Case Law Details
In re Max India Limited (Formerly Advaita Allied Health Services Limited) (NCLT Mumbai)
The National Company Law Tribunal (NCLT), Mumbai Bench, approved the petition filed by Max India Limited (formerly Advaita Allied Health Services Limited) under Section 66 of the Companies Act, 2013 for reduction of its equity share capital. The company proposed cancellation of up to 1,07,57,252 equity shares, representing approximately 20% of its issued equity share capital, at a consideration of ₹85 per share based on shares voluntarily tendered by eligible public shareholders. The proposal was approved through a special resolution passed by the requisite majority via postal ballot. The company stated that the capital reduction was intended to provide an optional exit to shareholders who did not wish to participate in its future growth while allowing those who retained their shares to benefit from a corresponding increase in their percentage holding without additional investment. The promoter group confirmed that it would not participate in the reduction so as to maximize cash availability for public shareholders.
The Tribunal noted that the Articles of Association authorized reduction of share capital by special resolution. The company explained that the consideration of ₹85 per share was based on a valuation report determining a fair value of ₹84.90 per share. The Regional Director raised observations concerning protection of creditors and stakeholders, tax implications, whether the proposal amounted to a buy-back under Section 68, the selective nature of the reduction, and the procedure adopted for obtaining shareholders’ approval. In response, the company submitted that Sections 66 and 68 prescribe separate and independent mechanisms, that Section 66 expressly permits reduction of share capital with Tribunal approval, and that the proposed transaction did not circumvent the buy-back provisions. It further explained that the reduction was designed to fulfil an earlier commitment to provide an exit option to public shareholders and was not compulsory, while confirming that creditors, stakeholders, government revenue, and statutory dues would remain protected. The company also detailed the process followed for electronic postal ballot and public notices in accordance with the applicable Ministry of Corporate Affairs circulars.
After considering the Regional Director’s report and the company’s affidavit in rejoinder, the Tribunal accepted the explanations furnished by the company. It directed the company to publish notices regarding registration of the order in the prescribed newspapers and to file the certified copy of the order with the Registrar of Companies within the stipulated period. The NCLT accordingly allowed the company petition and approved the reduction of the issued, subscribed and paid-up equity share capital by cancellation of up to 1,07,57,252 equity shares, subject to the extent of acceptance by eligible public shareholders.
Cases Discussed
- Earnest Towers Private Limited, CP No. 1188 of 2020
- Kalyani Thermal Systems Limited, Company Petition No. 801 of 2005
- Lily Realty Private Limited, CP No. 4514 of 2019
FULL TEXT OF THE NCLT JUDGMENT/ORDER
COMP.APPL/253(MB)2022 is an application filed for urgent listing of the CP/344(MB)2021 and the same is disposed off accordingly as the CP/344(MB)2021 is allowed.
1. The Court convened by video-conference.
2. Heard Learned Counsel for the Petitioner Company and the representative from the Regional Director (WR). No objector has come before the Tribunal to oppose the Petition and nor has any party controverted any averments made in the Petition.
3. By virtue of Article 56 of the Articles of Association of the Petitioner Company, it is provided that the Petitioner Company may in general meeting reduce its share capital. The relevant extract of the said article is produced as under:
The Company may, from time to time, by special resolution reduce its Capital, and Capital Redemption Reserve Account or Share Premium Account in any manner and with and subject to any incident authorised and consent required by law. Notwithstanding anything contained in these Articles so long as any money remains due by the Company under or by virtue of any deed of mortgage executed by the Company in favour of the Corporation, no change will be made in the capital or by issue of further issues or otherwise whatsoever save with the previous consent in writing of the Corporation.
4. The learned counsel for the Petitioner Company submits that this Petition is for confirmation of special resolution passed by the members of the Petitioner Company for capital reduction for cancellation of up to a maximum of 1,07,57,252 (One Crore Seven Lakh Fifty Seven Thousand Two Hundred Fifty Two) equity shares, e. approximately 20% of issued equity share capital of Petitioner Company of face value of INR 10/- each, for a consideration of INR 85/- (Rupees Eighty Five) per share, based on the equity shares to be offered by the Eligible Shareholders to the Petitioner Company for cancellation, at their option. The said special resolution was approved by requisite majority on 29 July 2021 through the postal ballot process.
