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2014 Supreme(Del) 983
High Court of Delhi
VIBHU BAKHRU, J.
In The Matter of Rs Livemedia Pvt. Ltd.
Versus
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Co. Pet. No. 572 of 2013
Decided on: 31-03-2014
For the Petitioner:Pooja M. Saigal, Nivedita H.S. Bhaskar, Advocates, Atma Sah, Asstt. Registrar of Companies for Regional Director.
A company has the discretion to reduce its share capital in any manner, subject to compliance with the provisions of the Companies Act and safeguarding the interests of creditors and minority shareholders.
Headnote:
Companies Act - Reduction of Share Capital - Sections 100-104
Fact of the Case:
The petitioner company sought approval for the reduction of its share capital by cancelling shares held by certain shareholders. The company proposed to pay off the capital in excess of its requirements to the investor shareholders, providing a partial exit to them. The company had no secured creditor and obtained no objection/consent from 15 unsecured creditors representing more than 90% of the unsecured debt.
Finding of the Court:
The court found that the reduction of share capital was not a ruse to distribute profits and was within the scope of Section 100(1)(c) of the Act. The court also addressed the observations of the Regional Director and concluded that the reduction of preference shares did not amount to repayment of debt capital. The court allowed the reduction of capital, as it was duly authorized by the company's Articles of Association and approved by the shareholders and creditors.
Issues: The issues included the proposed reduction being a distribution of profits, treatment of preference shares, disproportionate reduction in share capital, and calculation of consideration payable to different shareholders.
Ratio Decidendi: The court held that a company is free to reduce its capital and select the manner in which to reduce it, as long as it complies with the provisions of the Act and safeguards the interests of creditors and minority shareholders. The court also emphasized that the shareholders are in the best position to ascertain the necessities and interests of the company.
Final Decision: The court allowed the reduction of share capital and approved the resolution and minutes proposed by the company, dispensed with the requirement of adding the words 'AND REDUCED', and directed the company to publish the order and minutes in specified newspapers.
Vibhu Bakhru, J.
1. The present petition has been filed by the petitioner company under Sections 100-104 of the Companies Act, 1956 (hereinafter referred to as the ‘Act’) seeking approval/sanction to the proposed reduction of the Subscribed and Paid-up Equity and Preference Share Capital of the petitioner Company.
2. The petitioner proposes to reduce its share capital by cancelling a specified number of shares held by certain shareholders. The petitioner has also determined the amounts payable to the shareholders with respect to the shares proposed to be cancelled reduced. A resolution approving the reduction of share capital had been passed by the members of the petitioner company at the Extra Ordinary General Meeting of the company held on 08.07.2013.
3. Briefly stated, the relevant facts are as under:-
3.1 The petitioner company was incorporated in the year 2006 and is engaged in the business of providing high quality digital signage and advertising and contents through its network of television screens placed in public places.
3.2 During the year 2007 and 2008, DFJ Mauritius Inc., Bay Partners XI, Mauritius (Bay Partners) and SVIC No. 11, New Technology Business Investment (Samsung) became shareholders of the petitioner company. The said entities are hereinafter collectively referred to as ‘investor shareholders’. DFJ Mauritius Inc. acquired 1,58,01,640 equity shares and 91,60,310 preference shares, Bay Partners acquired 1,16,02,569 equity shares and Samsung acquired 42,63,937 equity shares.
3.3 The petitioner company has an authorized share capital of Rs.7,50,00,000/- divided into 6,50,00,000 equity shares of Rs.1/- each and 1,00,00,000 preference shares of Rs.1/- each. The subscribed, issued and paid-up share capital of the company is Rs.5,08,28,456 divided into Rs.4,16,68,146 equity shares of Rs.1/- each and 91,60,310 8% non-cumulative convertible preference shares of Rs.1/- each.
3.4 The current shareholding pattern i.e. before reduction of share capital as proposed is as under:
Name
of Shareholder
Number of shares Percentage of
Shareholding
Rajan Mehta 1,00,00,000 Equity shares 80
DFJ Mauritius Inc. 1,58,01,640 equity shares and 91,60,310 preference shares 49.11
Bay Partners XI 1,16,02,569 equity shares 22.83
Samsung 42,63,937 equity shares 8.39
Total 38,328,456 100
3.5 The Board of Directors of the petitioner company passed a resolution dated 28.06.2013 proposing the reduction of existing issued, subscribed and paid-up share capital of the Company. As per the Explanatory Statement issued, the object of reduction of share capital was to pay off the capital which is in excess of the requirements of the company, to the investor shareholders, thereby providing partial exit to the investor shareholders.
3.6 It was resolved that the petitioner company would pay consideration to the investors at values less than Rs.23.78 per share, determined by an independent valuer, M/s Corporate Professionals Capital Pvt. Ltd. The fair value of shares was determined by the independent valuer, on the basis of Discounted Cash Flow Method.
3.7 The Extra Ordinary General Meeting (EoGM) of the shareholders of the company was held on 08.07.2013. The members of the company approved the reduction of the existing issued, subscribed and paid up share capital from Rs.5,08,28,456 to Rs.1,25,00,000/- by cancelling 2,97,29,048 equity shares and 85,99,408 Non-Cumulative Convertible Preference shares.
3.8 The shareholding pattern after reduction of share capital would be as under:
Name
of Shareholder Number of
shares Percentage of
Shareholding
Rajan Mehta 1,00,00,000 Equity shares 80
DFJ Mauritius Inc 9,67,563 Equity Shares and 5,60,902 Preference Shares 12.23
Bay Partners XI 7,10,446 Equity shares 5.68
Samsung 2,61,089 Equity shares 2.09
Total 38,328,456 100
4. The proposed reduction of capital entails partially reducing the capital held by the investor shareholders. Although, the equity shares which are proposed to be cancelled/reduced are of one class
