Shree Nirman Limited v. Regional Director, Northern Region

1. This petition under Sections 101 to 103 of Companies Act, 1956 has been filed by Shree Nirman Limited (hereinafter referred to as the 'petitioner company') for confirming the reduction of its issued, subscribed and paid-up share capital.

2. The registered office of the petitioner company is situated at New Delhi, within the jurisdiction of this court.

3. The petitioner company was incorporated under the Companies Act, 1956 on 12th April, 1984 with the Registrar of Companies, West Bengal. Thereafter, the company shifted its registered office from the 2014:DHC:1690 State of West Bengal to NCT of Delhi and obtained a certificate in this regard from the Registrar of Companies, NCT of Delhi & Haryana at New Delhi on 31st July, 2008.

4. The authorized share capital of the petitioner company is Rs.70,50,00,000/- divided into 1,05,00,000 equity shares of Rs.10/- each aggregating to Rs.10,50,00,000/-; 10,00,000 1% non-cumulative redeemable preference shares of Rs.65/- each aggregating to Rs.6,50,00,000/-; 5,30,00,000 1% non-cumulative redeemable preference shares of Rs.10/- each aggregating to Rs.53,00,00,000/-; and 50,000 10% non-cumulative preference shares of Rs.100 each aggregating to Rs.50,00,000/-. The present issued, subscribed and paidup share capital of the company is Rs.63,15,42,500/- divided into 1,01,86,166 equity shares of Rs.10/- each fully paid up aggregating to Rs.10,18,61,660/-; and 5,29,68,084 1% non-cumulative redeemable preference shares of Rs.10/- each fully paid up aggregating to Rs.52,96,80,840/-.

5. A copy of the Memorandum and Articles of Association of the petitioner company has been filed on record. The audited balance sheet, as on 31st March, 2014, of the petitioner company, along with the report of the auditors, has also been filed.

6. It has been submitted by the petitioner that on 30th March, 2013, the petitioner company had issued 1% non-cumulative redeemable preference shares of Rs.10/- each fully paid up (hereinafter referred to as 1% NCRPS), aggregating to Rs.5,29,68,084/-, as bonus shares to its equity shareholders in the ratio of 26 1% NCRPS for every 05 equity shares held by them. This resulted in increasing the total issued and paid-up share capital of the company by Rs.52,96,80,840/- to Rs.70,15,42,500/-. It is further submitted that this increase in the amount of paid up share capital resulted in increase in certain costs besides imposing certain additional statutory and other obligations on the company that do not apply to companies having lower paid up capital and that the aforesaid increase in the paid up capital of the company has in no way provided any advantage or benefit to the company. It is further submitted that it is anticipated by the petitioner company that the company may be benefitted by having a lower paid up share capital and higher amount of reserves and surplus and that could be better and more beneficial for the company. This is also expected to possibly add to shareholders value and better perception in the mind of investor community. Therefore, the company had decided to again roll back the above increase in the total paid-up share capital of the company by writing down and reducing the par value and paid up value of all the issued and paid-up equity shares as well as all the preference shares of the company. The company, therefore, proposed that the rate of dividend payable on 1% NCRPS be increased from the present 1% to 10% and all 1% NCRPS be made redeemable at a premium of Rs.9/- per share instead of at par as at present, while keeping the other terms and conditions unchanged as at present and consequently, simultaneously transferring and crediting Rs.47,67,12,756/- representing the amount of reduction in the issued, subscribed and paid-up value of 1% NCRPS to the “Capital Reserve for Redemption” and balance Rs.9,16,75,494/representing the amount of reduction in the issued, subscribed and paidup value of the equity shares, to the “Capital Reserve” in the books of accounts of the company.

8. It is pleaded that the petitioner company is authorized by virtue of Article 44B of its Articles of Association to reduce its share capital, any capital redemption reserve account or share premium account, as per the provisions of the Companies Act, 1956.

9. The Board of Directors of the petitioner company in their meeting held on 1st September, 2014 have unanimously approved the proposed reduction of the issued, subscribed and paid up share capital of the petitioner company. A copy of the resolution passed at the meeting of the Board of Directors of the petitioner company is placed on record.