5. The Learned Counsel for the Petitioner Company states that the rational for reduction is as follows;
I. In April 2019, erstwhile Max India Limited (Formerly Taurus Ventures Limited) had expressed its intent to use the proceeds from divestment of its shareholding in Max Bupa for its future growth and to give its shareholders, who do not prefer to be a part of next phase of growth of the Petitioner Company, an exit option through an appropriate
II. Pursuant to the listing of equity shares of the Petitioner Company, and in line with its above intention to give shareholders of erstwhile Max India Limited, an exit option through an appropriate mechanism, the Petitioner Company is undertaking a scheme of capital reduction, under Section 66 of the Companies Act, 2013.
III. Subject to the provisions of this Scheme, the capital reduction is for cancellation of up to a maximum of 1,07,57,252 Equity Shares (20% of the currently issued capital) of par value of INR 10/- each, for a consideration of INR 85 per share, based on the Equity Shares to be offered by the Eligible Shareholders. The maximum cash that is sought to be utilized for the capital reduction is INR 91,43,66,420 (Rupees Ninety One Crores Forty Three Lakhs Sixty Six Thousand Four Hundred And Twenty only) [viz. 1,07,57,252 Equity Shares x INR 85 per Equity Share].
IV. The Promoter/ Promoter Group has confirmed to the Petitioner Company that they shall not participate in the capital reduction, so as to enable maximum cash availability for the respective public shareholders, who wish to exit the Petitioner This capital reduction is not a compulsory exit for the public shareholders, and it is only intended to provide an additional option for exit to Max India’s shareholders. Accordingly, this reduction of Equity Share capital is being undertaken since the Petitioner Company is committed to offer an exit opportunity to those shareholders, who may not be keen to participate in Max India’s growth story.
V. Eligible Shareholders can choose to participate in capital reduction and get cash in lieu of the Equity Shares tendered, or they may choose not to participate and enjoy a resultant increase in their percentage shareholding, post capital reduction, without additional investment.
5. Consideration –
The valuers determined a fair value of INR 84.90/- (Rupees Eight Four and Ninety Paise only) per equity share of the Company for the proposed capital reduction, which has been worked out on average of values arrived from discounted cash flow method and market value method.
6. The Shareholding pattern of the Petitioner Company, pre and post reduction, will be as under:
Particulars |
Shareholding Be- fore the Capital Re- duction |
Proposed Capital Reduction (assuming full acceptance) |
After the capital re-duction (assuming full acceptance) |
|||
No. of shares |
% Holding |
No. of Shares |
% holding |
No. of Shares |
% Holding |
|
Promoters & Promoter Group |
||||||
AnaljitSingh |
11,95,357 |
2.22 |
– |
– |
11,95,357 |
2.78 |
NeeluAnaljit Singh |
20,000 |
0.04 |
– |
– |
20,000 |
0.05 |
Piya Singh |
22,066 |
0.04 |
– |
– |
22,066 |
0.05 |
Tara Singh Vachani |
20,000 |
0.04 |
– |
– |
20,000 |
0.05 |
Max Ventures Investment Holdings Private Limited |
2,07,33,590 |
38.55 |
– |
– |
2,07,33,590 |
48.18 |
Total Promoter |
2,19,91,013 |
40.89 |
– |
– |
2,19,91,013 |
51.11 |
Public Shareholding |
||||||
Total Public Shareholdng |
3,17,95,248 |
59.11 |
1,07,57,252 |
20.00 |
2,10,37,996 |
48.89 |
Total |
5,37,86,261 |
100 |
1,07,57,252 |
20.00 |
4,30,29,009 |
100 |
7. The Regional Director (Western Region), Ministry of Corporate Affairs, Mumbai, has filed a Report dated 25 February 2022 inter-alia making the following observations which are produced hereunder to which the Petitioner has filed responses by way of an Affidavit -In-Rejoinder dated 22 March 2022:
| Para | Observation by the Regional Di- rector | Responses by the Petitioner |
| 6 | “ROC, Mumbai in his Report No. ROC/JTA/320039/66(2)/300 dated 18.01.2021 inter-alia mentioned that there is no prosecution filed/pending against the Company. Further the ROC, Mumbai has made his observation in para no. 23 of his report and stated that, 1. Interest of the creditors should be protected. | In so far as the observation made in Paragraph 6 (1) of the said Report is concerned the Petitioner Company undertakes that the interest of all creditors is protected. |
| 6 | 2.No Objection is received from BSE & NSE of the Scheme dated 14/05/2021 3.May be decided on it’s merits. | 1.In so far as the observa-tion made in Paragraph 6 (2) of the said Report is concerned the Petitioner company confirms that no objection letters from BSE & NSE dated 19/05/2021 and 14/05/2021 respectively forms a part of the Petition at Annexure J & K |
