Gujarat High Court
Eagle Creek Knowledge Processing ... vs Respondent(S) on 16 January, 2015
Author: Harsha Devani
Bench: Harsha Devani
O/COMP/275/2014 JUDGMENT
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
COMPANY PETITION NO. 275 of 2014
FOR APPROVAL AND SIGNATURE:
HONOURABLE MS.JUSTICE HARSHA DEVANI
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1 Whether Reporters of Local Papers may be allowed to see
the judgment ?
2 To be referred to the Reporter or not ?
3 Whether their Lordships wish to see the fair copy of the
judgment ?
4 Whether this case involves a substantial question of law as
to the interpretation of the Constitution of India, 1950 or any
order made thereunder ?
5 Whether it is to be circulated to the civil judge ?
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EAGLE CREEK KNOWLEDGE PROCESSING SERVICES PRIVATE
LTD....Petitioner(s)
Versus
.....Respondent(s)
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Appearance:
MR SN SOPARKAR, SR. ADVOCATE with MRS SWATI SOPARKAR,
ADVOCATE for the Petitioner
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CORAM: HONOURABLE MS.JUSTICE HARSHA DEVANI
Date : 16/01/2015
ORAL JUDGMENT
Page 1 of 7
O/COMP/275/2014 JUDGMENT
1. This petition filed under sections 100 to 103 of the Companies Act, 1956 seeks confirmation of the proposed reduction of the Preference Share Capital by repayment of part of such Preference Share Capital; being in excess of the need of the petitioner company.
2. Mr. Saurabh Soparkar, learned senior advocate appearing with Mrs. Swati Soparkar, learned advocate for the petitioner submitted that the petitioner company is engaged in the business of providing knowledge based services and support mainly to the financial industry in the United States. The services include skilled support to Financial Advisory Firms for middle office and back office tasks, CPA firms for book keeping, tax planning and tax preparatory work, etc. The gross income of the company was more than Rs.2.5 crore for the financial year ended on 31st March, 2014. The operating profit has been more than Rs.70 lakhs and net profit is more than Rs.57 lakhs for the financial year ended on 31 st March, 2014. It has built-up reserves of nearly Rs.34 lakhs. Thus, it is a profit making company with bright future prospects for growth.
3. It was pointed out that the company proposed expansion and diversification plans in the year 2009-10 to establish independent support centre for insurance companies, providing skilled support for preparation of life expectancy illustrations and APS summaries. For this purpose, the company invited capital in the form of Preference Shares from some Foreign Investors. The project was to service large number of insurance companies in the US by creating state of art infrastructure to accommodate about 400 - 500 skilled Page 2 of 7 O/COMP/275/2014 JUDGMENT people to deliver such tasks. However, considering the global slowdown and particularly the economic crisis in the US subprime sector, the said project was not viable and hence was abandoned. The preference share capital which was invited specifically for the said project from the US based investor viz. Eagle Creek Fund LLC would remain unutilized since the petitioner company does not envisage the said project to be implemented even in the future. The capital so invested by the US based investor viz. Eagle Creek Fund LLC is in excess of the requirements of the company.
4. In view of these facts and circumstances, the Board of Directors of the company proposed to reduce part of its Preference Share Capital, by cancelling and extinguishing Preference Shares held by Eagle Creek Fund LLC. In view of the general principle of 'Last in - First out', the shareholding by other shareholders shall not be subjected to reduction and such repayment of capital.
5. It was pointed out that in compliance with the applicable provisions under sections 100 and 189 of the Companies Act, 1956, the requisite meetings of the Equity shareholders and Preference shareholders of the petitioner company were convened on 15th July, 2014 after due notices to all the concerned parties. The special resolution approving the proposed reduction was unanimously passed at both these meetings. The copies of such resolutions have been placed on record by the petitioner company.
6. It was submitted that the petition was filed before the court for requisite approval and the same was admitted on 5 th Page 3 of 7 O/COMP/275/2014 JUDGMENT December, 2014 and requisite direction was issued for publication of the notice in the Ahmedabad editions of the English daily "Indian Express" and the Gujarati daily "the Jansatta" to invite objections to the said proposal. Such direction has been complied with by the company and the notice of the petition has been duly advertised in the above newspapers on 12th December, 2014 which is confirmed by an affidavit dated 30th December, 2014. Pursuant to the said advertisement, no one has come forward to raise any objection opposing the sanction to the proposed capital reduction.
