TaxTMI 
TaxTMI 
TaxTMI 
2025 (1) TMI 554
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....mined by registered valuer, thus aggregating to an amount of INR 190,00,00,008/- to be repaid over a period of time as a loan between the Appellant Company and its shareholder. 3. The rationale for reduction is as follows:- a) The appellant company operates a four-lane highway on BOT (toll) model. The said highway has been operational since July, 2009. In the initial years of operations, the traffic on the project was lower than the target traffic leading to the Appellant Company earning lower revenue and consequently incurring losses. As a result, the Appellant Company has accumulated losses thereby impacting its ability to distribute surplus cash to its shareholders by way of dividend. Currently, the appellant Company is witnessing increase in revenue because of the toll rates revision and traffic growth. Appellant company expects the overall revenue growth to further increase in the years to come. Consequently, the Appellant Company with the sustained growth anticipates sufficient cash flows to pay off its liabilities and expenses and projects there to be surplus cash flows which can be repatriated to the shareholders. b) Based on the steady and regular cash flow streams of....
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....5 equity shares of INR 10 each, fully paid up and that such reduction shall be effected by returning to the shareholders INR 11.33 per equity share (being the fair market valuation of the equity shares of the Appellant Company as determined by the registered valuer CA Harsh Chandrakant Ruparelia in his report dated 29th November 2022) aggregating to an amount of INR 190,00,00,008/-, which shall be kept outstanding as a loan to the Appellant Company on the following terms: Particulars Terms Coupon rate 14% p.a. or such other rate as may be mutually agreed between the Company and its shareholders from time to time Payment of coupon Annually or at such other interval as may be mutually agreed between the Company and its shareholders Tenure At any time within a period of 5 years from the date of order of the NCLT approving the said Petition; or at an extended period as may be mutually agreed between the Company and its shareholders Security Unsecured The capital reduction further required that the difference between the face value of the shares so cancelled and the amount to be paid to the members shall be adjusted against the balance in Retained Earnings. 4. The Special R....
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....ital into unsecured loans shall be interest bearing, it has propensity to impact the operating as well as financial ratios of the petitioner company. 13. We are of considered view that the scheme of section 66(1)(b)(ii) of the Companies Act, 2013 only enables a company to pay off excess capital to its shareholders, which is considered in excess of wants of the company. The facts of the case clearly shows that such reduced share capital can not be said to be in excess of wants of the company on the date of passing of special resolution. Accordingly, such reduction is not permissible under the terms of Section 66(1)(b)(ii) of the Companies Act, 2013. Further, the effect of such conversion shall be indirect lending by the overseas shareholders, which is allowed in terms of External Commercial Borrowings guidelines in accordance with provisions of Foreign Exchange Management Act and such guidelines permit borrowings by a resident subject to terms and conditions provided in such guidelines in case such borrowings is under automatic route. 14. In view of the aforesaid discussion, we are of considered view that the proposed scheme of reduction of share capital in terms of section 66(1....
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....ovided 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 the interest payable thereon. 11. A bare perusal of the above section would show it gives discretion to the appellant company to reduce its share capital "in any manner" subject to special resolution being passed by requisite majority of shareholders. 12. In Indian National Press (Indore) Ltd (1989) 66 Comp Cas 387 (MP), the Court held:- 20 & 21. The need for reducing capital may arise in various ways, for example, trading losses, heavy capital expenses, and assets of reduced or doubtful value. As a result, the original capital may either have become lost or a company may find that it has more resources than it can profitably employ. In either case, the need may arise to adjust the relation between capital and assets. The company has the right to determine the extent, the mode and incidence of the reduction of its capital. But the court, before it proceeds to confirm the reduction of capital, must see that the interests of the minority and that of the creditors are adequately protected and there is no u....