| 7 (A) | Applicant to submit an affidavit to the effect that the interest of the creditors and all Stakeholders and Government Revenue are pro- tected as well as statutory dues are paid off. | In so far as the observa-tion made in Paragraph 7 (A) of the said Report is concerned, the Petitioner Company undertakes that interest of all the credi-tors, stakeholders as well as the Government Revenue are protected and all the statutory dues are paid off by 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 scrutinise the tax return filed by the Company after giving effect to the proposed reduction. The decision of the In- come tax Authority is binding on the Petitioner Company. Further the recipient shareholders of re- duction amount shall be subject to the applicable capital gain Tax/ dividend tax as the case may be. | 1. In so far as the observation made in Paragraph 7 (B) of the said Report is concerned, the Petitioner Company submits that the tax implications, if any, arising out of the proposal for reduction is subject to final decision of the Income Tax Authorities. The approval of the Petition by this Hon’ble Tribunal may not deter the Income Tax Authority to scrutinize the tax return filed by the Petitioner Company after giving effect to the proposed reduction. Further, the Petitioner Company confirms that the recipient shareholders of reduction amount shall be subject to the applicable taxes, as the case may be. |
| 7 (C) | A)It is observed that in the proposed scheme the applicant pro- poses to pay off Rs 91,43,66,420/- to the public shareholders, which is a nature of buyback. Therefore, Petitioner Company be directed to place on record as to how to present Scheme is not circumvent the provisions of the Section 68. | 1.In so far as the observa-tion made in Paragraph 7 (C) of the said Report is concerned, the Petitioner Company submits as under:
2. As per the provisions of the Companies Act, 2013 (“the Act”), a company having a share capital, by passing a special resolution and subject to confirmation by the Tribunal, is entitled to reduce it’s share capital in any manner as it so desires. 3. The provisions of the Act have prescribed separate procedures for buyback as well as reduction of share capital. The provision under Section 66(6) explicitly provides for exclusion of the section for the purposes of buy-back of its own securities by any company. It is open for the Petitioner Company to follow either the procedure under Section 66 or under Section 68 of the Act. Section 66 provides for a detailed procedure to reduce the share capital in any manner. Further, in accordance with Section 69 of the Act, in case of a buy-back, a sum equal to the nominal value of the shares so purchased has to be transferred to the Capital Redemption Reserve whereas in the present case there is a capital reduction for cancellation of up to a maximum of 1,07,57,252 (One Crore Seven Lakh Fifty Seven Thousand Two Hundred Fifty Two) equity shares, i.e. approximately 20% of issued equity share capital of Petitioner Company of face value of INR 10/- each, for a consideration of INR 85/-(Rupees Eighty Five) per share, based on the equity shares to be offered by the Eligible Shareholders to the Petitioner Company for cancellation, at their option. Therefore, the contentions of the Regional Director are contrary to the prevailing legal position. In this regard, reliance is placed on the following rulings where similar observations were raised by the Regional Director and the Hon’ble High Court/NCLT were pleased to allow reduction of share capital as a procedure under Section 66; a. Decision of NCLT Mumbai Bench in CP No. 1188 of 2020 in the matter of Earnest Towers Private Limited dated 24.08.2021. b. Decision of High Court of Bombay in Company Petition No. 801 of 2005 in Company Application No. 620 of 2005 in the matter of Kalyani Thermal Systems Limited dated 23.12.2005. c. Decisions of NCLT Mumbai Bench in CP No. 4514 of 2019 in the matter of Lily Realty Private limited dated 10.03.2021. d. Decision of High Court of Bombay in Company Scheme Petition No. 434 of 2014 connected with Company Summons for direction no. 396 of 2014 dated 28.04.2015. In view of the above, the Petitioner Company confirms that the present Scheme is not circumventing the provisions of the Section 68. Copies of the Judgements are annexed as “Annexure -A” to the Affidavit-in-Rejoinder. Further, we would like to draw your attention to Section 68 of the Act, reproduced below for your reference, which empowers a company to buyback its shares from its shareholders, and specifies the sources which a company may use to buyback its shares. “68 (1) Notwithstanding anything contained in this Act, but subject to the provisions of sub-section (2), a company may purchase its own shares or other specified securities (hereinafter referred to as buyback) out of— (a) its free reserves; (b) the securities premium account; or (c) the proceeds of the issue of any shares or other specified securities” Provided that no buy-back of any kind of shares or other specified securities shall be made out of the proceeds of an earlier issue of the same kind of shares or same kind of other specified securities. 