Case Law Details
In re Panama Wind Energy Godawari Private Limited (NCLT Mumbai)
The National Company Law Tribunal (NCLT), Mumbai Bench, allowed the petition filed by Panama Wind Energy Godawari Private Limited under Section 66 of the Companies Act, 2013 seeking confirmation of reduction of its preference share capital. The company proposed cancellation and extinguishment of its entire issued, subscribed and paid-up preference share capital comprising 6,99,99,502 8% Cumulative Non-Convertible Preference Shares held by its sole preference shareholder by utilizing the funds available with the company. The reduction was proposed at a consideration of ₹9.43 per preference share based on a valuation report, with the accounting difference between the face value and the cash payment to be adjusted against the company’s Profit and Loss Account.
The proposal had been unanimously approved by the equity shareholders and the sole preference shareholder through special resolutions. The company informed the Tribunal that notices had been served upon all creditors, the secured creditor had furnished a no-objection certificate, and the proposed reduction would not affect creditors as there was no compromise or arrangement with them and their dues would continue to be paid in the ordinary course of business. The statutory auditors also certified the accounting treatment and confirmed that the company had not accepted any deposits.
The Regional Director raised observations regarding protection of creditors and government revenue, tax implications, applicability of Sections 55 and 68 of the Companies Act, and compliance with significant beneficial ownership provisions. In response, the company submitted that the petition had been filed under Section 66, which independently permits reduction of share capital in any manner with Tribunal approval. It contended that the conditions prescribed for redemption of preference shares under Section 55 were not applicable because the company lacked distributable profits required for redemption, while it possessed sufficient cash to undertake reduction under Section 66. The company further submitted that the transaction did not amount to a buy-back under Section 68 and relied upon judicial precedents supporting the availability of Section 66 as an independent mechanism for reducing preference share capital.
The Tribunal examined the issue of the applicability of Section 55(3) and accepted the company’s submissions that the provision applies where a company intends to issue fresh preference shares in place of unredeemed preference shares, whereas Section 66 authorizes reduction of share capital with Tribunal approval. It also referred to judicial precedents recognizing that preference shares may be dealt with through the general provisions governing reduction of capital. The Regional Director subsequently informed the Tribunal that the explanations and clarifications furnished by the company were satisfactory and that no further objections survived.
Accordingly, the NCLT allowed the petition, confirmed the reduction of preference share capital, approved the revised capital structure, and directed the company to file the certified order and approved minutes with the Registrar of Companies, publish notices in the prescribed newspapers, and comply with statutory formalities. The Tribunal further clarified that any tax consequences arising from the reduction would remain subject to the jurisdiction of the Income Tax Authorities.
Cases Discussed
- Birla Global Finance Ltd., (2005) 126 Comp Cas 647 (Bombay)
- JSK Multi Products Private Limited, CP No. 111/Chd/Chd/2020
- Jubilant Clinsys Ltd., (2017) 203 Comp Cas 646 (NCLT Allahabad)
- Kadaieshwar Homefin Private Limited, CA/542/2020 (NCLT Chennai)
FULL TEXT OF THE NCLT JUDGMENT/ORDER
1. The present Petition is filed by Panama Wind Energy Godawari Private Limited (Petitioner Company) for confirmation of reduction of preference share capital of the Petitioner Company under Section 66 of the Companies Act, 2013 and in accordance with the National Company Law Tribunal (Procedure for Reduction of Share Capital of Company) Rules, 2016 and other applicable provisions, if any.
2. The Petitioner Company is a private limited company incorporated under the provisions of the Companies Act, 1956. The registered office of the Petitioner Company is situated in Pune and therefore, this Bench has the jurisdiction to entertain the petition.
3. The nature of business as per the Memorandum of Association of the Petitioner Company is as follows:
“To procure licenses and other authorities and concessions for or in relation to the generation and supply of energy from wind and to undertake, assist, promote developmental, scientific, technical, engineering research activities associated with the generation, transmissions and distribution of power derived from non-conventional source of energy i.e. wind and to take over any licenses or concessions hold by any person, firm or company, in and around Godawari basin of India.”
