Case Law Details
In re Sarjan Realities Private Limited (NCLT Mumbai)
The National Company Law Tribunal (NCLT), Mumbai Bench, in In re Sarjan Realities Private Limited, allowed the company’s petition under Section 66 of the Companies Act, 2013 for confirmation of reduction of its equity and preference share capital. The company proposed the reduction to simplify its capital structure, provide an exit to certain shareholders, realign ownership, improve key financial ratios, and utilize its available cash balance. The proposal involved cancellation of the entire preference share capital comprising Series P2, P3, P4, and P5 preference shares, which were to be redeemed at a 15% premium on face value, and cancellation of 7,01,80,000 equity shares held by Shubh Realty (South) Private Limited at nil value.
The Tribunal noted that the special resolutions approving the reduction had been passed unanimously by the relevant equity and preference shareholders. The Articles of Association authorized reduction of share capital by special resolution. Notices had been served on all creditors, no objections were received, and the statutory auditor certified the creditors’ position. The Regional Director raised observations regarding selective reduction, applicability of Sections 55 and 68 of the Companies Act, payment of premium on preference shares, valuation, protection of creditors, tax implications, and compliance with significant beneficial ownership provisions. The company responded to each observation, contending that the petition was under Section 66, that reduction of capital and redemption under Section 55 are independent statutory mechanisms, that Section 68 relating to buy-back was not applicable, and that creditors’ interests and statutory dues would remain protected. The company also relied upon judicial precedents supporting reduction of preference share capital under Section 66.
The Tribunal found the company’s explanation acceptable and observed that the facts were similar to an earlier decision in Panama Wind Energy Godawari Private Limited, where reduction under Section 66 had been approved despite the absence of distributable profits required for redemption under Section 55. It further noted that the company possessed sufficient cash balance, the proposed accounting treatment complied with applicable accounting standards, no deposits had been accepted, and the company’s ability to meet its liabilities would not be affected after the reduction.
Accordingly, the NCLT confirmed the reduction of share capital and approved the revised capital structure. It directed the company to file the certified copy of the order and approved minutes with the Registrar of Companies within the prescribed period, publish notices in specified English and Marathi newspapers, and forward copies of the order to the Income Tax Department and the Reserve Bank of India. The Tribunal also clarified that any tax consequences arising from the reduction would remain subject to the jurisdiction of the Income Tax Authorities. The petition was accordingly allowed and disposed of.
Cases Discussed
- Panama Wind Energy Godawari Private Limited, C.P. 144 (MB)/C-III/2023
- Birla Global Finance Re, (2004) 58 CLA 154
- Reckitt Benckiser (India) Limited, (2005) 122 DLT 612
- Decent Electronics Private Limited, C.P. 1266/MB/2020
- India Greentec Chemicals Private Limited, C.P. No. 56/MB/2021
- Max India Limited, C.P. No. 344 of 2021
- Supreme Petrochemical Limited, C.P. No. 330 of 2021
- Fairfield Atlas Limited, C.P. No. 207 of 2021
- Sai Service Private Limited, C.P. No. 195 of 2022
FULL TEXT OF THE NCLT JUDGMENT/ORDER
1. Heard Learned Counsel for the Petitioner Company and the representative from the Regional Director (WR).
2. The present Petition has been filed by SARJAN REALITIES PRIVATE LIMITED (Reduced) (Petitioner Company) for confirmation of reduction of equity 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.
3. The Petitioner Company is a private limited company incorporated on 05.09.1997 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.
