1. Aquagel Chemicals (Bhavnagar) Private Limited, a company incorporated under the Companies Act, 1956 and having its registered office at Village Vartej, Bhavnagar, Gujarat, has filed this petition under Section 66 of the Companies Act, 2013 for confirming the reduction of share capital.
2. The facts, in brief, that are necessary for the disposal of this petition are as follows:—
3. The main object of the petitioner, as set out in clause III of the Memorandum of Association of the company, is as follows:—
“To manufacture, buy, sell, refine, formulate, process, manipulate, import, export, distribute, act as agent or otherwise deal in chemicals, whether basic, heavy, fine or derived acquagel, catalysts, methocarbamol, metoprolol, tartrate, atenolol, propranolol hydrochloride, wetsilica, precipitated silica, reinforcing, silica, micronized silica and its various grades, forms used in chemical and allied industries, organic and inorganic compounds, solvents, used in rubber, pesticides, cosmetics, paper, dyes, paints, plastic and other allied industries.”
4. The petitioner company has two types of share capital, namely, equity share capital and 9% redeemable non-cumulative preference share capital. The share capital structure of the petitioner company, as on 31 March, 2016, was as follows:—
Authorised Share Capital
Amount Rs.
2,00,000 equity shares of Rs. 100/- each
2,00,00,000
20,00,000 9% redeemable non-cumulative Preference shares of Rs. 100/- each.
20,00,00,000
Total
22,00,00,000
Issued, Subscribed & Paid Up Capital
2,00,000 equity shares of Rs. 100/- each
2,00,00,000
20,00,000 9% redeemable non-cumulative Preference shares of Rs. 100/- each.
20,00,00,000
Total
22,00,00,000
The share capital structure of the petitioner company, as on 15 March, 2017, was as follows:—
Authorised Share Capital
Amount Rs.
2,00,000 equity shares of Rs. 100/- each
2,00,00,000
20,00,000 9% redeemable non-cumulative Preference shares of Rs. 100/- each.
20,00,00,000
Total
22,00,00,000
Issued, Subscribed & Paid Up Capital
2,00,000 equity shares of Rs. 100/- each
2,00,00,000
20,00,000 9% redeemable non-cumulative Preference shares of Rs. 100/- each.
20,00,00,000
Total
22,00,00,000
5. It is stated that Article 5A of the Articles of Association of the petitioner company authorizes the petitioner company to reduce its share capital by special resolution from time to time. The relevant extract of the Article is reproduced hereunder:—
“A. The Company may, from time to time, by ordinary resolution increase the share capital by such sum, to be divided into shares of such amount, as may be specified in the resolution.
B. The Company may, from time to time, by special resolution reduce in any manner and with, and subject to, any incident authorised and consent required by law,-
(a) its share capital;
(b) any capital redemption reserve account; or
(c) any share premium account.
C. Subject to the provisions of section 61 and other applicable provisions of the Companies Act, 2013 or any other relevant laws for the time being in force, the Company may, by ordinary resolution,-
(a) consolidate and divide all or any of its share capital into shares of larger amount than its existing shares;
(b) convert all or any of its fully paid-up shares into stock, and reconvert that stock into fully paid-up shares of any denomination;
(c) sub-divide its existing shares or any of them into shares of smaller amount than is fixed by the memorandum;
(d) cancel any shares which, at the date of the passing of the resolution, have not been taken or agreed to be taken by any person.”
