - yet the underlying commercial purposes need not be investigated. The court will not be concerned with their commercial reasons for approval. (Re MB Group plc ; In re Dorman, Long and Company Limited v. In re South Durham Steel and Iron Company). 11. It is seen from the record that the Reduction of the Share Capital was approved by the Shareholders of the Appellant Company unanimously by way of a Special Resolution with the objective of reducing the overall weighted average cost of Capital and improving the earnings per share. In 'Reckitt Benckiser (India) Ltd. (Supra), the Hon'ble Delhi High Court has upheld the view that "the question of reduction of Share Capital will be treated as a matter of domestic concern i.e., it is the decision of the majority which prevails. If majority by Special Reduction decides to reduce the Share Capital of the Company, which also has the right to decide as to how this reduction should be carried into effect...". In the instant case, admittedly, the reduction of this Share Capital was approved unanimously by the Shareholders by way of a Special Resolution. 12. This Tribunal in 'RHI India Pvt. Ltd.', 2021 SCC Onl....
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....ctions raised by the Regional Director, Western region. Since no minority shareholders have raised any objections against the scheme thus, the commercial wisdom of the shareholders shall not be overlooked by the NCLT. We are of the view that the scheme cannot be said to be violative of public policy just on the ground that NCLT considered that the scheme appears to benefit only a few shareholders of Transferor Company without giving any reasonable findings for the same...." 13. The High Court of Andhra Pradesh in 'Hyderabad Industries Ltd.', (2005) 123 Comp. Cas 458, has observed as hereunder: "...6. It is very well settled and needs no restatement that this Court does not exercise any appellate power over the decision of the Company or its management. The Company Court in its equity jurisdiction is required itself to satisfy and see that the procedure by which resolution is carried through is legally correct and the shareholders and creditors are not prejudiced. It is also the duty of the Court that it had to see that the scheme is fair and equitable between the different classes of shareholders. It is no doubt true that it is the duty of the Court to protect the inter....