In re Supreme Petrochem Limited (NCLT Mumbai)
The National Company Law Tribunal (NCLT), Mumbai Bench, allowed the petition filed by Supreme Petrochem Limited under Section 66 of the Companies Act, 2013 seeking confirmation of a scheme for reduction of its share capital.
The petitioner company, engaged in the manufacture of polystyrene, expandable polystyrene, specialty polymers, compounds and extruded polystyrene, was authorised under Article 57 of its Articles of Association to reduce its share capital in accordance with the Companies Act, 2013. The company also confirmed that no proceedings or investigations were pending against it under the Companies Act, 2013.
The equity shareholders passed a special resolution through remote e-voting at the Extraordinary General Meeting held on 12 August 2021 approving the reduction of the issued, subscribed and paid-up equity share capital from ₹94,02,06,710 divided into 9,40,20,671 equity shares of ₹10 each to ₹37,60,82,684 divided into 9,40,20,671 equity shares of ₹4 each. The scheme provided for returning ₹6 per equity share to all shareholders on the record date by reducing the face value of each share from ₹10 to ₹4, while keeping the number of equity shares unchanged. The authorised share capital was correspondingly reorganised.
The company explained that it possessed substantial cash and liquid resources, the paid-up share capital exceeded its funding requirements, and the reduction would return excess capital to shareholders while maintaining sufficient resources for business operations and future expansion. It further stated that the reduction would improve capital efficiency, enhance return on equity, return on net worth and dividend yield, without affecting the proportionate shareholding of members or the company’s ability to meet its obligations.
The petition set out the existing and proposed capital structure, showing that only the face value of equity shares would be reduced from ₹10 to ₹4, while the number of issued shares and the shareholding pattern of promoters, institutions and public shareholders would remain unchanged.
The Regional Director (Western Region) raised various observations, including protection of creditors, pending complaints before the Registrar of Companies, tax implications, whether the proposal amounted to a buy-back under Section 68, and whether any approvals from regulatory authorities were required. The company responded that creditors’ interests and statutory dues were fully protected, pending complaints would continue to be decided on their own merits, tax consequences would be governed by applicable law, and tax would be deducted at source wherever required. It further submitted that reduction under Section 66 and buy-back under Section 68 were independent statutory mechanisms. According to the company, unlike a buy-back, the proposed scheme did not extinguish any shares but merely reduced their face value, leaving the number of shares unchanged. The company also stated that stock exchanges had already issued no-objection letters and that Reserve Bank of India approval was unnecessary as it was not an NBFC.
After considering the company’s clarifications and noting that the Regional Director, in the supplementary report, found the replies satisfactory, the Tribunal allowed the company petition. It directed the company to publish notices regarding registration of the order and minutes in the prescribed newspapers, file the certified copy of the order and minutes with the Registrar of Companies within 30 days, and permitted all concerned regulatory authorities to act upon production of the certified order.
The Tribunal ordered that the issued, subscribed and paid-up share capital of the company would thereafter stand reduced to ₹37,60,82,684 divided into 9,40,20,671 equity shares of ₹4 each, effected by returning ₹6 per equity share to the shareholders.
Cases Discussed
- Earnest Towers Private Limited (NCLT Mumbai), CP No. 1188 of 2020 dated 24.08.2021
- Lily Realty Private Limited (NCLT Mumbai), CP No. 4514 of 2019 dated 10.03.2021
- Company Scheme Petition No. 434 of 2014 connected with Company Summons for Direction No. 396 of 2014 (Bombay High Court), dated 28.04.2015
- Kalyani Thermal Systems Limited (Bombay High Court), Company Petition No. 801 of 2005 in Company Application No. 620 of 2005 dated 23.12.2005
FULL TEXT OF THE NCLT JUDGMENT/ORDER
