Company Petition No. 31 of 2009 · High Court · 2009

Order

M/s. Intensive Air Systems Limited, represented by its Managing Director, has filed this company petition under Section 101 of the Companies Act, 1956 (for short ‘the Act’), seeking sanction of reduction of its share capital, as approved by its shareholders at Thirteenth Annual General Meeting. It also seeks to dispense with the formality of adding the words ‘and reduced’ after the name of the company. The petitioner-company was incorporated as a public limited company in the year 1995 under the name and style of M/s.Intensive Air Systems Limited under Certificate of Incorporation No.01-19282 having its registered office at Survey No.273/467, Bonthapally Village, Jinnaram Mandal, Medak District-502 313.

Its authorized share capital as on 31.03.2008 is Rs.5,50,00,0000/- divided into 55,00,000 equity shares of Rs.10/- each. Its issued, subscribed and paid up capital as on 31.03.2008 is Rs.4,61,84,000/- divided into 46,18,400 equity shares of Rs.10/- each. The main objects of the company, as set out in its Memorandum of Association, are to carry on business of manufacturing, marketing, dealers, distributors, importers, exporters, assemblers, selling and forwarding agents, consignors, consignees, indenting agents of all kinds of pollution control equipment and devices etc. The petitioner-company states that after commencing the business, due to adverse market conditions, it faced severe losses and could not intrude into the market, resulting in accumulated loss of Rs.7.90 crore as on 31.03.2003.

Therefore, it decided to reduce its share capital against the carry forward losses, which are unrepresented by the available assets, as provided under Section 100 of the Act and Article 68 of its Articles of Association, subject to

