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2010 Supreme(Bom) 728
High Court of Judicature at Bombay
THE HONOURABLE MR. JUSTICE S.J. KATHAWALLA
Organon (India) Limited
Versus
COMPANY SCHEME PETITION NO.101 OF 2010
Decided on : 07-06-2010
For the Petitioner:Dr. V. V. Tulzapurkar, Senior Advocate, a/w S. Parikh, Advocate.
For the Respondent: D. V. Lakhani in person-objector.
The main legal point established in the judgment is the requirement for fair and equitable reduction of share capital, as well as the acceptance of a valuation report by the majority of shareholders.
Headnote:
Company Scheme Petition - Reduction of Equity Share Capital - Section 100 of the Companies Act, 1956 - Summary of Acts and Sections: Sections 100-105 of the Companies Act, 1956, Article 50 of the Articles of Association - The court discussed the legal provisions related to reduction of share capital, including the requirement of a special resolution sanctioned by the court, and the principles of fair and equitable reduction of capital. The court also considered the valuation of shares and the fairness of the valuation report provided by Grant Thornton.
Fact of the Case:
The Petitioner Company sought sanction for the reduction of its equity share capital through a special resolution passed by its shareholders. The company's equity shares were de-listed, and the reduction was proposed to provide an exit option to the remaining individual shareholders at an attractive price. The Petitioner Company faced objections from a single shareholder, Mr. Lakhani, who raised concerns about the reduction and valuation of shares.
Finding of the Court:
The court found that the reduction of equity share capital was fair and reasonable, and the valuation report provided by Grant Thornton was accepted by all non-promoter shareholders except Mr. Lakhani. The court also noted that the objections raised by Mr. Lakhani lacked bonafide and were raised as an afterthought. The court allowed the Company Scheme Petition in favor of the Petitioner Company.
Issues: The main issues revolved around the fairness and equity of the proposed reduction of equity share capital, the objections raised by Mr. Lakhani, and the acceptance of the valuation report by the shareholders.
Ratio Decidendi: The court's decision was based on the fair and reasonable nature of the reduction, the acceptance of the valuation report by the majority of shareholders, and the lack of bonafide in the objections raised by Mr. Lakhani.
Final Decision: The Company Scheme Petition was allowed in favor of the Petitioner Company, confirming the reduction of its equity share capital.
1. By this Company Scheme Petition, Organon (India) Limited (the Petitioner Company) seeks sanction and confirmation by this Court with regard to the special resolution passed by the Petitioner's shareholders in its Extraordinary General Meeting (“EGM”) held on 15th October, 2009, for the reduction of its equity share capital.
2. The Authorized, issued, subscribed and paid up share capital of the Petitioner Company, as on 31st December, 2008 is as under: Share Capital Authorized: 1,00,00,000 Equity Share of Rs.10/each Rupees 10,00,00,000/- Issued, Subscribed and Paid up: (60,76,160 Equity Shares of Rs. 10/- each fully paid up) 6,07,61,600/-
Total: 6,07,61,600/-
3. Of the above, 98.43% of the paid up equity share capital of the Petitioner Company is held by the promoter shareholder, namely Organon Participations B. V. (“promoter shareholders”). The balance of the paid up equity share capital of the Petitioner Company is held by 1490 members having shares of the Petitioner Company. There has been no change in the share capital of the Petitioner Company from 31st December, 2008 till the date of filing the present petition.
4. The Petitioner Company's equity shares were listed on the Calcutta Stock Exchange Association Limited and the National Stock Exchange. Subsequently, in accordance with Regulation 21(3)(a) of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997, the promoter shareholders made an open offer to the public shareholders at Rs. 285/- per equity share of Rs. 10/- each fully paid up and over a period of time, acquired 29, 16, 546 shares from the public. However, the public shareholding of the Petitioner Company fell below the 10% limit as provided under the Stock Exchange norms and the shares of the petitioner company were de-listed from the Calcutta Stock Exchange Association Limited with effect from 26th August, 2002 and subsequently from the National Stock Exchange with effect from 9th October, 2002. As per the requirements of the concerned Stock Exchanges, the promoter shareholders sent offer letters to the public shareholders in respect of the acquisition of the equity shares in the Petitioner Company at a de-listing price of Rs.285/- per equity share as per the delisting guidelines under the Security and Exchange Board of India (Delisting of Securities) Guidelines, 2003. The promoter shareholders extended to the shareholders of the Petitioner Company an exit option at the delisting price of Rs.285/- per equity share. This offer was terminated by a letter dated 9th April, 2009 addressed to the shareholders.
5. Section 100 of the Companies Act, 1956 (“the Act”) and Article 50 of the Articles of Association of the Petitioner Company empower the Petitioner Company, by way of a special resolution to reduce its share capital in any manner. The Board of Directors of the Petitioner Company proposed the reduction of the equity share capital of the Company. The reason for the reduction of the equity share capital of the Petitioner Company reads as follows:
“The Company's securities being de-listed to individual shareholders do not have a tradable security for exit. This prevents shareholders from realizing the optimal value and returns on their investments in the Company. Further, over a period of time, the management's focus on overall profitability and financial discipline including effective management of the net working capital has significantly reduced the capital requirements of the company.”
6. It was proposed by the Petitioner Company that its paid up equity share capital be reduced by paying off the equity shareholders (other than promoter-shareholders) an aggregate sum of Rs.425/-towards each equity share, with a face value of Rs. 10/-, which would therefore include a premium of Rs. 415/-per equity share. Thus the Petitioner Company sought to extinguish 95, 106 equity shares and reduce it’s paid up equity share capital by Rs. 9, 51, 060/-. A