6. It is stated by the petitioner that the petitioner company has ceased all its business activities since March 27, 2016. Consequently, the petitioner company does not have any revenues or business profit. It is further stated that, presently, the petitioner company has reserves and surplus to the tune of Rs. 1,16,30,752, other non-current assets, which includes deposits with maturity more them 12 months, to the tune of Rs. 13,40,00,000/-, current investments, which includes investments in mutual funds, to the tune of Rs. 3,03,42,190/- and cash equivalent to the tune of Rs. 9,81,296/-. The company is also having losses to the tune of Rs. 34,06,009/-. The company filed certified true copy of its audited financial statements as on 31 March, 2016 and unaudited financial statements for the period from 1 April, 2016 to 15 March, 2017. It is further stated in the petition that the petitioner company, presently, does not have any secured or unsecured creditors and the company filed certificate of Auditor of the company to the above said effect. The petitioner company also obtained certificate from Mr. Vikas M. Shah, Auditor of the company to the effect that accounting treatment proposed by the petitioner company for the reduction of preference share capital, as envisaged in paragraph 25 of the petition, is in conformity with the accounting standards specified in the Companies Act, 2013. The petitioner company also stated that no winding up proceedings are pending against the petitioner company and no investigation proceedings are pending against it. The following are the reasons stated by the petitioner company for reduction of preference share capital:—
(1) The petitioner company has ceased all its business activities since March 27, 2016 and consequently no business revenues or profits are generated.
(2) Presently, the petitioner company does not have sufficient reserves to permit redemption of the entire Preference Share Capital as well as the creation of capital redemption reserve in compliance with Section 55 of the Act;
(3) The petitioner company has also not paid any dividend to the preference shareholders for past few years; and
(4) The petitioner company does not intend to undertake any business activities in near future and, therefore, does not require Preference Share Capital as envisaged in paragraph 25 hereunder. Thus, Preference Share Capital, as envisaged in paragraph 25 hereunder, is in excess capital and not required anymore by the petitioner company.
7. The Board of Directors of the petitioner company approved the reduction of Preference Share Capital in the Board meeting held on 23 January, 2017. The Board of Directors of the petitioner company also approved a circular resolution dated 13 February, 2017 to convene an Extraordinary General Meeting of the equity shareholders of the company and an Extraordinary General Meeting of the preference shareholders of the company. It is stated that the Extraordinary General Meeting (EOGM) of the equity shareholders of the company was convened and held on 10 March, 2017 for considering and approving, inter alia, the special resolution for reduction of Preference Share Capital. The petitioner company also convened and held EOGM of preference shareholders for considering and approving, inter alia, the special resolution for reduction of Preference Share Capital.
8. In the EOGM of the equity shareholders of the petitioner company held on 10 March, 2017, the following special resolution was passed by majority of the shareholders in accordance with Section 66(1) of the Act:—
“RESOLVED THAT subject to provision of section 66 and other applicable provisions of the Companies Act, 2013 read along with the applicable rules, circulars, notification and orders made thereunder, (along with any statutory modifications, re-enactments or amendments thereof), the Articles of Association of the Company, subject to the confirmation by the National Company Law Tribunal (“NCLT”) and such other approvals, consents, permissions and sanctions as may be necessary to be obtained from appropriate governmental authorities, departments, offices, institutions, bodies, agencies and third parties, and conditions as may be imposed while granting such approvals, consents, permissions and sanctions, which may be agreed by the Board of Directors (hereinafter referred to the “Board” which term shall be deemed to mean and include one or more committee(s) constituted/to be constituted by the Board to exercise its powers including the powers conferred by this resolution), the approval of the equity shareholders and paid up share capital of Rs. 22,00,00,000 (Rupees Twenty Two Crores only) of the Company as under:
20,00,000 (Twenty lakhs) 9% Redeemable Non-Cumulative Preference Shares (“Preference Share”) of Rs. 100 (Rupees One Hundred Only) each fully paid up amounting to Rs. 20,00,00,000 (Rupees Twenty Crores Only) by paying out Rs. 80/- (Rupees Eighty only) per preference Share to the preference shareholders. Upon reduction, the face value of each Preference Share be Rs. 20/- (Rupees Twenty Only) fully paid up.