4. The nature of business of the Petitioner Company is:
i) “To purchase/ sale, hold, take on lease or exchange, take on mortgage and give on mortgage, hire or otherwise acquire and hold or deal in any movable or immovable property;
ii) To engage in the business of evacuation, transmission, distribution of power generated from any conventional or nonconventional energy sources;
iii) To organise, undertake, layout, develop, construct, build, erect, demolish, re erect, alter, repair, re-model on behalf of clients as well as on its own;
iv) To manufacture, produce, install, commission, operate, pay, import, buy, sell, supply, distribute or otherwise deal in all energy’ production and conversion activities in all its forms inclusive of but not restricted to various renewable sources like solar energy, wind energy, all forms of biomass, geothermal energy, hydel energy, tidal and wave energy;
v) To own, occupy, purchase, sell, deal in acquire, hold, hire, possess, exchange, lease, license, mortgage, improve, grow, develop, manage, control, land and to set up agricultural farms, agricultural houses, farm-houses, orchards, gardens and to carry on business in connection with the agricultural and farming activities;
vi) To carry on business related to the power sector;
vii) To design, supply, mobilize, construct, install, commission, maintain, operate, demobilize, own and transfer infrastructure facilities with respect to water related projects;
viii) To carry on the business in India or abroad as manufactures, importers, exporters, sellers, buyers, traders, dealers, indenting agents, commission agents or as Export / Import House of and to provide consultancy services in manufacturing, importing, exporting and / or otherwise dealing in all kinds of commodities, goods, products including pharmaceuticals, formulations, medicines, equipment.”
5. Rationale:
The Ld. Counsel for the Petitioner Companies submit that by sanction of this reduction will be able to achieve the following benefits:
a. The current capital structure of the Company is complex and has its own inherent challenges, inter-alia, causing delays in critical decision making, and compliance requirements, which impacts the overall growth of the Company. In order to rationalize the capital structure of the Company with its future needs, to give an appropriate exit to the Shareholders and to realign the ownership structure of the Company, the Board has proposed to undertake reduction of entire Preference Share Capital and identified Equity Share Capital of the Company by utilization of available cash balance with the Company. The proposed reduction of share capital will simplify the existing complex capital structure of the Company, improve the key performance indicators of the Company and reflect true and correct key financial ratios.
b. It is proposed to consider the reduction of the capital of the Company being 96,75,000 (Ninety Six Lacs Seventy Five Thousand) 6% Redeemable Non-cumulative Preference Shares of Rs.100/- (Rupees One Hundred Only) each (“Series P2”); 5,00,000 (Five Lacs) 6% Redeemable Non-cumulative Preference Shares of Rs.100/- (Rupees One Hundred Only) each (“Series P3”); 40,00,000 (Forty Lacs) 6% Redeemable Non-cumulative Preference Shares of Rs.100/- (Rupees One Hundred Only) each (“Series P4”); and 38,35,000 (Thirty Eight Lacs Thirty Five Thousand) 6% Redeemable Non-cumulative Preference Shares of Rs.100/- (Rupees One Hundred Only) each (“Series P5”) (Series P2, P3, P4 and P5 are collectively referred to as the ‘Preference Shares’) and 7,01,80,000 (Seven Crores One Lac Eighty Thousand) Equity shares of Rs.10/- (Rupees Ten Only) each held by Shubh Realty (South) Private Limited, with the consent of the board and shareholders of the Company. Preference shares are proposed to be redeemed and cancelled at 15% premium on face value and Equity shares held by Shubh Realty (South) Private Limited are proposed to be cancelled at Nil value, as approved by the equity and preference shareholders in terms of the special resolutions passed at their respective meetings read with separate consent affidavits of all the equity shareholders.
c. Since the Company does not have adequate distributable profits, as required for redemption of Preference Shares u/s. 55 of the Companies Act, 2013; the Board has proposed for reduction of the Preference Share Capital u/s. 66 of the Companies Act, 2013.
d. The proposed reduction of share capital by way of repayment or cancellation of the surplus capital of the Company would rationalize and realign the capital structure of the Company with its future needs by giving an appropriate exit to the shareholders of the Company. Further, such reduction of share capital shall not affect the Company’s ability in future to increase its share capital and / or raise funds by way of borrowings.
6. The said special resolutions were approved by the Equity Shareholders of the Petitioner Company in its Extraordinary General Meeting and Preference Shareholders of the Petitioner Company in each of their class meetings held on 28.11.2023. Copy of special resolutions are annexed to the Petition.
