Gujarat High Court
Utl Industries Limited vs Respondent on 21 July, 2014
Author: S.R.Brahmbhatt
Bench: S.R.Brahmbhatt
O/COMP/19/2014 ORDER
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
COMPANY PETITION NO. 19 of 2014
================================================================
UTL INDUSTRIES LIMITED....Petitioner
Versus
.....Respondent
================================================================
Appearance:
MR. HARMISH K SHAH, ADVOCATE for the Petitioner
================================================================
CORAM: HONOURABLE MR.JUSTICE S.R.BRAHMBHATT
Date : 21/07/2014
ORAL ORDER
1. Heard Mr. Ashok L. Shah, learned counsel appearing with Mr. Harmish K. Shah for the petitioner.
2. The present petition has been filed by the petitioner company under Sections 100-103 of the Companies Act, 1956 (hereinafter referred to as the 'Act') seeking approval to the proposed reduction of the paid up Share Capital of the petitioner Company and the confirmation of the resolution for reducing the paid up share capital of the Company passed at its Annual General Meeting held on 25.7.2013 and also for the approval of the minutes thereof.
On the presentation of the petition, the court on being satisfied that the proposed reduction does not involve either the diminution of liability in respect of unpaid share capital or the payment to any shareholder of any paid up share capital, the procedure prescribed under Section 101(2) of the Companies Act, 1956 read with Rules 48 to 65 of Companies (Court) Rules 1955 was dispensed with.
Page 1 of 9O/COMP/19/2014 ORDER As directed by this Court vide order dated 9.4.2014 the notice in the prescribed form of the presentation of the petition and the next date of hearing fixed on 18.6.2014 was published in the Indian Express, 'English Daily' and Loksatta- Jansatta, 'Gujarati Daily' - Vadodara Edition both dated 27th May, 2014. An affidavit of publication of the notice in the newspapers made by representative of the petitioner company was also filed.
In response to the publication of notice on 27.5.2014 no objections opposing the confirmation of the proposed reduction of paid up share capital in terms of special resolution passed on 25 th July, 2013 were received
3. Briefly stated, the relevant facts are as under:
3.1 The petitioner Company was incorporated on 5 th October, 1989 under the name and style of Uni Tubes Private Limited as a Private Limited Company under the Companies Act, 1956. Subsequently, by special resolution passed in terms of section 21/31/44 of the Companies Act, 1956, on 21.4.1992 and the approval of the Central Government it was converted into public limited on and from 28th May, 1992.
Thereafter, the name of the Company was changed to UTL Industries Limited vide certificate dated 18.9.2013. The securities of the petitioner Company are listed on the BSE Limited and is a listed company.
3.2 The registered office of the petitioner Company is situated at 607, World Trade Centre, Sayajigunj, Vadodara in the State of Gujarat.
3.3 The authorized share capital of the petitioner Company is of Rs.3,50,00,000/- divided in to 35,00,000 equity shares of Rs.10/- each Page 2 of 9 O/COMP/19/2014 ORDER and issued, subscribed and paid up share capital is of Rs.3,25,50,000/- divided in to 32,55,000 Equity Shares of Rs.10/- each. 3.4 The Board of Directors of the petitioner company passed a resolution dated 27th June, 2013 to approve the proposal to reduce the paid up Share Capital.
3.5 The shareholders of the company approved at their Annual General Meeting held on 25.07.2013 the reduction of the paid up share capital of the Company by reducing the paid up amount and nominal amount of all the shares in the capital from Rs.10/- to Re.1/- per share.
3.6 As stated in the petition, the proposed financial restructuring the shareholding pattern of the petitioner company remains unchanged even after implementation of the Capital Reduction. The reduction shall not have any impact on the employees / workers of the Company and generally they may be benefited since true financial position of the company would be improved and made clear and the reduction of share capital shall not have any impact on the creditors/banks/ Financial institutions of the Company and also there is no effect on the outstanding dues to creditors / banks/ financial institutions.
3.7 By a special resolution of the Company, duly passed in accordance with Section 189 of the Companies Act, 1956, at the Annual General Meeting held on 25th July, 2013 after due notice as required under the Act, it was resolved:-
"Resolved that pursuant to Section 100 of the Companies Act, 1956 and subject to the confirmation of the High Court of Gujarat, Ahmedabad, the paid up capital of the company be reduced from Rs.3,25,50,000/- divided into 3255000 equity shares of Rs.10/- each fully paid up to Rs.32,55,000/-Page 3 of 9
O/COMP/19/2014 ORDER divided into 3255000 equity shares of Re.1/- each fully paid up and that such reduction be effected by cancelling the capital which has been lost or is unrepresented by available tangible assets, to the extent of Rs.9/- per share upon each of the 32,55,000 equity shares which have been issued and by reducing the nominal amount of all the shares in the capital of the company from Rs.10/- to Re.1/- share"
Further resolved that pursuant to Section 94 read with Section 16 of the Companies Act, 1956, the consequential amendments / alterations to be made in the capital clause of the Memorandum of Association of the Company after the said reduction becomes operative and effective.
3.8 The circumstances that have necessitated / justified the proposed Capital Reduction are narrated in the petition, particularly in paragraphs 11 and 12 thereof, to the effect that as per the Audited Financial results of the Company as on 31.03.2013, the total accumulated losses are of Rs.4,22,29,937/- as against the paid-up equity share capital of Rs.3,25,50,000/-. The reduction in the capital would represent true financial position which would benefit both the Company, Institutions in general, and share holders. Further the liquidity of shares for trading purposes would be improved as the par value of each equity share has been reduced to Re.1/- each.
