Full Text
HIGH COURT OF DELHI
Judgement reserved on: 29.03.2016
Judgement delivered on: 04.04.2016
IN THE MATTER OF:
ORIENT HOME ACCENTS PRIVATE LIMITED ..... Petitioner
Through: Mr Awnish Kumar, Adv. for the Petitioner.
Ms Aparna Mudiam, Asstt. ROC for the RD.
JUDGMENT
1. This is a petition filed under Section 100 to 104 of the Companies Act, 1956 (in short the 1956 Act) read with Rules 46 and 47 of the Companies (Courts) Rules, 1959 (in short the 1959 Rules), to obtain sanction of this court qua its prayer for reduction of share capital obtaining in the books of Orient Home Accents Private Limited (hereafter referred to as the petitioner company).
2. The captioned petition, along with an application being: CA NO. 1903/2014, came up before this court for hearing, for the first time, on 26.08.2014. This court, on that date, for the reasons given in the order of even date, dispensed with the procedure laid down in Section 101(2) of the 1956 Act. Accordingly, CA No. 1903/2014 was disposed of. 2.[1] Furthermore, in so far as the captioned petition is concerned, notice was issued to the Regional Director (in short the RD), which was accepted by Mr Atma Sah, Asstt.ROC. Direction was also issued for serving a copy 2016:DHC:2750 of the petition on the Registrar of Companies (in short the ROC), within one week of that date. In addition thereto, the petitioner company was directed to carry out publication in the Indian Express (English) and Veer Arjun (Hindi). 2.[2] Since then, the petitioner company has filed an affidavit dated 19.11.2014 demonstrating publication in the two newspapers referred to above. The RD has also filed its reply/ affidavit which takes into account the response of the ROC.
3. This petition has, thus, been filed in the background of the following facts: 3.[1] The petitioner company was incorporated on 28.03.2003 under the provisions of the 1956 Act as a private limited company. As on 31.10.2013, as per its provisional balance sheet (certified by the management), it had an authorized share capital of Rs. 1 crore, divided into 10,00,000 equity shares of face value of Rs. 10 each. Furthermore, as on that date, it has issued, subscribed and paid-up capital, of Rs. 49,00,000/- comprising of 4,90,000 equity shares of face value of Rs. 10 each. 3.[2] Evidently, the Board of Directors (BOD) of the petitioner company at their meeting held on 25.11.2013 approved the reduction of the share capital in accordance with the provisions of Section 78 read with Section 100 to 104 of the 1956 Act. Resolution to that effect was passed at this meeting.
3.3. Furthermore, the petitioner company also decided to give a notice to the shareholders for convening an Extraordinary General Meeting (EOGM), for enabling them, to consider, passing a special resolution qua the proposed reduction in share capital. Accordingly, notices of the EOGM, which was to be convened on 19.12.2013, along with explanatory statements were dispatched to the shareholders of the petitioner company. 3.[4] Consequent thereto, on 19.12.2013, the EOGM of the shareholders was convened, whereat a special resolution was passed approving the reduction in the share capital of the petitioner company. 3.[5] The said resolution of the petitioner company, for the sake of convenience, is extracted hereinbelow: “.....RESOLVED THAT pursuant to the provisions of Section 78 read with Sections 100 to 104 and other applicable provisions, if any, of the Companies Act, 1956, read with Article 6A of the Articles of Association of the Company and pursuant to the relevant provisions of the Companies (Court) Rules, 1959 and subject to the confirmation of the Hon'ble High Court of Judicature at New Delhi (High Court) and other appropriate authorities, if any, in this regard, the Issued and Paid up Capital of the Company as on October 31, 2013 be reduced from Rs. 49,00,000/(Rupees Forty Nine Lac only) to Rs. 11,28,520 (Rupees Eleven Lac Twenty Eight Thousand Five Hundred Twenty only). And that such reduction to be utilized for distribution of assets of the Company which is in excess of the wants of the Company as on October 31, 20l[3] of Rs. 96,14,726/- (Rupees Ninety Six Lac Fourteen Thousand Seven Hundred and Twenty Six only)....” 3.[6] A perusal of the aforesaid resolution would show that the shareholders at the EOGM, approved reduction of the issued and paid-up share capital of the petitioner company, as obtaining on 31.10.2013, from Rs. 49,00,000/- to Rs. 11,28,520/-. The reason set forth in the resolution, is that, the reduction in the share capital would be utilized for distribution of that part of the assets, which, according to the petitioner company, are in excess of its needs to the extent of Rs. 96,14,726/-, as on 31.10.2013. 3.[7] It is in this background, that the petitioner company got its shares valued by a Chartered Accountant (CA), namely, one, M/s S.C. Verma & Co. The CA issued a certificate, as on 01.05.2014, certifying, thereby, that each share, had a value of Rs. 25.50. The very same CA also issued a certificate dated 14.08.2014, whereby it was further certified that the petitioner company did not owe any secured or unsecured debts.
4. The petitioner company, thus, as indicated right at the outset, moved this court on 26.08.2014, when notice was issued in the petition. Since then, the RD, as indicated above, has filed its reply. In the reply, the RD, based on the ROC’s report, has after due examination, brought out the following facts:
(i) That Article 6A, as referred to in the petition, based on which the petitioner company averred that it had the power to reduce the share capital, did not find mention in its Articles of Association. It is further averred that, though, the petitioner company had filed a special resolution regarding alteration in its Articles of Association with the ROC, on 28.01.2014, the said alteration was not found noted in the certified true copy of the Articles of Association enclosed with the petition. According to the RD, there was, prima facie, a violation of Section 15(1) of the Companies Act, 2013 (in short the 2013 Act).