confirmation by the Court. It is stated that accordingly, the petitioner-company has passed a Special Resolution in accordance with Section 189 of the Act at its Thirteenth Annual General Meeting which was held after issuing notices as required under the Act, wherein it was resolved as under: “RESOLVED THAT pursuant to Sections 100 to 104 and other applicable provisions, if any, of Companies Act, 1956 read with Article No.68 of Articles of Association and subject to confirmation by the Hon’ble High Court at Andhra Pradesh, the share capital of the company be reduced from Rs.4,61,84,000/- (divided into 46,18,400 equity shares of Rs.10/- each) to Rs.46,18,400/- (divided into 46,18,400 equity shares of Re.1/- each) and that such reduction be effected by reducing the capital which has been lost or is unrepresented by available assets, to the extent of Rs.9/- per share and also to reduce the share premium of Rs.2,01,79,876/- and Capital Reserve of Rs.1,05,77,000/- to Nil. RESOLVED FURTHER THAT an amount of Rs.7,23,22,476/- be set off against accumulated losses of Rs.7,89,69,414/-. RESOLVED FURTHER THAT consequential amendments be made in the capital clause of the Memorandum of Association of the company after such reduction becomes operative and effective. RESOLVED FURTHER THAT on such further reduction becoming operative and effective, every member of the company do surrender to the company his old share certificate(s) in respect of the share(s) held by him and thereupon the company shall fresh share certificate(s) to the said shareholder.” The petitioner-company further states the present reduction of share capital is by way of reducing the fully paid up equity shares of Rs.10/- each to Re.1/- each and therefore, the interests of the shareholders will not be affected and does not involve either the diminution of any liability, as these shares are fully paid up. Further, there are no unsecured creditors to the petitioner- company and the amounts due to the secured creditors have already been paid. Hence, the present petition is filed seeking approval of the Court. On 17.04.2009, while admitting the company petition, this Court issued notice to the Central Government and the Registrar of Companies, and ordered publication of notice in ‘Andhra Bhoomi’, Telugu Daily, and ‘Business Standard’, English Daily. The petitioner accordingly took out notices as ordered by this Court. In response to the notice issued, the learned Assistant Solicitor General took notice for the Registrar of Companies and appeared in the matter. On instructions, he reported no objection for reduction of share capital of the petitioner-company as sought for in this petition. Though there is no provision to issue notice to the Official Liquidator, yet this Court directed the Official Liquidator to look into the matter and file a report. Accordingly, the Official Liquidator has filed a report in the matter, stating that the petitioner-company has not filed any material to ascertain whether the reserves remain on paper or contain any balances in escrow account and that there is no whisper about the loss of money out of the Share Premium Reserve or Capital Reserve, in spite of the fact that they cannot be used for the purposes other than the purpose for which such reserves are created. Pursuant to the report filed by the Official Liquidator raising the objections referred to supra, the Managing Director of the petitioner-company, has filed an affidavit stating that the petitioner- company has re-issued the forfeited shares at a premium and the said amount received has been shown in the Share Premium Account, as per the accounting norms, which is a part of share capital and therefore, the same can be set off against the losses incurred by the company. It is further stated that for the purpose of reduction of share capital, the share premium account can be treated as if it is a paid-up share capital as per sub-section (1) of Section 78 of the Act. It is also stated that if the company wants to utilize the Share Premium Amount for purposes other than the purposes enumerated in sub-section (2) of Section 78, it has to comply with the provisions of Section 100 of the Act and therefore, the present petition is filed under Section 101 of the Act seeking approval of this Court. It is further stated that the Bombay Stock Exchange, where the shares of the petitioner-company are listed, has conveyed its no objection to the reduction of the capital, vide letter, dated 28.11.2008. Heard the learned counsel on record and perused the material on record, including Special Resolution passed by the shareholders of the petitioner-company at the Thirteenth Annual General Meeting. At the outset, it is to be noted that Article 68 of the Articles of Association of the petitioner-company inter alia provides for reduction of its share capital by passing a Special Resolution, subject to confirmation by the Court. A perusal of the material on record would disclose that due to adverse market conditions, the petitioner-company could not intrude into the market and sustained losses. Therefore, it proposed to reduce its share capital against the carry forward losses, which is unrepresented by the available assets. Accordingly, the shareholders of the petitioner-company at the Thirteenth Annual General Meeting has passed Special Resolution as envisaged under Section 189 of the Act and resolved to reduce the share capital of the petitioner-company and other consequential amendments, as extracted above, subject confirmation of this Court. Therefore, it filed the present petition seeking sanction of the resolution by this Court. The Registrar of Companies, after considering the matter, has not raised any objection for sanctioning the proposed reduction of share capital. However, as per the directions of this Court, the Official Liquidator examined the matter and raised objections as stated supra. Answering the said objections, the Managing Director of the petitioner-company has even filed affidavit referred to supra. He submits that though the Share Premium Reserve or Capital Reserve cannot be used for the purposes other than the purposes envisaged under sub-section (2) of Section 78 of the Act, the company can do so by passing a special resolution to that effect, provided further that there are no objections from any quarter i.e., shareholders and creditors. He also submitted that similar objection raised was considered by a Division Bench of this Court in Hyderabad Industries Ltd., In re (No.2)[1]. In the said case, the Division Bench of this Court, while reversing the judgment of the learned Single Judge, held that in the case of reduction of share capital where the company sought to adjust the loss of investment in shares of another company against share premium account and the same being permissible by special resolution and if no objections to the same either by creditors or shareholders are received, such reduction of share capital, can be approved. In the case on hand, the company proposed to reduce its share capital against the carry forward losses, which unrepresented by the available assets, as it sustained losses due to the adverse market conditions. As already stated supra, the petitioner-company has passed Special Resolution as envisaged under Section 189 of the Act, wherein the shareholders have unanimously resolved to reduce the share capital, subject to approval of this Court. Further, there are no creditors to the petitioner-company and no objections whatsoever from any quarter are received by this Court. Furthermore, this Court has carefully considered the matter in detail and found that the reduction of share capital has been proposed to raise financial resources in the best interest of the company explore alternative business opportunities. Furthermore, the proposed reduction of share capital does not involve any diminution of liability, and it is not opposed to any provision of law or public interest. Therefore, I am of the considered opinion that the proposed reduction of share capital and other consequential amendments do not suffer from any legal infirmity in sanction of the same. For the foregoing reasons, the company petition is allowed as prayed for. Dated: 03.11.2009 _________________ N.V. RAMANA, J. VGB [1] (2005) 123 Comp.Cas.458