7. The present Petition is for confirmation of a special resolution passed unanimously by the Equity Shareholders and Preference Shareholders holding Series P2 6% Redeemable Non-cumulative Preference Shares of Rs. 100 (Rupees Hundred), Series P3 6% Redeemable Non-cumulative Preference Shares of Rs. 100 (Rupees Hundred), Series P4 6% Redeemable Non-cumulative Preference Shares of Rs. 100 (Rupees Hundred), Series P5 6% Redeemable Non-cumulative Preference Shares of Rs. 100 (Rupees Hundred) (Shareholders of Series P2, P3, P4 and P5 preference shares cumulatively referred as ‘Preference Shareholders’), for confirming the reduction of the subscribed, issued and paid-up capital of the Company being 96,75,000 (Ninety Six Lacs Seventy Five Thousand) 6% Redeemable Non-cumulative Preference Shares of Rs.100/- (Rupees One Hundred Only) each (“Series P2”); 5,00,000 (Five Lacs) 6% Redeemable Noncumulative Preference Shares of Rs.100/- (Rupees One Hundred Only) each (“Series P3”); 40,00,000 (Forty Lacs) 6% Redeemable Non-cumulative Preference Shares of Rs.100/- (Rupees One Hundred Only) each (“Series P4”); and 38,35,000 (Thirty Eight Lacs Thirty Five Thousand) 6% Redeemable Non-cumulative Preference Shares of Rs.100/- (Rupees One Hundred Only) each (“Series P5”) (Series P2, Series P3, Series P4 and Series P5 cumulative referred to as ‘Preference Shares’) and 7,01,80,000 Equity shares of Rs. 10 (Rupees Ten) each held by Shubh Realty (South) Private Limited. The Preference shares are proposed to be cancelled for a consideration at 15% premium on face value and Equity shares held by Shubh Realty (South) Private Limited is proposed to be cancelled at Nil value.
8. The Authorized Share Capital and pre and post reduction Issued, subscribed and paid-up Share Capital of the Applicant Company is as follows:
| Particulars | Pre-reduction of CapitalAmount (Rs.) |
Post-reduction of Capital
Amount (Rs.) |
| Authorized Capital | ||
| 44,75,00,000 Equity Shares of Rs.10 each | 4,47,50,00,000 | 4,47,50,00,000 |
| 2,30,00,000 Preference Shares of Rs.100 each | 2,30,00,00,000 | 2,30,00,00,000 |
| Total | 6,77,50,00,000 | 6,77,50,00,000 |
| Issued, subscribed and paid-up Share Capital | ||
| 44,75,00,000 & 37,73,20,000 Equity Shares of Rs.10 each | 4,47,50,00,000 | 3,77,32,00,000 |
| 96,75,000 6% Redeemable Non-cumulative Preference Shares of Rs. 100 each fully paid – P2 Series | 96,75,00,000 | 0 |
| 5,00,000 6% Redeemable Non-cumulative Preference Shares of Rs. 100 each fully paid – P3 Series | 5,00,00,000 | 0 |
| 40,00,000 6% Redeemable Non-cumulative Preference Shares of Rs. 100 each fully paid – P4 Series | 40,00,00,000 | 0 |
| 38,35,000 6% Redeemable Non-cumulative Preference Shares of Rs. 100 each fully paid – P5 Series | 38,35,00,000 | 0 |
| Total | 6,27,60,00,000 | 3,77,32,00,000 |
9. It is proposed that Preference shares shall be redeemed and cancelled at 15% premium on face value and Equity shares held by Shubh Realty (South) Private Limited are proposed to be cancelled at Nil value. It is submitted that the Company proposes reduction of entire Preference Share Capital and identified Equity Share Capital of the Company by utilization of available cash balance with the Company. It is also stated that the proposed reduction of share capital will simplify the existing complex capital structure of the Company, improve the key performance indicators of the Company and reflect true and correct key financial ratios.
10. The Article 37 of the Articles of Association of the Petitioner Company empowers it to reduce its capital, in any manner permitted by law by passing a special resolution. The relevant extract of the said article is reproduced below:
“37. The company may, by special resolution, reduce in any manner and with, and subject to, any incident authorised and consent required by law,
(a) its share capital;
(b) any capital redemption reserve account; or
(c) any share premium account.”
