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2005 Supreme(Del) 678
High Court Of Delhi
RECKITT BENCKISER (INDIA) LIMITED - Appellant
Versus
STATE - Respondent
C.P. : 206 of 2004
Decided On : 05/31/2005
CHIRAG H.MODY, GUNJAN SHAH, JANAK DWARKADAS, NEHA P.TANDON, RISHI AGRAWAL, RUCHI A.MAHAJAN, SHARDUL S.SHROFF
The judgment emphasizes the rights of majority shareholders to decide on the reduction of share capital and the need for a reasonable valuation of shares.
Headnote:
Reduction of Share Capital - Companies Act - Sections 101-105
Fact of the Case:
The petitioner company sought to reduce its share capital under Sections 101-105 of the Companies Act. The company's proposal was to reduce the shareholding of public shareholders and Lancaster, without affecting the shares of the holding company. The objector challenged the proposed reduction on various grounds, including discriminatory and unfair reduction, violation of shareholder rights, and mala fide motives of the company.
Finding of the Court:
The court found that the majority shareholders had approved the reduction, and the valuation of the shares was reasonable. The court also noted that the petitioner had agreed to allow objectors to retain their shares. As a result, the court did not find any legal impediment to accepting the proposed reduction and allowed the petition.
Issues: The primary issue was whether the proposed reduction of share capital was unfair or inequitable, considering the motives of the petitioner and the valuation of the shares.
Ratio Decidendi: The court emphasized the rights of the majority shareholders to decide on the reduction of share capital and the manner in which it should be carried out. It also considered the valuation of the shares and the agreement of the petitioner to allow objectors to retain their shares.
Final Decision: The court approved the proposed reduction of share capital and ordered the registration of the approved minutes with the Registrar of Companies.
( 1 ) M/s. Reckitt Benckiser (India) Ltd. was incorporated under the Indian companies Act (for short the act ) on July 5, 1951 under the name and style of Reckitt and Colman of india Ltd. This name was changed to present name with effect from December 18, 2000 vide certificate of incorporation consequent to change of name No. NCR-CN-1982. The registered office of the company is in Delhi. The present authorised share capital of the company is Rs. 35 crores. Its existing issued and paid-up share capital is Rs. 32,91, 31,880/ -. The company proposes to reduce its share capital to the extent of Rs. 6,6335,760/- constituting about 20. 15% of its issued and paid-up share capital and its reserves to the extent of about Rs. 159,20,58,240/ -. This petition is filed by the petitioner company under Sections 101-105 of the Companies act (in short the act ), inter alia, seeking reduction of this share capital.
( 2 ) IT is stated in the petition that in February, 2003 the equity shares of the company were mandatorily de-listed from the Stock exchange in accordance with Regulation 21 (3) (a) of the Securities and Exchange Board of India (Substantial Acquisition of Shares and take Over) Regulation 1997 (hereinafter referred to as the sebi Regulations ). The market value of the shares of the company, immediately prior to de-listing was Rs. 247/-per share. Pursuant to directions received from the Stock Exchange in reaction to the mandatory de-listing of the company, lancaster SL (for short lancaster ) made an exit offer to acquire shares of the company under Regulation 21 of the aforesaid SEBI regulations. The said exit offer was opened on May 9, 2003 and was valid till May 18, 2003. Price of Rs. 260/- per share was offered in the said exit offer. This fact is" stated to indicate the value of the shares at relevant time.
( 3 ) THE Board of Directors of the company in its meeting held on 18th June 2004 passed a resolution of reduction of share capital, which was, of course, subject to prior approval of the shareholders to be sought at a General body Meeting and also subject to confirmation of the proposed reduction and return of paid- up share capital by the Court. It was also resolved that an Extraordinary General Meeting of the shareholders be convened on July 21, 2004 to seek their approval. Notice dated 25th June 2004 long with an explanatory statement was sent to the shareholders intimating them that General Meeting had been convened on 21st July 2004 to consider and approve the proposed reduction of share capital. Separate class meetings were to be held for: (a) the shareholders of the company whose shareholding was proposed to be reduced; and (b) shareholders of the company whose shareholding was not proposed to be reduced.
( 4 ) IN the meeting held on 21st July 2004 necessary resolutions were passed with a special majority at the meeting of (a) all the equity shareholders of the company; (b) sharehotders of the company whose shareholding is proposed to be reduced; and (c) shareholders of the company whose shareholding is not proposed to be reduced. Thereafter this petition has been filed seeking confirmation of its move to reduce the share capital.
( 5 ) IN the application it is stated that M/s. T. R. Chadha and Company, Chartered accountants, and External Valuers had submitted a report dated 24th June 2004 on the equity shares of the company. As per this report, the share is valued at Rs. 175/-, which was placed before the General Body. The reasons necessitating reduction and structure of reduction are mentioned in para-11 of the petition explaining that over a period of time, the management s focus on overall profitability and financial discipline including effective management of net working capital and caution in launching new products has significantly reduced the capital requirements of the petitioner company. As a result, the petitioner company now has more capital resources and reserves that it can profitabl