3.9 As required by clause 24(f) of the equity listing agreement the petitioner company was granted 'no objection' to the Capital Reduction by BSE Limited and Vadodara Stock Exchange Limited. The 'no objection' vide letters dated 29th November, 2013 and 12th November, 2013 received from the respective stock exchanges.
Page 4 of 9O/COMP/19/2014 ORDER 3.10 The petitioner company also obtained the fairness opinion
certificate on valuation of its shares from Chartered Capital and Investment Limited vide certificate dated 11.9.2013.
3.11 The Capital Reduction results in the paid up share capital of the Company being reduced from Rs.3,25,50,000/- (Rupees Three crores twenty five lacs fifty thousand ) comprising of Rs.32,55,000 equity shares of Rs.10/- (Rupees ten) each fully paid up to Rs.32,55,000/- (Rupees Thirty two lacs fifty five thousand) comprising of 3255000 equity shares of Re.1 (Rupee one) each fully paid up.
3.12 The minute under Section 103(1)(b) is as follows:
MINUTE UNDER SECTION 103(1)(b) "The paid up capital of the company as resolved by special resolution passed on 25.07.2013 and sanctioned by the Hon'ble High Court vide order dated ____ is reduced from Rs.3,25,50,000/- divided into 3255000 equity shares of Rs.10/- each fully paid up to Rs.32,55,000/- divided into 3255000 equity shares of Re.1/- each fully paid up which has been lost or is unrepresented by available tangible assets. The reduced paid up capital is 32,55,000 comprised of 3255000 of Re.1/- each. The nominal amount of all the shares in the capital of the company is reduced from Rs.10/- to Re.1/- per share.
4. Indisputably, there is no infirmity in the procedure adopted by the petitioner for reduction of capital. The resolution for the same has been passed by the Board of Directors of the Company. The shareholders Page 5 of 9 O/COMP/19/2014 ORDER of the Company have also passed a special resolution for reduction of capital as required. The petition has been duly advertised. The requisite procedure having been followed. Sub-section 1 of Section 100 of the Act enables a company to reduce its capital provided the same is authorized by its Articles of Association and members of the company approve the same by a special resolution.
Section 100 of the Act is quoted below:
"100. Special resolution for reduction of share capital.-
(1) Subject to confirmation by the Tribunal, a company limited by shares or a company limited by guarantee and having a share capital, may if so authorized by its articles, by special resolution, reduce its share capital in any way; and in particular and without prejudice to the generality of the foregoing power, may -
(a) extinguish or reduce the liability on any of its shares in respect of share capital not paid up;
(b) either with or without extinguishing or reducing liability on any of its shares cancel any paid up share capital which is lost, or unrepresented by available assets;
or
(c) either with or without extinguishing or reducing liability on any of its shares, pay off any paid-up share capital which is in excess of the wants of the company and may, if and so far as is necessary, alter its memorandum by reducing the amount of its share capital and of its shares accordingly.Page 6 of 9
O/COMP/19/2014 ORDER
(2) A special resolution under this section is in this
Act referred to as 'a resolution for reducing share capital'.
(3) Where a proposed reduction of share capital involves either the diminution of any liability in respect of unpaid share capital or the payment to any shareholder of any paid-up share capital, the Tribunal may, if having regard to any special circumstances of the case, it thinks proper so to do, direct that the provisions of sub-section (2) shall not apply as regards any class or any classes of creditors".
5. A plain reading of section 100 of the Act indicates that clauses (a) to (c) of Section 100(1) are merely illustrative and not exhaustive. The words 'without prejudice to the generality of the foregoing power' expressly indicate that the power of a company to reduce its capital is not circumcised by clauses (a) to (c) of Section 100(1) of the Act. It naturally follows from a plain reading of Section 100 of the Act, that a company would be free to reduce its capital and select the manner in which to reduce the same. However, if the same entailed diminution of any liability in respect of unpaid capital or payment of paid up capital to shareholders, the same would affect the rights of the creditors and other provisions of the Act for protecting the interest of the creditors would have to be complied with.
In the instant case, however, there is neither any diminution of any liability in respect of unpaid capital nor payment of any paid up capital to shareholders and as such the rights of the creditors are not affected by reduction of share capital. It is, therefore, now to be considered whether, there is any other reason why the present proposal Page 7 of 9 O/COMP/19/2014 ORDER for reduction of share capita should not be approved.
This court is satisfied that the reduction of capital is not barred by any provision of law and the scheme is not inequitable and does not unfairly prejudices the rights of any person. It is also to be noted that the shareholders are in the best position to ascertain the necessities and interests of the company. In the present case, the shareholders have approved the mode and manner of the reduction in share capital. It cannot be ignored that the shareholders participating in the reduction of capital are financial investors who are presumed to be men of considerable commercial wisdom capable of taking a decision in their best interest. There is no opposition to the proposed reduction from any shareholder, creditor or member of the public and no patent irregularity or illegality in the scheme has been brought to the notice of this Court and proposed reduction in the paid-up share capital of the company is duly authorized by Article 8 of its Articles of Association.
In view of the above, the present petition is allowed. The Resolution dated 25.7.2013 and the Form of Minutes proposed to be registered under Section 103(1)(b) of the Act as mentioned in para-24 of this petition, are approved. A copy of the approved minutes and the order be filed with the Registrar of Companies within six weeks. Notice of Registration of this order and the said minutes by the Registrar of Companies is directed to be published by the petitioner company in Indian Express (English) and Lok-Satta Jansatt' (Gujarati) Vadodara edition. The publication of the notice of registration order and said minute in the official gazette is dispensed with.
The requirement of adding the words 'AND REDUCED' is also dispensed with.
(S.R.BRAHMBHATT, J.)
Page 8 of 9
O/COMP/19/2014 ORDER
pallav
Page 9 of 9