(ii) That reduction in the share capital from Rs. 49,00,000/- to Rs.
11,28,520/- is to be effected by writing off long term loan and advances and cash as shown on the assets side of the balance sheet of the petitioner company. In this context, it is further averred by the RD, that on 31.10.2013, the petitioner company has long term loan and advances equivalent to Rs. 85,01,800/-, including loan given to one company by the name of Tulip Hi-Fashion Creators Pvt. Ltd., and cash equivalent amounting to Rs. 11,12,926/-.
(iii) It is further averred that as per the audited balance sheet as on
31.03.2014, the petitioner company has already recovered loans from Tulip Hi Fashion Creators Pvt. Ltd., and deposited the amount in bank, which is reflected as fixed deposits.
(iv) That the ROC is, prima facie, of the view that the prime objective of the petitioner company to seek reduction of share capital is to distribute brought forward profits of the petitioner company to escape payment of tax on distribution of profits.
5. The petitioner company, in its rejoinder, has correctly pointed out that the power qua reduction of share capital is contained in Article 4 of its Articles of Association; a fact which is noted in this court’s very first order dated 26.08.2014. In other words, a reference to Article 6A was a mistake, which had crept in inadvertently and was noticed by the court on the said date of hearing. 5.[1] The petitioner company goes on to assert that the reduction in share capital from Rs. 49,00,000/- to Rs. 11,28,520/- was not being effected, as contended by the RD, by writing off long term loan and advances and cash as shown on the assets side of its balance sheet. Furthermore, the petitioner company denied that the reduction of share capital was sought to be brought about so as to distribute its brought forward profits in order to escape payment of tax on distribution of profits. It is asserted by the petitioner company that the brought forward profits are after tax profits.
6. Mr Awnish Kumar, learned counsel for the petitioner company, and Ms Aparna Mudiam, Asstt. ROC, made their submissions, broadly, in line with their respective pleadings in the matter.
7. A perusal of the record and the submissions made before me would clearly demonstrate that the petitioner company seeks reduction of its share capital from Rs. 49,00,000/- to Rs. 11,28,520/-. The reason put forth by the petitioner company is to utilize the reduction in capital for distribution of its assets which are in excess of its needs to the extent of Rs. 96,14,726/- as on 31.10.2013. That the petitioner company has the necessary power conferred upon it, under Article 4 of its Articles of Association, is not in dispute. The objection raised by the RD/ ROC, based on an inadvertent reference to Article 6A, stands clarified in the order dated 26.08.2014, passed by this court.
8. The shareholders of the petitioner company have also given their approval at the EOGM held on 19.12.2013. There are, in all, three shareholders; all of whom have given their consents to the reduction in share capital. Furthermore, as certified by M/s S.C. Verma & Co., CA, there are no secured and unsecured debts owed by the petitioner company.
9. Having regard to the same, in my view, there is no legal impediment in the petitioner company seeking a reduction in its share capital, which is to be utilized towards distribution of assets which are in excess of its needs. The RD, in its reply/ report, clearly admits as much by making a specific reference to the fact that reduction in capital may be effected by paying up paid-up capital, which is in excess of one’s needs, and that, this can be achieved either with or without extinguishing or reducing liability qua its shares. The petitioner company had already denied that it would be effecting reduction in share capital either by writing off its long term loan and advances or cash, which is shown in the assets side of the balance sheet. 9.[1] Even as per the RD, the petitioner company had no accumulated loss on the date of the preparation of the provisional balance sheet. 9.[2] As to the observation of the RD, that the reduction in share capital is being sought to distribute brought forward profits of the petitioner company, to escape payment of tax on distribution of profits, is an observation which is not backed by any relevant provision of the Income Tax Act, 1961. As a matter of fact, because such an observation had been made by the RD in his reply/ affidavit, the matter was re-listed in court for directions on 29.03.2016. Consequent thereto, an affidavit dated 31.03.2016 has been filed on behalf of the petitioner company. The petitioner company has undertaken via the said affidavit to pay all income tax liabilities, if any, that may arise upon approval of the prayer made for reduction in share capital. 9.[3] In my view, the undertaking given should allay any apprehensions that the RD may have in that behalf.
10. Therefore, for all these reasons, the reduction of unwanted paid-up capital against excess assets appearing in the balance sheet of petitioner company, as obtaining on 31.10.2013, is approved in terms of the special resolution dated 19.12.2013 passed in the EOGM of its shareholdes. Prayer (a) is, accordingly, disposed of. 10.[1] Furthermore, the minutes of the EOGM dated 19.12.2013, the extract of which is set out hereinabove, and in Annexure-K appended to the petition, are approved for registration. Prayer (b) is, accordingly, disposed of. 10.[2] In so far as relief sought for in prayer (c) is concerned, the same stands disposed of vide order dated 26.08.2014, passed by this court. 10.[3] Which brings me to the relief sought in prayer clause (d). Having regard to the overall circumstances, the requirement of adding the suffix “AND REDUCED”, while describing the capital structure of the petitioner company is dispensed with.
11. Resultantly, the petition is disposed of in the aforesaid terms.
RAJIV SHAKDHER, J APRIL 04, 2016 kk