10. A special resolution has been passed at the Extra Ordinary General Meeting of the shareholders of the petitioner company held on 29th September, 2014 confirming the proposed reduction of the share capital. Further, the preference shareholders of the petitioner company in their Class Meeting held on 29th September, 2014 have also approved the proposed reduction. Copies of the minutes of the special resolutions passed at the Extra Ordinary General Meeting and the Class Meeting are placed on record. The petitioner company does not have any secured or unsecured creditor, as on 9th October, 2014. A copy of the certificate of the Chartered Accountant dated 10th October, 2014 certifying the same has been placed on record.

11. Learned counsel for the petitioner company has submitted that the proposed reduction does not involve either diminution of any liability in respect of unpaid share capital or payment to shareholders of any paid up share capital. It is further submitted that the proposed capital reduction will not result in any reduction in the net worth of the company, nor the assets base of the company and it is expected to have an overall favourable impact on the company and would be beneficial for the company, its shareholders, other stakeholders and all concerned.

12. In the aforesaid background, this petition is filed seeking approval of the resolution passed at the Extra Ordinary General Meeting held on 29th September, 2014. The Form of Minutes proposed to be registered under Section 103(1)(b) of the Act and annexed with the petition as Annexure – K is reproduced as under: “With effect from close of business hours on 30 September 2014, the issued, subscribed and paid up share capital of Shree Nirman Limited shall stand reorganized and reduced from the present Rs.63,15,42,500/-, comprising of 1,01,86,166 equity shares of Rs.10/- each, fully paid-up, and 5,29,68,084 1% non-cumulative redeemable preference shares of Rs.10/- each, fully paid up, to Rs.6,31,54,250/-, consisting of 1,01,86,166 equity shares of Rs.1/- each, fully paid-up, and 5,29,68,084 10% non-cumulative redeemable preference shares of Rs.1/- each, fully paid up, and consequently, (a) the rate of dividend payable on the said preference shares shall stand increased from the present 1% to 10% and (b) the said preference shares shall be redeemable at a premium of Rs.9/- per share instead of being redeemable “at par” as at present, and consequently,

(c) simultaneously Rs.47,67,12,756/- representing the amount of reduction in the issued, subscribed and paid-up amount of the preference share capital shall be transferred and credited to the “Capial Reserve for Redemption” and Rs.9,16,75,494/- representing the amount of reduction in the issued, subscribed and paid-up amount of the equity share capital, shall be transferred and credited to the “Capital Reserve” in the books of accounts of the company, thus resulting in corresponding credit/increase in the “Capital Reserve for Redemption” and in the “Capital Reserve” of the company by the aforesaid amounts respectively. Consequently, with effect from close of business hours on 30 September 2014, Clause V of the Memorandum of Association of the Company shall stand substituted by the following clause: “The authorized share capital of the company is Rs.70,50,00,000/-, consisting of 10,50,00,000 equity shares of Rs.1/- each, 53,00,00,000 10% non-cumulative redeemable preference shares of Rs.1/- each, 10,00,000 1% non-cumulative redeemable preference shares of Rs.65/each and 50,000 10% non-cumulative redeemable preference shares of Rs.100/- each.”

13. By order dated 10th November, 2014, notice of this petition was directed to be issued to the Regional Director, Northern Region and citations were directed to be published in the newspapers 'Financial Express' (English) and 'Jansatta' (Hindi) in terms of the Companies (Court) Rules, 1959. The petitioner has filed an affidavit showing compliance regarding service on the Regional Director, Northern Region as also publication of citations in the aforesaid newspapers on 31st December, 2014. Copies of the newspaper clippings containing the publications have been filed along with the affidavit.

14. In response to the notice issued, Mr. A. K. Chaturvedi, Regional Director, Northern Region, has filed his report dated 22nd January, 2015 and additional report dated 24th February, 2015 raising no objection to the proposed reduction of share capital of the petitioner company.

15. Despite publication of notice, no objection has been received from any creditor or any member of the public. Learned counsel for the petitioner have also confirmed that neither the petitioner company nor their counsel have received any objection pursuant to citations published on 31st December, 2014. Thus, there appears to be no legal impediment in allowing the present petition.