4. It is stated that Article 37 of the Articles of Association of the Petitioner Company authorizes it to reduce its share capital, any capital redemption reserve account, or any securities premium account including share premium account, in any manner as authorized by law by passing a special resolution.
5. The certificate issued by the Statutory Auditors confirming that the accounting treatment for reduction of equity share capital is in accordance with the accounting standards specified under section 133 and other provisions of the Companies Act, 2013 is annexed to the Petition.
6. The Statutory Auditors have also issued a certificate certifying that the company has not accepted any deposits.
7. The share capital of the Petitioner Company as per unaudited financial statement for the year ended 31.03.2023 is as follows:
| Particulars | Amount (INR) |
| Authorized Capital | |
| 33,53,50,000 Equity Shares of Rs. 10 each | 3,35,35,00,000 |
| 7,46,50,000 8% Cumulative Non-Convertible Preference Shares of Rs. 10 each | 74,65,00,000 |
| Total | 4,10,00,00,000 |
| Issued, subscribed and paid-up Share Capital | |
| 32,78,10,203 Equity Shares of Rs. 10 each fully paid up | 3,27,81,02,030 |
| 6,99,99,502 8% Cumulative Non-Convertible Preferences Shares of Rs. 10 each fully paid | 69,99,95,020 |
| Total | 3,97,80,97,050 |
8. It is proposed to reduce the issued, subscribed and paid-up preference share capital of the Petitioner Company by way of cancelling and extinguishing all the preference shares issued by the Company, being 6,99,99,502 8% Cumulative Non-Convertible Preferences Shares (CNCPS) of Rs. 10 each of the Petitioner Company held by sole preference shareholder, M/s. Panama Wind Energy Private Limited, by utilizing the funds available with the Company.
9. The reduction is proposed to be made at a consideration of Rs. 9.43 per preference share, as indicated in the Valuation Report dated 17.05.2023 issued by Samarth Valuation Advisory LLP, Registered Valuer (IBBI Registration N. IBBI/RV-E/06/2021/157.
10. It is submitted that the Petitioner Company shall pass appropriate entries as per applicable accounting policies and accounting standard (specified in section 133 or other provisions of the Act). Further, the difference of Rs. 3,95,99,716 between the face value of CNCPS of Rs. 69,99,95,020 and cash payment of Rs. 66,00,95,304 shall be adjusted against the Profit and Loss account of the Petitioner Company.
11. There are 2 (two) Equity Shareholders and 1 (one) Preference Shareholder in the Petitioner Company. The Equity Shareholders and the sole Preference Shareholder of the Petitioner Company have approved the said reduction of preference share capital of the Petitioner Company by passing special resolutions at their respective Extraordinary General Meetings held on 30th May 2023. Copy of special resolutions are annexed to the Petition.
12. The Petitioner Company has 1(one) Secured Creditor having an outstanding amount of Rs. 2,64,26,57,039 as on 15.12.2023, and 5(five) Unsecured Creditors with outstanding value of Rs. 1,94,53,149 as on 20.05.2023. It is submitted that the Petitioner Company has served notices upon all its creditors in compliance with the directions of this Tribunal vide Order dated 12.06.2023. The sole secured creditor has given its ‘No-Objection Certificate’ dated 08.01.2024 which is placed on record by way of Additional Affidavit dated 09.01.2024. However, the Petitioner Company submits that the proposed reduction is not likely to cause any prejudice to its creditors as there is no reduction in the amount payable to creditors and no compromise and arrangement is contemplated with the creditors and they will be paid off in the ordinary course of business.
13. The Net-Worth Certificate as certified by the statutory auditors as per audited financial statement for the year ended 31.03.2023 is as follows:
| Particulars | Pre-reduction
(INR) |
Post reduction
(INR) |
|
| Issued, subscribed and paid-up capital | |||
| Equity shares of INR 10 each, fully paid up | 3,27,81,02,030 | 3,27,81,02,030 | |
| Preference Share Capital of INR 10 each, fully paid up | 60,84,69,882* | – | |
| Total issued, subscribed and paid-up capital | A | 3,88,65,71,912 | 3,27,81,02,030 |
| Add: Reserves & Surplus | B | (2,23,32,51,833) | (2,28,48,77,255) |
| Net Worth (A) + (B) | 1,65,33,20,079 | 99,32,24,775 |
*The amount of preference share capital is after Ind-AS adjustment till 31.03.2023, which has been adopted by the Petitioner Company for the first time.