68(2)(c) No company shall purchase its own shares or other specified securities under sub-section (1), unless the buyback is twenty-five per cent or less of the aggregate of paid-up capital and free reserves of the company:” Accordingly, as per Section 68(1) of the Act, a company can buy-back its shares only using free reserves, securities pre-mium or proceeds from issue of shares (except proceeds of an earlier issue of the same kind of shares or same kind of other specified securities). However, in this instance, it may be noted that the Petitioner Company’s current paid up capital and free reserves (including securities premium) are not sufficient for undertaking a buyback in accordance with the provisions of Act. Further, there are no proceeds available from any issue of shares which can be utilised for buying back shares of the Petitioner Company as permissible under Act. In light of the consideration proposed and the number of shares proposed to be cancelled, as mentioned earlier, the buy-back of shares under section 68 of the Act, is not feasible. Accordingly, in order to fulfil the commitment extended by erstwhile Max India Limited to its shareholders, to pro-vide an exit option through an appropriate mechanism, and considering its inability to undertake a buy-back of shares, the Petitioner Company has proposed to undertake a reduction of capital through a Scheme under Section 66 of the Companies Act. |
| 7 (D,E, F) | D) It is respectfully submitted that, the petitioner Company is proposing to reduce Rs 53,78,62,610 /- divided into 5,37,86,261 equity shares of Rs 10/- each to Rs. 43,02,90,090/- divided into 4,30,29,009 Equity Shares of Rs 10/- each by cancelling and extinguish paid-up equity share capital up to a maximum of Rs 10,75,72, 520 divided into 1, 07,57,252 Equity Shares of Rs 10/- each held by public shareholders of the Company, other than the promoters. In this regard it is submitted that;
E) The proposed reduction of Share Capital is selective reduction as the Petitioner has proposed the reduction of shares of the public shareholders only other than promoter; F) The Petitioner Company to place on record the reasons for such selective reduction with full facts |
1. In so far as the observation made in Paragraph 7(D) (E) and (F) of the said Report is concerned the Petitioner Company submits as under:
2. In April 2019, erstwhile Max India Limited (Since dissolved) had expressed its intent to use the proceeds from divestment of its shareholding in Max Bupa for its future growth and to give its shareholders, who do not prefer to be a part of next phase of growth of the Petitioner Company, an exit option through an appropriate mechanism. Pursuant to the composite scheme of amalgamation and arrangement amongst erstwhile Max India Limited, Max Healthcare Institute Limited, Radiant Life Care Private Limited and Max India (formerly known as Advaita Allied Health Services Limited) and their respective shareholders and creditors under the Companies Act, 2013, approved by National Company Law Tribunal vide its order dated January 17, 2020, the whole of the Allied Health and Associated Activities Undertaking (which included the proceeds from the divestment of Max Bupa Health Insurance Company Limited (“Max Bupa”)), under the Composite Scheme, has been demerged from the erstwhile Max India Limited and vested into the Petitioner Company with effect from the appointed date of the Composite Scheme i.e. February 1, 2019. 3. Pursuant to the listing of equity shares of the Petitioner Company, and in line with the above intention to give its shareholders an exit option through an appropriate mechanism, the Petitioner Company is undertaking a scheme of capital reduction, under Section 66 of the Act. The Promoter/ Promoter Group has confirmed to the Petitioner Company that it shall not participate in the capital reduction, so as to enable maximum cash availability for the respective public shareholders, who wish to exit the Petitioner Company. This capital reduction is not a compulsory exit for the public shareholders, and it is only intended to provide an additional option for exit to Petitioner Company’s shareholders. Accordingly, this reduction of Equity Share capital of Petitioner Company, is being undertaken since the Petitioner Company is committed to offer an exit opportunity to those shareholders, who may not be keen to participate in Petitioner Company’s growth story. |
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G) That the applicant Company has sent notices by email for obtaining consent of shareholders by postal ballot. The Company has sent notices to shareholders by email to those shareholders whose email addresses are available. The Petitioner Company to place on record as to how many no. of shareholders are not having email id and how the company has sent notices to those shareholders. | 1. In so far as the observation made in Paragraph 7
(G) of the said Report is concerned, the Petitioner Company submits that the Ministry of Corporate Affairs, Government of India (the “MCA”) vide its General Circular No. 14/2020 dated April 8, 2020, General Circular No.17/2020 dated April 13, 2020, General Circular No. 22/2020 dated June 15, 2020, General Circular No.33 /2020 dated September 28, 2020 and General Circular No.39 /2020 dated December 31, 2020 (the “MCA Circulars”) (Copies enclosed as Annexure B to the Affidavit -in-Rejoinder), in view of the current extraordinary circumstances due to COVID-19 pandemic requiring social distancing, has allowed the companies to take all decisions requiring Members approval, other than items of ordinary business or business where any person has a right to be heard, through the mechanism of postal ballot / e-voting in accordance with the provisions of the Act and the Rules, without holding a general meeting that requires physical presence of members at a common venue. 