Company Petition No. 84 of 2010 · The High Court · 2010

Act, 1956, for confirming the reduction of share capital.

2. Heard the learned counsel for the petitioner Company and the learned Assistant Solicitor General, representing the Registrar of Companies, Hyderabad. Perused the record.

3. The petitioner Company M/s Tecumseh Products India Private Limited, hereinafter referred to as ‘petitioner Company’, was incorporated as a private limited Company on 30.01.1997 under the Companies Act 1956 and the name was subsequently changed to Tecumseh Products India Private Limited on 12.10.1999 and a fresh certificate of incorporation was issued on 21.10.1999. In the year 2000, the petitioner Company obtained permission to shift its registered office to Andhra Pradesh in terms of order dated 31.07.2000 issued by the Company Law Board, New Delhi and a fresh certificate of incorporation was issued by the Registrar of Companies, Andhra Pradesh, Hyderabad on 27.08.2003. The registered office of the petitioner Company is situated at Balanagar, Hyderabad. The main objects of the petitioner Company as set out in the memorandum of association are extracted in the petition and the same are not reiterated herein for the sake of brevity. The authorised share capital of the petitioner Company is Rs.300,00,00,000/- divided into 2,25,00,000 equity shares of Rs.100/- each with voting rights and 75,00,000 non- convertible redeemable preference shares of Rs.100/- each fully paid up, held by the parent Company Tecumseh Products Company, USA and 1 equity share of Rs.100/- fully paid up held by an individual as a nominee of Tecumseh Products Company, USA.

4. At present, the Petitioner Company is mainly engaged in manufacture and export of reciprocating, refrigerator and air compressors for air-conditioning, refrigeration and coolers. As per Article 6(ii) of the Articles of Association of the petitioner Company, the Company may from time to time, reduce the capital subject to any authorization and consent required by law. By demand notice dated

29.01.2010, an extra-ordinary general meeting of the petitioner Company was held at the registered office on 15.02.2010 and it was resolved that the issue, subscribed and paid up share capital of the Company be reduced from Rs.220,18,60,600/- (divided 220,18,606 equity shares of Rs.100/- each) to Rs.120,18,60,600/- (divided into 120,18,606 equity shares of Rs.100/- each) by writing off Rs.100,00,00,000/- from its paid up share capital which has been lost and is not represented by the available assets of the Company and adjusting same against the accumulated losses of Rs.167,54,01,245/- as on 31.03.2009. The reasons that justify or necessitate the reduction of the capital, inter-alia, are as follows: (a) The Company, engaged in the manufacture land export of reciprocating, refrigerator and air compressors for air-conditioning, refrigeration and coolers, has incurred substantial losses since the last six years resulting in erosion of its equity capital. (b) These losses have been caused due to the following reasons: (i) A gradual & substantial rise in principal raw material cost; (ii) A decline in the Company’s customer base as they have been importing compressors from other Asian countries at substantially low prices, thereby reducing the production volume of the Company, which in turn has led to a decrease in Gross Sales. For instance the Gross Sales of the Company for the year ending March 31, 2009 Rs.430.25 Crore, down from Rs.689.20 Crore for the year ending March 31, 2008; (iii) Increased fluctuation in the Foreign Exchange Rate caused due to rupee appreciation and decrease in the value of the US Dollar, which had an adverse impact on Export earnings; The accumulation of losses has led to the erosion of the net worth of the Company to the extent of 65%. Accordingly, the Company filed a report under Section 23 of the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA) to the Board for Industrial & Financial Reconstruction, New Delhi on 25.11.2009. The Board of Directors of the Company has decided to undertake financial restructuring with the objective of making the financial statements of the Company cleaner of the past history and for the better reflection of the Company’s current and future financial performance. The proposed financial restructuring involves reducing the issued, subscribed and paid up share capital of the petitioner Company, which would not result in any variation in the shareholder’s rights. There will be no change in the shareholding pattern of the Company contemplated in the proposed financial restructuring. The proposed set off of accumulated losses against the paid-up share capital under Section 100 of the Companies Act 1956 is only a book entry and has no financial outlay whatsoever to the shareholders Company. The proposed reduction will also not cause prejudice to the creditors of the Company. The reduction of capital does not involve either the diminution of any liability in respect of unpaid capital or the payment to any shareholder of any capital. The creditors of the Company are in no way affected by the proposed restructuring of the share capital, as there is no reduction in the amount payable to any of the creditors. The proposed adjustment would not in any way adversely affect the ordinary operations of the Company or the ability of the Company to honour its commitments or to pay its debts in the ordinary course of business. The Directors of the Company have no interest, direct or indirect in the proposed capital reduction. The petitioner Company therefore prays that the reduction of paid up share capital passed by the special resolution, as set out in para 10 of the petition, may be confirmed and the form of the minutes under section 103(1)(b) of the Companies Act 1956 as set out in para 17 of the petition, be approved and registered, and sought ancillary reliefs.

5. The affidavit verifying the contents of the petition has been furnished by one Raghavan Ravi S/o Sh.Rangaswamy Raghavan, Managing Director, Tecumesh Products India Private Limited.

6. While admitting the petition on 28.04.2010, notice of the petition was directed to be issued to the Registrar of Companies, Andhra Pradesh, Hyderabad and a general notice was directed to be published in ‘Eenadu’ Telugu daily and ‘the Hindu’ English daily, Hyderabad editions. Accordingly, notices were issued. No objections are received from any quarter in response to the general notice issued by way of publication in the newspapers. The learned Assistant Solicitor General, representing the Registrar of Companies, filed common affidavit stating no objection for the proposed reduction of the share capital. The Petitioner Company was exempted from filing the list of unsecured creditors and no objection certificates from them. The petitioner Company was however, directed to take notice to the secured creditors. It is stated that there are three secured creditors and the petitioner Company filed no objection certificates of three secured creditors, namely, State Bank of Hyderabad, Allahabad Bank and State Bank of India, wherein, they have accorded consent to the proposed reduction of paid up share capital.

7. In the circumstances and for the reasons stated in the petition and in view of the fact that no objection has been received from any quarter for the proposed reduction in the share capital and the secured creditors having given their consent for the proposed reduction of the share capital and as the Registrar of Companies also stated no objection for the same, it is considered that the proposed reduction of paid up share capital of the petitioner Company as set out in the special resolution contained in para 10 of the petition, can be confirmed and the same is accordingly confirmed. The form of minutes under Section 103 of the Companies Act 1956 as set out in para 17 of the petition, be approved and registered. A certificate of the copy of the order be delivered to the Registrar of Companies in 30 days of receiving the same for the purpose of registration and necessary follow-up action. Notice of registration be published by the petitioner Company in ‘Eenadu’ Telugu daily and ‘the Hindu’ English daily, of Hyderabad editions, within thirty (30) days from the date of registration.

8. In the result, the Company petition is accordingly disposed of. Date: 04.08.2010 ___________________ G.V.SEETHAPATHY, J