11. There are 52 Unsecured creditors and a sole Secured Creditor in the Petitioner Company. The Certificate issued by the Statutory Auditor is annexed to this Petition. The Company has served notices to all the creditors of the Company and no objections from any creditor has been received by the Company.
12. The Petitioner Company submits that the directions given by this Tribunal vide order dated 11.01.2024, have been complied with.
13. The Regional Director has filed a Report dated 12.04.2024 stating some observations to which the Petitioner Company has filed responses by way of an Affidavit -In-Rejoinder dated 15.04.2024. Observations of RD and reply given by Petitioner Company is reproduced below
| Para | Observation by the Regional Director | Responses by the Petitioner |
| 6 | That the proposed reduction of share capital is selective reduction. The reduction of capital is selective in detriment and unjust and unfair to rest of Equity shareholders & Preference Shareholders holding Equity Share &Preference share of the Company. | With reference to Para 6 of the RD Report, the Petitioner Company submits that separate meetings of each class of Equity Shares and Preference Shares of the Company were convened on 28th November 2023 which were also attended by the concerned shareholders whose capital is proposed to be reduced and the resolutions approving reduction of capital were passed unanimously. Minutes of meetings convened of the Equity Shareholders and Preference Shareholders have been enclosed herewith at “Annexure – 1”. Therefore, the question of the proposed reduction being detrimental, unjust or unfair to rest of the shareholders as alleged does not arise. Without prejudice to the above, the provisions of Section 66 of the Companies Act, 2013 clearly mention that the company can undertake reduction of share capital “in any manner” and therefore, selective reduction is permitted in Law. It is well settled law that the question of reduction of share capital is treated as matter of domestic concern and it is the decision of majority which will prevail. Section 66 of the Companies Act, 2013 clearly stipulates the reduction can be effected in any manner, therefore, selective reduction is permitted in law.
The Petitioner Company invites attention to the following judicial pronouncements which support the above contention: i) Decision of Honourable Delhi High Court in the case of Reckett Benckiser (India) Limited (2005) 122 DLT 612, enclosed as “Annexure – 2” herewith. (ii) Decision of Honourable National Company Law Tribunal, Mumbai Bench in the case of Decent Electronics Private Limited in C.P. 1266/MB/2020 (Order dated 11.07.2023) annexed as “Annexure – 3” herewith. |
| 7 | ROC, Pune in his Report No. ROCP/Sec.66/Sarjan/2024/2765 dated 02.02.2024 inter-alia mentioned that there is no inspection, investigation, inquiry, complaints, prosecution 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 creditors.” |
Reply to Para 7 containing comments of ROC, Pune, the Petitioner submits that Company will protect the interest of creditors, and their outstanding dues, if any, will be paid off in the ordinary course of business as and when they are due.
Further, the Petitioner Company states that the rights of the creditors are not affected as there is no compromise or arrangement with creditors. |
| 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. | With reference to Para 7(A) of the RD Report the Petitioner Company submits that 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.
The Petitioner Company hereby undertakes that the interest of the creditors, stakeholders and government revenue shall be protected and statutory dues, if any, shall be paid off in ordinary course, as per Law. |
| 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. Further the payment made to the shareholders and cancellation of shares under the present company petition shall be subject to payment of Income Tax or Capital Gain Tax, as the case may be in the hands of recipient’s shareholders. |
With reference to Para 7(B) of the RD Report the Petitioner Company confirms that the tax implication, if any arising pursuant to this reduction of Capital on the Company shall be subject to final decision of Income-tax Authorities and binding to 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.