14. The Regional Director (Western Region), Ministry of Corporate Affairs, Mumbai, filed its Report dated 10.10.2023 inter-alia making some observations. Besides the standard observations, the Regional Director have made specific remarks in the Report. Below is reproduced the comments of the Regional Director and the Reply of the Petitioner Company thereto:
| Para | Observation by the Regional Director | Response from the Petitioner Company |
| 6 | ROC, Pune in his Report No. ROCP/Sec.66/Panama Wind/2023/1074 dated 24.07.2023 inter-alia mentioned that there is no complaint, prosecution, investigation, inquiry, inspection filed / pending against the Company. Further the ROC, Pune has made his observation in para no. 23 of his report and stated that,
“The Petition may be decided on the merits considering the interest of minority shareholders and creditors.” |
The Petitioner Company affirm that the present reduction of preference share capital does not envisage any compromise or arrangement with creditors, as no sacrifice is called for from the creditors. The rights of the creditors are not affected as all the creditors would be paid off in the ordinary course of business. Hence, I affirm that the interest of creditors is duly protected. Further, the Petitioner Company is a wholly-owned subsidiary of O2 Power SG Pte. Ltd. Singapore and does not have any minority shareholders. Hence, the question of rights and interest of minority shareholders being affected does not arise. |
| 7(A) | Applicant to submit an Affidavit to the effect that the interest of the creditors and all stakeholders and Government Revenue are protected as well as statutory dues are paid off. | The proposed reduction of preference share capital is for the benefit of the Petitioner Company and its shareholders and the interest of the creditors of the Petitioner Company is not adversely affected by the present Company Petition.
Further, there is no compromise or arrangement with the creditors of the Petitioner Company and there is no reduction in amount payable to any of the creditors of the Petitioner Company, as their respective dues will be paid in the ordinary course of business. Further, the Petitioner Company further submits that, pursuant to the instant Company Petition: (i) there are no minority shareholders in the Petitioner Company; and (ii) statutory dues will be paid by the Petitioner Company in the ordinary course, as per law. The Petitioner Company by way of this Affidavit undertakes to protect the interest of its creditors, all stakeholders and Government Revenue and pay all the statutory dues in ordinary course in accordance with provisions of the law, subject to appropriate remedies available to the Petitioner Company. |
| 7(B) | The tax implication if any arising out of the proposal for reduction is subject to final decision of Income Tax Authorities. The approval of the Company Petition by this Hon’ble Court may not deter the Income Tax Authority to scrutinize the tax return filed by the Company after giving effect to the proposed reduction. The decision of the Income Tax Authority is binding on the petitioner Company. | The Petitioner Company shall comply with all the applicable provisions of the Income Tax Act. The Petitioner Company undertakes that approval of this Company Petition by the Hon’ble Tribunal shall not deter the Income-tax Authorities to scrutinize the Income-tax Returns of the Petitioner Company. It is further submitted that the Petitioner Company will be subject to the applicable tax implications arising out of the Company Petition which will be dealt with in accordance with the provisions of the Income Tax Act. It is further submitted that the capital gain tax, if any, or any other tax implications arising out of the Company Petition in the hands of the shareholders or the Petitioner Company shall be paid / complied by them in accordance with the provisions of the Income-tax Act, 1961. Further, the decision of the Income-tax Authority shall be binding on the Petitioner Company, subject to appropriate remedies and right to appeal available to the Petitioner Company under the provisions of the Income-tax Act, 1961 or any other applicable law in this regard. |
