NCLT Mumbai Affirms Share Capital Reduction as 'Domestic Affair' Under Companies Act, Section 66 - 2025-03-10

```markdown

NCLT Mumbai Bench Approves Share Capital Reduction for One International Center Private Limited

Mumbai, India – February 12, 2025 – The Mumbai Bench of the National Company Law Tribunal (NCLT), Court V, presided over by Hon’ble Ms. Reeta Kohli (Member – Judicial) and Hon’ble Ms. Madhu Sinha (Member – Technical), has approved the reduction of share capital for One International Center Private Limited, a real estate development company. The order, delivered on February 12, 2025, underscores the principle of share capital reduction being a ‘domestic affair’ of a company, with tribunals generally deferring to the decisions of the majority shareholders.

Background of the Case

One International Center Private Limited, engaged in the development and leasing of commercial real estate, sought NCLT’s confirmation for a special resolution passed by its shareholders on June 24, 2024. This resolution aimed to reduce the company’s issued, subscribed, and paid-up equity share capital. The proposed reduction involved decreasing the face value of each share from ₹10 to ₹9.60, and further reducing capital by ₹0.40 per share, with a payout of ₹326 per share to equity shareholders. The company cited reasons for reduction as excess capital relative to its current operations and the intention to write off accumulated losses against the securities premium account.

Objections and Responses

The Regional Director (RD), Ministry of Corporate Affairs, raised concerns regarding the company's negative net worth as per provisional balance sheets and questioned if the payment to shareholders was being made from borrowed funds, potentially prejudicing creditors' interests. The RD also referenced a previous NCLT order which had not permitted a similar scheme.

Representing One International Center, Senior Counsel Mr. Gaurav Joshi argued that the company possessed sufficient internal accruals to fund the payout and that the reduction would not prejudice creditors. The company highlighted the fair value of its ‘One International Center’ property, significantly higher than its book value, resulting in a substantial fair net worth. They also emphasized that no objections were received from creditors despite due notice, and the special resolution was unanimously approved by shareholders.

In response to RD's reliance on a previous NCLT order, the company’s counsel brought to the Tribunal's attention a recent order by the National Company Law Appellate Tribunal (NCLAT) in Ulundurpet Expressways Private Limited . The NCLAT in that case had overturned a similar NCLT order, affirming that Section 66 of the Companies Act, 2013 grants companies the discretion to reduce share capital “in any manner,” subject to shareholder approval.

Reliance on Legal Precedents

The NCLT Mumbai Bench extensively considered precedents cited by the Petitioner, reinforcing the principle that share capital reduction is primarily a ‘domestic affair’. The judgment referenced landmark cases such as:

• Reckitt Benckiser (India) Ltd. (Delhi High Court): Emphasized that reduction of share capital is a domestic concern, with the majority's decision prevailing. It highlighted the company's right to decide how the reduction is carried out and that the Court should not interfere if the process is fair and equitable.
• Lily Realty Private Limited (NCLT Mumbai): Demonstrated instances where payouts to shareholders were allowed despite accumulated losses, provided the company had sufficient liquidity.
• Ulundurpet Expressways Private Limited (NCLAT): Reiterated that Section 66 provides broad discretion to reduce share capital “in any manner,” focusing on shareholder approval and creditor protection rather than rigid criteria.
• Precious Energy Services Limited (NCLAT): Affirmed that negative net worth is not a statutory bar to share capital reduction, especially when the company is a going concern with sufficient cash flow and creditors have not objected.

Court's Decision and Rationale

The NCLT Bench, after considering the submissions, reports from the Regional Director, and the cited judicial precedents, allowed the Company Petition. The Tribunal underscored that no objections were received from creditors and the reduction was approved by a unanimous special resolution. The bench concurred with the view that share capital reduction is a domestic matter and that companies have broad discretion under Section 66, provided creditor and minority shareholder interests are protected and the process is fair.

The Tribunal observed : "Considering the entire facts and circumstances of the case and report filed by Regional Director, rejoinder affidavit filed by the Petitioner Company in response to Regional Director’s observations and comments and on perusal of the judgements cited by the Petitioner Company that reduction being a domestic affair and a company can reduce its share capital in any manner, the Company Petition is allowed."

Implications of the Order

This order reaffirms the principle that NCLTs generally respect the autonomy of companies in managing their share capital, particularly when decisions are backed by shareholder consensus and do not demonstrably harm creditor interests. It highlights that negative net worth alone is not an impediment to share capital reduction if the company demonstrates sufficient liquidity and asset value. The judgment also reinforces the wide scope of Section 66, allowing for varied methods of capital reduction as long as they are legally compliant and equitable.

One International Center Private Limited is now required to file certified copies of the order and minutes with the Registrar of Companies and publish notices in newspapers as directed by the Tribunal.

[End of Article] ```