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. |
| 7(C)(i) | 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 afresh 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 position to redeem any preference shares or to pay dividend, if any, on such shares in accordance with the terms of issue (such shares hereinafter referred to as unredeemed preference shares), it may, with the consent of the holders of three-fourths in value of such preference shares and with the approval of the Tribunal on a petition made by it in this behalf, issue further redeemable preference shares equal to the amount due, including the dividend thereon, in respect of the unredeemed preference shares, and on the issue of such further redeemable preference shares, the unredeemed preference shares shall be deemed to have been redeemed: and Provisions of Section 66(1) provided that; 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; or (ii) pay off any paid-up share capital which is in excess of the wants of the company, In this regard, it is respectfully submitted that the Petitioner Company is repaying for 6% Redeemable Non-cumulative Preference Shareholders by way of reduction of share capital and paying off 15% premium on face value, in this connection it is submitted that, the Petitioner Company shall satisfy following:- (i) The Petitioner Company shall satisfy the condition u/s 55 (2)(a) for redemption of Preference Shares as reduction is being made only out of profit of the Company which would otherwise be available for dividend or out of the proceeds of afresh issue of shares made for the purposes of such redemption”. |
With reference to Para 7(C)(i) of the RD Report, it is submitted that the present petition has been filed under section 66 of Companies Act, 2013 read with relevant rules for reduction of its Share Capital and that the petition has not been filed under Section 55 of the Companies Act.
Section 55 and Section 66 of the Companies Act, 2013 (“Act”) are two independent sections, which permit for redemption of Preference Share Capital and Reduction of Preference Share Capital respectively. Section 55(2)(a) & 55(2)(c) of the Act, provide for redemption of Preference Shares of the Company out of profits available for dividend or proceeds of fresh issue of shares without requiring any approval of the National Company Law Tribunal, which is not the instant case. Section 55(3) of the Act provides further issue of Preference Shares by a Company when it is not in a position to redeem its Preference Shares, which is not the instant case. Section 66 of the Act provides for reduction of share capital in any manner by extinguishing any liability on any of its shares and pay-off its capital, with the approval of the Honourable National Company Law Tribunal. It is a well settled position under the law that that a company has freedom to choose amongst the procedures laid down in the law as it deems fit. The instant petition has been filed by the Company under Section 66 of the Act which involves reduction of Equity Share Capital as well as Preference Share Capital of the Company and all the provisions applicable thereto have been complied with. The subject application does not fall within the purview of Section 55 of the Act and thus conditions prescribed therein are not applicable in the instant case. In support of above contention, the Petitioner Company relies upon following judicial pronouncements of the Honourable National Company Law Tribunal / Jurisdictional High Court which are attached to the affidavit in rejoinder and which are summarised as under:- i. Honourable Bombay High Court in case of Birla Global Finance Re (2004) 58 CLA 154 has held vide para 14 that Under Clause (c) of Sub-section (1) of Section 100 (corresponding to section 66 of the Companies Act, 2013), a company can pay back to the shareholder any paid-up share capital which is in excess of wants of the company. Redemption of the preference shares is nothing but paying back to the shareholders their preference share capital. This can be done subject to confirmation by the court if the capital is in excess of the wants of the company and the company is so authorised by its Articles and the company passes a special resolution to that effect. In my opinion, therefore preference shares can be redeemed not only in accordance with Section 80 (corresponding to section 55 of the Companies Act, 2013) but, also in accordance with the provisions of Section 100 of the Act (corresponding to section 66 of the Companies Act, 2013). 