2. Relevant extract of the MCA Circular no.17/2020 dated April 13, 2020 is re-produced as under: “(i) Manner and mode of issue of notices to the members before convening the general meeting: A. For companies which are required to provide the facility of e-voting under the Act, or any other company which has opted for such facility I. In view of the present circumstances. in accordance with the provisions of rule 18 of the Companies (Management and Administration) Rules. II. While publishing the public notice as required under rule 20(4)(v) of the rules, the following matters shall also be stated. namely- a. a statement that the EGM has been convened through VC or OAVM in compliance with applicable provisions of the Act read with General Circular 14/2020, dated 8th April, 2020 and this Circular; b. the dale and lime of the EGM through VC or OAVM: c. availability of notice of the meeting on the website of the company and the stock exchange. d. the manner in which the members who are holding shares in physical form or who have not registered their email addresses with the company can cast their vote through remote e-voting or through the e-voting system during the meeting; e. the manner in which the members who have not registered their email addresses with the company can get the same registered with the company, f. any other detail considered necessary by the company” The aforesaid provisions are mutatis mutandis applicable while taking shareholders’ approval through Postal Ballot Process. 3. In accordance with the said MCA Circulars, the postal ballot notice was sent in electronic mode to 31,179 members (out of total 35,382 members) whose e-mail address were registered with the Petitioner Company or the Depository Partici-pant(s). Pursuant to the requirements of Act, the Notice of Postal Ballot and Remote E-voting Information (“Notice”) 4. In light of the COVID-19 crisis and in accordance with Section 110 of the Companies Act and Rules 22 and 20 of the Companies (Management and Administration) Rules, 2014 read with the MCA Circulars, physical copies of the Notice will not be circulated to the members. However, it was clarified that all the persons who are members of the Petitioner Company as on record date/cut-off date (including those members who may not have received this Notice due to non-registration of their email IDs with the Petitioner Company or with the depositories) shall be entitled to vote in relation to the resolution specified in this Notice. 5. The entire shareholding of the Petitioner Company has been in demat mode. Therefore, the shareholders whose email ids are not registered with the depositories, are requested to kindly register their email ids with their respective depository participants (DP) and send a scanned copy of client master to info@mass-erv.com for procuring user id and password for e-voting for the resolution set out in this postal ballot notice. 6.Any member who does not receive the Notice may obtain the same by sending an email at info@masserv.com. The same can also be downloaded from the Petitioner Company’s website: www.maxindia.com. Please treat this Notice as our attempt to reach all our members who have missed or not received other communication on this subject matter and intend to participate in the proposed remote e-voting. |
6. In response to the Report of the Regional Director the Petitioner Company has filed affidavit in rejoinder and have given necessary clarifications to the observations made by the Regional Director.
7. The Petitioner Company to publish notices about registration of order by the concerned Registrar of Companies, Mumbai, Maharashtra in two newspapers namely “Business Standard” in English language and translation thereof in “Navshakti” in Marathi language both having circulation in the State of Maharashtra within 30 days of registration.
8. The Petitioner Company undertakes to file the certified copy of the order duly certified by the Designated Registrar of this Tribunal with the Registrar of Companies within 30 days from the date of receipt of the certified Order from the Registry of this Tribunal.
9. All concerned regulatory authorities to act on production of certified copy of the order to be issued on demand by the Designated Registrar of this Tribunal.
10. The Company Petition is allowed.
ORDER
“The existing issued, subscribed and paid up equity share capital of Max India Limited of INR 53,78,62,610 (Rupees Fifty Three Crores Seventy Eight Lakhs Sixty Two Thousand Six Hundred and Ten only) divided into 5,37,86,261 Equity Shares of INR10/- each is reduced by a maximum of INR 10,75,72,520 (Rupees Ten Crores Seventy Five Lakhs Seventy Two Thousand Five Hundred Twenty only) divided into 1,07,57,252 Equity Shares of INR 10/- each (assuming full acceptance of the offer for the capital reduction by the eligible public shareholders). After this reduction the issued, subscribed and paid up Equity Share Capital of Max India Limited will be not less than 43,02,90,090 (Rupees Forty Three Crore Two Lakhs Ninety Thousand and Ninety only) divided into 4,30,29,009 equity shares of INR 10/- each (assuming full acceptance of the offer for the capital reduction by the eligible public shareholders).”
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