7. It is further submitted that in spite of the proposed repayment of part of the preference share capital, the ordinary operations of the company or the ability of the company to honour its commitments or to pay its debts in the ordinary course of business shall not be affected in any manner. Factually the petitioner company has no secured creditors or unsecured creditors at present as confirmed vide the Chartered Accountant's certificate which is placed on record. It has been pointed out that in view of the said contention, while admitting the petition vide the above-referred order dated 5 th December, 2014, this court did not give any directions as required under section 101(2) of the Act and the same was dispensed with.
8. Having perused the petition and more particularly the reasons given in support of the proposed reduction, this court is of the view that there is no reason not to confirm the proposed action of the petitioner to reduce its capital. Accordingly, the proposed reduction of Preference Share Capital in accordance with resolution dated 15 th July, 2014 Page 4 of 7 O/COMP/275/2014 JUDGMENT reproduced hereunder :
"RESOLVED THAT pursuant to the Articles of Association of the Company, Section 100 and other applicable provisions of the Companies Act, 1956, and pursuant to the enabling article No.46 of Table "A", and subject to the confirmation by the Hon'ble High Court of Gujarat at Ahmedabad and subject to the sanctions and approvals of the appropriate authorities as may be required, and subject to such terms, conditions and modifications if any, as may be prescribed by such authorities while granting the such approvals, consents or permissions and which may be agreed to by the Board of Directors of the Company, the Issued, Subscribed and Paid Up Preference Share Capital of the Company, being in excess of the requirements of the Company be reduced from Rs.19,20,57,400/- consisting of 61,95,400 8.25% Cumulative Compulsorily Convertible Preference shares of Rs.31/- each fully paid-up to Rs.3,23,95,000/- consisting of 10,45,000 8.25% Cumulative Compulsorily Convertible Preference shares of Rs.31/- each fully paid up. The said reduction be effected by cancelling and extinguishing 51,50,400 Preference shares held by M/s. Eagle Creek Fund LLC being the last investor in the Company."
"RESOLVED FURTHER THAT upon the reduction being confirmed by the Hon'ble High Court of Gujarat at Ahmedabad, the above mentioned shareholder holding 51,50,400 fully paid-up Preference shares of the Company, be returned a sum of Rs.31/- per preference share for the extinguishment of the shares held by him, Page 5 of 7 O/COMP/275/2014 JUDGMENT which is equivalent to the face value of the said Preference Share."
"RESOLVED FURTHER THAT upon extinguishment of such share capital, the issued, subscribed and paid-up Preference share capital of the Company shall stand reduced to the extent of the face value of preference shares so extinguished on the Effective Date."
"RESOLVED FURTHER THAT, the reduction of the Company's Preference share capital as indicated above is subject to the following terms and conditions:
- upon the reduction being confirmed by the Hon'ble High Court of Gujarat at Ahmedabad, the above mentioned shareholder holding 51,50,400 fully paid-up Preference shares of the Company, be returned a sum of Rs.31/- per preference share for the extinguishment of the preference shares held by him, subject to the receipt of required sanctions and approvals, if any, from the Reserve Bank of India in accordance with extant foreign exchange control regulations;
- the return of preference share capital to above mentioned shareholder shall be made as soon as possible within 60 days of the Effective date and the actual payments may be made in installments, by RTGS, NEFT, pay order or demand draft;
"RESOLVED FURTHER THAT consequential amendments be made in the capital clause of the Memorandum of Page 6 of 7 O/COMP/275/2014 JUDGMENT Association and the Articles of Association of the Company after the said reduction becomes operative and effective."
is hereby confirmed.
9. The form of the minute proposed vide Para 11 of the Petition to be registered under section 103(1)(b) of the Companies Act is hereby approved and confirmed.
10. The petitioner is directed to publish the Notice of Confirmation of Reduction of Capital and approval of the Minutes in the Ahmedabad editions of the English daily "Indian Express" and the Gujarati daily "the Jansatta" within 14 days of the registration of the order with the Registrar of Companies.
11. The petition stands disposed of accordingly with no order as to costs.
(HARSHA DEVANI, J.) parmar* Page 7 of 7