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 (corresponding to section 55 of the Companies Act, 2013), provisions of Section 100 of the Act (corresponding to section 66 of the Companies Act, 2013) 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 Act (corresponding to section 66 of the Companies Act, 2013) 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 Act (corresponding to section 66 of the Companies Act, 2013) which is applicable for reduction of any capital, including preference capital, in any manner. The order of the above – mentioned jurisprudence has been attached herewith as “Annexure – 4”. ii. Honourable National Company Law Tribunal, Mumbai Bench in the matter of Panama Wind Energy Godawari Private Limited, C.P. 144 (MB)/C-III/2023 (Order dated 18.01.2024) vide para 14 to 20 of the Order has considered observations and replies thereto made by the Petitioner Company regarding applicability of Section 55 of the Act where a petition has been filed under Section 66 of the Act and has approved the reduction of Preference Share Capital by the Petitioner Company. The order copy of the same has been attached herewith as “Annexure – 5”. iii. Honourable National Company Law Tribunal, Mumbai Bench in the matter of India Greentec Chemicals Private Limited, C.P. No. 56/MB/2021 (Order dated 12.08.2022) vide para 6 of the Order has considered observations and replies thereto made by the Petitioner Company regarding applicability of Section 55 of the Act where a petition has been filed under Section 66 of the Act and has approved the reduction of Equity Share Capital and Preference Share Capital by the Petitioner Company. The order copy of the same has beenattached herewith as “Annexure – 6”. |
| 7(C) (ii) | The Scheme proposes to reduce/cancel Preference shares of Rs. 100/- each at an aggregate amount of Rs. 2,07,11,50,000/-. It appears that the present scheme will lead to circumvent the provisions of Section 68- the buyback of Shares. The Petitioner Company be directed to place on record as to how the present Scheme is not to circumvent the provisions of the Section 68. | With reference to Para 7(C)(ii) of the RD Report, the Petitioner Company submits as under:
a. As per the section 66 of the Companies Act, 2013 (“Act”), a company having a share capital can reduce its share capital in any manner as it so desires, by passing a Board Resolution, Special Resolution and subject to confirmation by the National Company Law Tribunal. b. As per the Act, section 68 empowers the Company to purchase its own securities i.e. Buyback of securities, upto certain limits and with the approval of Board and Shareholders of the Company. The process under Section 68 of the Act does not require any intimation to or approval of the Honourable National Company Law Tribunal. c. The process, approvals and mechanism prescribed u/s 66 and 68 are mutually exclusive, independent and are not applicable for a same transaction. Section 66(6) of the Act explicitly provides for non-applicability of provisions of Section 66 of the Act in case of a buy-back of own securities by any Company under Section 68 of the Act. d. The instant petition is filed by the Company for the approval under Section 66 of the Act. Section 66 of the Act provides for a detailed procedure to reduce the share capital of the Company with or without consideration, with the approval of Board, Shareholders and the Honourable National Company Law Tribunal, which has been duly followed in the instant case. e. The Company is permitted and has an option to undertake corporate action either under Section 66 of the Act or under Section 68 of the Act and accordingly is required to comply provisions of the applicable section under which such corporate action is undertaken, which in the instant case is Section 66 of the Act. Hence, provisions of Section 68 of the Act are not applicable to the proposed reduction of Capital and thus, the present scheme does not circumvent the provisions of Section 68 of the Act. f. In this regard, reliance is placed on the following rulings where similar observations were raised by the Regional Director and the Honourable National Company Law Tribunal has allowed reduction of share capital as a procedure under Section 66 of the Act holding that reduction of capital under Section 66 of the Act does not circumvent the provisions of Section 68 of the Act: i. Honourable National Company Law Tribunal, Mumbai Bench in case of Max India Limited in CP No. 344 of 2021 (Order dated 08.06.2022). The order copy of the same has been attached herewith as “Annexure – 7”; ii. Honourable National Company Law Tribunal, Mumbai Bench in case of Supreme Petrochemical Limited in C.P. No. 330 of 2021 (Order dated 10.03.2022). The order copy of the same has been attached herewith as “Annexure – 8”; iii. Honourable National Company Law Tribunal, Mumbai Bench in case of Fairfield Atlas Limited in CP No. 207 of 2021 (Order dated 09.03.2022). The order copy of the same has been attached herewith as “Annexure – 9”; iv. Honourable National Company Law Tribunal, Mumbai Bench in case of Sai Service Private Limited in CP No. 195 of 2022 (Order dated 31.07.2023). The order copy of the same has been attached herewith as “Annexure – 10”. In view of the above the Petitioner Company submits that present scheme does not circumvent the provisions of Section 68 of the Act and the provisions of Section 68 are not applicable to the instant petition filed and compliant under Section 66 of the Act. |