| 7(C) | The subject applications is falling under following provisions of Companies Act, 2013 and Company’s application must satisfy the requirements of Law:-Provisions of Section 55 (2) (a) & (c) provided that; “no such shares shall be redeemed except out of the profits of the company which would otherwise be available for dividend or out of the proceeds of a fresh issue of shares made for the purposes of such redemption; where such shares are proposed to be redeemed out of the profits of the company, there shall, out of such profits, be transferred, a sum equal to the nominal amount of the shares to be redeemed, to a reserve, to be called the Capital Redemption Reserve 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 the Capital Redemption Reserve Account were paid-up share capital of the company; and” Section 55(3) provided that; Where a company is not in a 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 (i) cancel any paid-up share (ii) pay off any paid-up share (i) The Petitioner Company (ii) The Scheme proposes to |
The Petitioner Company hereinunder
submits in relation to each of the points as under: (i) So far as the observation in Regional Director is concerned, the Petitioner Company is not under 55(2)(a) for redemption of Preference Further, it is a well settled position of law that a company has freedom to choose amongst the procedures laid down in the law as it deems fit. Accordingly, the Petitioner Company has undertaken the proposed reduction of preference of share (a) M/s. Birla Global Finance Limited (2005 126 CompCas 647 Bom), whereby the Hon’ble Bombay High Court had approved the reduction of redeemable preference share capital. (b) M/s. Kadaieshwar Homefin Private Limited, NCLT, Division Bench – II, Chennai, CA/ 542/2020, where the Chennai Bench has approved the reduction of Compulsorily Convertible Preference Share Capital. (ii) So far as the observation in Further, the provisions of Section |
| 7(D) | Further the petitioner company has major shareholders namely
1) Berkeley Energy Wind Mauritius Ltd holding 100% shares mentioned in the Financial statements as at 31.03.2022 and 31.03.2023, |
The Petitioner Company submits that O2 Power SG Pte. Ltd. was the parent entity holding 100% equity shares of the Petitioner Company as on March 31, 2023 and as on 20.05.2023 (i.e. the date of list of shareholders as filed along-with Company Petition). Also, none of the individual shareholders, acting alone or together, or through one or more persons or trust, holds indirectly, or together with any direct holdings, 10% or more of the shares or voting rights of the Petitioner Companies, hence filing of Form BEN-2 is not applicable to the Petitioner Company. The Petitioner Company further submits that it would comply with the provisions of Section 90 of the Companies Act, 2013 read with the Companies (Significant Beneficial Owners) Rules, 2018 amended from time to time and make necessary filings with the Registrar of Companies, if required and applicable under the provisions of law. In case the Petitioner Company has not complied with the aforesaid provisions, if applicable, liberty is given to the concerned Registrar of Companies to take appropriate remedies against the Petitioner Company in accordance with law with respect to the above issue, subject to availability of reliefs and remedies to the Petitioner Company under the applicable provisions of the Companies Act, 2013. Without prejudice to the above, the Petitioner Company shall continue to remain in existence, post the Reduction of Preferance Share Capital becoming effective and sanction of this Company Petition shall not have any prejudicial impact on the powers and rights of the concerned Registrar of Companies in accordance with the applicable provisions of the Companies Act, 2013. |
15. When the matter was called on board on 21.12.2023, Mr. Tushar Wagh representing the Regional Director stated that the explanations, clarifications and undertakings are satisfactory and that he had no further objections. However, this Tribunal raised a query about applicability of Section 55(3) of the Companies Act, 2013 and the Counsel for Petitioner Company undertook to file a Note dealing with the issue of applicability/non-applicability of Section 55(3) of the Companies Act, 2013 (Act) in the present case. The RD was also directed to examine the same.
16. The Petitioner Company accordingly filed a Note as per the above directions. It is submitted that the applicability of section 55(3) of the Act would come into play only if the Company is unable to redeem the preference shares or pay dividend thereon and intends to issue fresh preference shares in lieu of existing preference shares, and that such issue shall not increase or reduce the existing capital of the Company. Whereas, Section 66 of the Act empowers a company, subject to the approval of NCLT, to reduce its share capital (including preference shares) in any manner.
17. It is further submitted that in the present case, the Petitioner Company has surplus cash which is to be utilized for payment to preference shareholder. However, in absence of accounting/distributable profits with the Petitioner Company, redemption under section 55 of the Act cannot be undertaken.
