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2025 Supreme(Online)(NCLT) 8295
NATIONAL COMPANY LAW TRIBUNAL
SHRI SUNIL KUMAR AGGARWAL, SHRI RADHAKRISHNA SREEPADA, JJ
WORLDWIDE REALCON PRIVATE LIMITED VS
C.P No.116/BB/2024
For the Petitioner: Shri R Inbaraju
For the Respondents: Shri Chennakeshava
Capital reduction using securities premium to offset losses is impermissible, as per Sections 52 and 66 of the Companies Act 2013.
Headnote:(A) Companies Act, 2013 - Sections 52 and 66 - Reduction of share capital - Petition seeking reduction of share premium for offsetting accumulated losses was dismissed as it contravenes statutory provisions; the proposed adjustment to use securities premium account for such purpose is not permissible under law. (Paras 14.1 to 14.6)
(B) Legal interpretation - The court emphasized strict interpretation of statutory provisions as per Section 6 of the Companies Act, asserting that enabling provisions in Articles of Association cannot override clear statutory prohibitions. (Para 14.4)
Facts of the case:
The Petitioner Company sought to reduce share premium totaling approximately Rs. 441.71 Crores to offset accumulated losses around Rs. 197.25 Crores, claiming improvements in future business circumstances.
Findings of Court:
The court held that the proposed reduction of share capital for the stated purpose is not permitted under Sections 52(2) and 66 of the Companies Act, 2013.
Issues: The court addressed the legality of reducing share premium to cover accumulated losses, particularly scrutinizing provisions of the Companies Act.
Ratio Decidendi: The judgment underscored the strict requirement that provisions regarding the use of the securities premium account must not contravene statutory mandates that do not allow for such offsets against losses, emphasizing that statutory laws take precedence over internal company rules.
Result: Petition dismissed.
ORDER
Per: Radhakrishna Sreepada, Member(Technical)
1. This petition filed by Worldwide Realcon Private Limited (hereinafter referred as ‘Petitioner Company’) Under section 66 of the Companies Act, 2013 (hereinafter referred to as “Act”) inter alia seeking following reliefs:
a. That the reduction of share capital, resolved on December 6, 2024, by special resolution set out in paragraph 11 above, be confirmed by this Hon’ble Tribunal, so that the same is binding on all shareholders and creditors of the Petitioner Company;
b. That notice be issued by this Hon’ble Tribunal to the Central Government, Ministry of Corporate Affairs, represented by the Regional Director, the Registrar of Companies, the Reserve Bank of India, and to the creditors of the Petitioner Company;
c. That directions for publication in the newspapers viz., Business Standard (English Language) and Kannada Prabha (Kannada Language), be issued by this Hon’ble Tribunal;
d. That all inquiries and directions necessary and proper be made and given to this end;
e. That the proposed minute be approved by the Hon’ble Tribunal; f. That, notwithstanding the reduction of the share capital as mentioned above, the addition of the words “and reduced” as a suffix to the name of the Petitioner Company shall not be required, and the existing name of the Petitioner Company shall be continued with.
g. Such further order o orders as may be deemed fit and proper may be passed by this Hon'ble Tribunal.
2. The Petitioner Company was incorporated on 02.08.2011, under the Companies Act, 1956 as a Private Limited Company, limited by shares with the Registrar of Companies, Bengaluru having Corporate Identification Number U70101KA2011PTC127668. A copy of Memorandum of Association and Articles of Association has been placed on record as Annexure A-2 to the Petition.
3. It is stated that Article No.7 of the Articles of Association of the Petitioner Company provides that the Company may from time to time, by special resolution reduce its capital in any manner permitted by law.
4. The authorized capital of the Petitioner Company as on 31.03.2024, is Rs.10,00,000/-(Ten lakhs only) divided into 1,00,000 equity shares of Rs.10/- each. The issued, subscribed and paid-up capital of the Petitioner Company as on 31.03.2024 is Rs.2,00,000/-(Rupees Two lakhs only) divided into 20,000 equity shares of Rs.10/- each.
5. It is submitted that Petitioner Company’s accumulated losses of Rs. 1,97,25,01,660 (Rupees One Hundred and Ninety-Seven Crores Twenty-Five Lakhs One Thousand Six Hundred and Sixty Only) as on September 30, 2024, have led to the proposal for reduction of share capital, with a view to write off the said accumulated losses. An improvement in the business situation in future is expected by the Petitioner Company. It is believed by the Petitioner Company that a fairer reflection of the “Other Equity” in the balance sheet would be resulted from utilization of the securities premium account for setting off the accumulated losses. The right-sizing of the balance sheet is also expected to facilitate the efforts of the Petitioner Company while funds are being raised. Accordingly, with the future prospect of growth and value addition to the company and its shareholders being kept in view, a re-alignment of the relationship between capital and assets is now proposed by the Petitioner Company.
6. Pursuant to the Board Meeting dated 05.12.2024, the Extraordinary General Meeting was held on 06.12.2024, wherein, Meeting of The Members of the Petitioner Company vide Special Resolution, have unanimously approved the proposed reduction, which inter alia reads as follows;
"RESOLVED THAT pursuant to the provisions of Section 66 and Section 52 and all other applicable provisions, if any, of the Companies Act, 2013 and the relevant rules made thereunder read with the National Company Law Tribunal (Procedure for Reduction of Share Capital) Rules, 2016 (including any statutory modifications, amendment or re-enactment thereo