| 7(C)(iii) | Where the company has accumulated losses, as to why the company is pay 15% premium on Preferential shareholders, the company may be clarified to the satisfaction of Hon’ble NCLT, so that interest of other creditors can be protected for outgo of resources of the Company. | With reference to Para 7(C)(iii) of the RD
Report, the Petitioner Company submits that the proposed reduction of Preference Share Capital at premium of 15% over face value is in accordance with the terms of redemption of Preference Shares by the Company. The Preference Shareholders have supported the Company historically during the times of financial distress without any annual commitment on cumulative dividend and have been invested in the Company from 2007 onwards. Hence, it is commercially important and desirable to provide a return of 15%, which will translate into a very nominal return over the years in absence of any dividend distribution and is also in accordance with the terms of redemption of Preference Shares. Further, the Petitioner Company submits that the rights of the creditors are not affected as there is no compromise or arrangement with creditors, all creditors shall be paid by the Petitioner Company in due course of business and the Petitioner Company shall have sufficient net-worth post proposed reduction to protect interest of the Creditors. The Company has also served notices to all the creditors of the Company upon admission of the petition and no objections from any creditor has been received by the Company. Therefore, the Petitioner Company submits that the interest of creditors have been protected against outgo of resources of the Company. |
| 7(C)(iv) | The Petitioner company may also satisfy the valuation of Preference shares proposed to be redeemed on premium, as the valuer has stated that preference shares (different shares) are being redeemed at 15% premium based on terms & condition of issue of preference shares. | With reference to Para 7(C)(iv) of the RD Report, the Petitioner Company submits that Preference Shares are in the nature of quasi-debt instrument which have to be valued in accordance with terms of dividend payment, tenure of redemption, rights of conversion, value of redemption, etc. attached to such Preference Shares.
Hence, the Petitioner Company has obtained a valuation report from an IBBI Registered Valuer who has undertaken valuation of the Preference Shares in accordance with the applicable guidelines on valuation of Preference Shares and thus the Petitioner Company has satisfied the requirements of the valuation under the Act. Copy of said Valuation Report is enclosed herewith as “Annexure –11”. |
| 7(D) | Further the petitioner company has body corporate shareholders namely Shubh Realty (South) Private Limited holding 15.68% shares mentioned in the Financial statements as at 31.03.2023 and 20.11.2023, but Company has not filed Form BEN-2 declaring name of the Beneficial Owner of the Shareholding as its 20.11.2023 in compliance of section 90 of the CA, 2013, thus the Petitioner Company shall undertake to comply with the requirements of Section 90 of the CA, 2013 and Companies (Significant Beneficial owners) Rules, 2018. | With reference to Para 7 (D) of the RD Report, the Petitioner Company submit that the Company has complied with provisions of Section 90 of Companies Act, 2013 read with Rules 2A to 4 of the Companies (Significant Beneficial Owners) Rules, 2018 thereunder and has filed Form BEN-2 vide SRN: R26506303 declaring name of the Significant Beneficial Owners with the ROC, for shares of Company held by Shubh Realty (South) Private Limited. Copy of the Form filed and challan thereof is furnished vide “Annexure – 12”. |
14.. During the course of hearing, the RD raised a query about applicability of Section 55(3) of the Companies Act, 2013, this bench vide Order dated 18.01.2024 has deal with the similar issue in the case of M/s. PANAMA WIND ENERGY GODAWARI PRIVATE LIMITED in C.P. 144 (MB)/C-III/ 2023, the relevant paras of the case are reproduced hereunder:
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.”
15. Facts in this case are as under:
15.1. The Board of Directors of the Petitioner Company vide Board Resolution dated 27.11.2023 have mentioned that, the reduction of the Preference Shares is proposed under Section 66 of the Companies Act as the Petitioner Company does not have adequate distributable profits as required for redemption of the Preference Shares in terms of Section 55 of the Companies Act, 2013.
15.2. Further, the reduction shall be undertaken by utilization of available Cash Balance with the Company and cancellation of identified Equity Share Capital.
16. The Facts in this case are similar to the facts of Panama Wind Energy (Supra). Accordingly, the submission given by the Petitioner Company in respect of the reduction of share under Section 66 is found to be acceptable in the view of the above and also in the view of the various decisions cited by the coordinate benches of the NCLT.