18. Reliance is placed on Birla Global Finance Ltd. [(2005) 126 Comp. Case 647 (Bombay)] wherein, it was held that
“14. … preference shares can be redeemed not only in accordance with Section 80 but, also in accordance with the provisions of Section 100 of the Companies Act, 1956 (“1956 Act”). If the shares are to be redeemed not out of the fresh issue of shares made for that purpose nor out of the profits which would otherwise be available for dividend as required under Section 80, provisions of Section 100 of the 1956 Act would have to be complied. Two independent procedures are available to a company for redemption of preference shares. It may redeem the shares by following the procedure laid down under Section 80 of the 1956 Act which is a special provision meant for redemption of preference shares or it may take recourse to the general provision under section 100 of the 1956 Act which is applicable for reduction of any capital, including preference capital, in any manner.”
19. Further, Learned Counsel for the Petitioner Company also relies on JSK Multi Products Private Limited (CP No. 111/Chd/Chd/2020) wherein in Paragraph 15 it has been provided that “the decision for reduction is based on commercial consideration undertaken by the businessmen who are in the best position to know of the necessities and interests of the company concerned. In the absence of serious allegations as regards the bona fides of the proposed Scheme, the Courts are of the view that no interference in such decisions is required”.
20. The Petitioner Company also relied on similar observations made in Jubilant Clinsys Ltd. [(2017) 203 Comp Case 646] by NCLT, Allahabad Bench.
21. During the final hearing of the Petition, Mr. Gaurav Jaiswal appearing for the Regional Director submitted that the explanations and clarifications of the Petitioner Company are satisfactory and that the RD has no further objections.
22. Consequent to the proposed reduction, if there arises any action that may be necessary under the Income Tax Act, 1961, the Income Tax Authorities would be at liberty to take those and the Petitioner Company or the preference shareholder as the case may be, would comply with such action/order of the Income Tax Authorities.
23. Considering the entire facts and circumstances of the case, the report filed by Regional Director (Western Region), Affidavit in reply to observations of the Regional Director filed by the Petitioner Company and on perusal of the documents and the Note and judgments placed on record, the Company Petition is hereby allowed.
24. The Effective Date shall be the date of approval of this Tribunal.
25. The Petitioner Company shall file the certified copy of the order and form of minutes duly certified by the Designated Registrar of this Tribunal with the Registrar of Companies within 30 days or an extended timeline with payment of additional fees, as may be applicable, from the date of receipt of the certified Order from the Registry of this Tribunal.
26. The Petitioner Company to publish notices about registration of order and minutes by the concerned Registrar of Companies in two newspapers namely ‘Financial Express’ in English language and translation thereof in ‘Kesari’ in Marathi language both having circulation in the State of Maharashtra within 30 days of registration.
27. All concerned regulatory authorities to act on certified copy of the order, duly certified by designated Registrar of this Tribunal.
28. The minutes set forth hereto be and is hereby approved.
Form of Minutes
“The issued, subscribed and paid-up share capital of Panama Wind Energy Godawari Private Limited is henceforth INR 327,81,02,030 (Indian Rupees Three Hundred and Twenty-Seven Crores Eighty One Lakhs Two Thousand and Thirty Only) consisting of 32,78,10,203 (Thirty Two Crores Seventy Eight Lakhs Ten Thousand Two Hundred Three) Equity Shares of INR 10 (Indian Rupees Ten Only) each reduced from INR 3,97,80,97,050 (Indian Rupees Three Hundred and Ninety-Seven Crores Eighty Lakhs Ninety seven Thousand and Fifty Only) consisting of 32,78,10,203 (Thirty Two Crores Seventy Eight Lakhs Ten Thousand Two Hundred Three) Equity Shares of INR 10 (Indian Rupee Ten only) each and 6,99,99,502 (Six Crore Ninety Nine Lakhs Ninety Nine Thousand Five Hundred Two) 8% Cumulative Non-Convertible Preference Shares (“NCPS”) of INR 10 (Indian Rupees Ten only) each fully paid-up.”
Ordered accordingly.
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