17. Pre and Post reduction Net Worth of the Company in share capital as per clause 28 of Form-RSC-1 is as follows:
(Amount in Lakhs)
| Particulars | Pre-reduction as on 20/11/2023 | Post- reduction |
| Equity Share Capital | 44,750.00 | 37,732.00 |
| Equity Component of Preference Shares | 8,202.13 | – |
| Equity instruments designated through other comprehensive income |
(149.50) | (149.50) |
| Redeemable Non-Cumulative Preference Shares | 9508.57 | – |
| Retained Earnings | (27,213.29) | (30,214.09) |
| Securities Premium | 3,750.00 | 3,750.00 |
| Capital Reserve | 7,018.00 | |
| Net-worth | 38,847.91 | 18,136.41 |
18. In the Petitioner Company there are secured creditors amounting to Rs. 76,16,71,998/- and unsecured creditors amounting to Rs. 41,76,49,262/-as verified by M/s. J B Shah & Co, Chartered Accountants, the statutory auditors. Hence, post reduction, the ability of the Petitioner Company to pay its creditors in the ordinary course of business would not be affect.
19. In view of the clarifications given by the Petitioner Company and the judgement cited on the issue, the Company Petition is allowed.
20. A 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 the provisions of the Companies Act, 2013 is annexed to the Petition.
21. The Statutory Auditors have also issued a certificate certifying that the company has not accepted any deposits.
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, the reduction of share capital of the Petitioner Company is confirmed.
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 the filing of order and minutes with the concerned Registrar of Companies in two newspapers namely “The Free Press Journal” in English language and translation thereof in “Navshakti” in Marathi language both having circulation in the State of Maharashtra within 30 days of filing.
27. Copy of this order be forwarded to Nodal Officer of Income Tax Department for examining the tax liabilities of the Petitioner Company or shareholders.
28. Copy of this order to be also sent to Reserve Bank of India for compliance of RBI Guidelines.
29. All concerned regulatory authorities to act on certified copy of the order, duly certified by designated Registrar of this Tribunal.
30. The minutes set forth hereto be and is hereby approved.
Form of Minutes
“The Issued and Paid up Share Capital of Sarjan Realities Private Limited is reduced from Rs.6,27,60,00,000/- (Rupees Six Hundred Twenty Seven Crores Sixty Lacs Only) comprising of 44,75,00,000 (Forty Four Crores Seventy Five Lacs) Equity Shares of Rs. 10/-(Rupees Ten Only) each; 96,75,000 (Ninety Six Lacs Seventy Five Thousand) 6% Redeemable Non-cumulative Preference Shares of Rs. 100/- (Rupees One Hundred Only) each (“Series P2”); 5,00,000 (Five Lacs) 6% Redeemable Non-cumulative Preference Shares of Rs. 100/-(Rupees One Hundred Only) each (“Series P3”); 40,00,000 (Forty Lacs) 6% Redeemable Non-cumulative Preference Shares of Rs. 100/-(Rupees One Hundred Only) each (“Series P4”); and 38,35,000 (Thirty Eight Lacs Thirty Five Thousand) 6% Redeemable Non-cumulative Preference Shares of Rs. 100/- (Rupees One Hundred Only) each (“Series P5”), to Rs.3,77,32,00,000/- (Rupees Three Hundred Seventy Seven Crores Thirty Two Lacs Only) comprising of 37,73,20,000 (Thirty Seven Crores Seventy Three Lacs Twenty Thousand) Equity Shares of Rs. 10/- (Rupees Ten Only) each, by cancelling and extinguishing in aggregate issued share capital of Rs.250,28,00,000/- (Two Hundred Fifty Crores Twenty Eight Lacs Only) comprising of Series P2, Series P3, Series P4, Series P5 and 7,01,80,000 (Seven Crores One Lac Eighty Thousand) Equity shares of Rs. 10/- (Rupees Ten Only) each held by Shubh Realty (South) Private Limited.”
31. The Petitioner Company undertakes to 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 from the date of receipt of the certified Order from the Registry of this Tribunal.
32. 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.
33. Accordingly, the present Company Petition is allowed and disposed of.
“To be consigned to Records.”
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