RESOLVED FURTHER THAT pursuant to the provisions of Section 4, 13 and all other applicable provisions, if any, of the Companies Act, 2013 and Companies (Incorporation) Rules, 2014 (including any statutory modification or amendment or re-enactment thereof for the time being in force and as may be enacted from time to time) and subject to the confirmation of reduction by the NCLT, necessary registrations, approvals, consents, permissions and sanctions, if any, by the concerned Registrar of Companies, and/or any other appropriate authority and subject to such terms, conditions, amendments or modifications as may be required or suggested by any such appropriate authorities, which the Board is authorised to accept, as it may deem fit, the consent of the equity shareholders be and is hereby accorded to substitute Clause V of the Memorandum of Association of the Company with following clause:
“V. The Authorised Share Capital of the Company is Rs. 22,00,00,000/- (Rupees Twenty Two Crores Only) divided into 2,00,000 (Two Lakhs) Equity Shares of Rs. 100/- (Rupees Hundred only) each and 1,00,00,000 (One Crore) Preference Shares of Rs. 20/- (Rupees Twenty only) each.
RESOLVED FURTHER THAT for the purpose of giving effect to the above resolutions, any of the directors of the Company be and is hereby severally authorised on Behalf of the Company to:
(a) File a company petition/application for reduction of share capital of the company before the concerned NCLT, and to do all such acts, deeds and things as they may deem necessary and desirable towards approval and sanction of the proposed capital reduction contemplated in this resolution by the NCLT;
(b) File application/petitions before the NCLT, seeking appropriate directions for dispensations from the procedure(s) prescribed under Section 66 of the Companies Act, 2013 (or any statutory re-enactment thereof);
(c) Make applications to the relevant authorities or other persons for their approval to the proposed capital reduction and to make such disclosures to governmental or regulatory authorities as may be required for the purpose under applicable laws;
(d) Withdraw or amend, as may be necessary, the company petition at any stage in case any change and/or modifications are suggested/required to be made or any condition imposed, whether by any shareholder, creditor, court and/or any other authority, and to do all such acts, deeds and things as they may deem necessary and desirable in connection herewith and incidental hereto;
(e) File any other application, petition, affidavit, form and/or report before any authority including but not limited to the concerned Registrar of Companies, in connection with the proposed capital reduction contemplated hereunder and/or in connection with sanction thereof, and to do all such acts, deeds and things as they may deem necessary and desirable in connections herewith and incidental hereto;
(f) Represent the Company in general before any authority, NCLT and/or the court in relation to any matter pertaining to the proposed capital reduction and to exercise requisite powers on Behalf of the Company to settle, as they may in their absolute discretion deem fir, any questions, difficulties or doubts that may arise in this regard;
(g) Appoint legal advisors to advice, submit recommendations and provide inputs on the proposed capital reduction and to draft the company petition/application for reduction of share capital and related documents and facilitate the entire process; and
(h) Do all such acts, matters, deeds and things as they may in their absolute discretion deem necessary or desirable in connection with or incidental to giving effect to this resolution.
RESOLVED FURHTER THAT any of the directors of the Company be and is hereby authorized to consider and approve any or all matters as outlined above relating to the proposed capital reduction of the Company matters related herewith including cancellation of securities and do all such acts, deeds and thins necessary and incidental in order to effect the resolution.
RESOLVED FURTHER THAT certified true copy(ies) of these resolutions may be issued, wherever necessary, under the signature of any one of the directors of the Company.”
9. The EOGM of equity shareholders of the petitioner company approved the special resolution for reduction of Preference Share Capital.
10. In the EOGM of the preference shareholders of the company held on 10 March, 2017, the following resolution was passed:—
“RESOLVED THAT subject to provisions of section 66 and other applicable provisions of the Companies Act, 2013 read along with the applicable rules, circulars, notifications and orders made thereunder, (along with any statutory modifications, re-enactments or amendments thereof), the Articles of Association of the Company, subject to the confirmation by the National Company Law Tribunal (“NCLT”) and such other approvals, consents, permissions and sanctions as may be necessary to be obtained from appropriate governmental authorities, departments, offices, institutions, bodies, agencies and third parties, and conditions as may be imposed while granting such approvals, consents, permissions and sanctions, which may be agreed by the Board of Directors (hereinafter referred to the “Board” which term shall be deemed to mean and include one or more committee(s) constituted/to be constituted by the Board to exercise its powers including the powers conferred by this resolution), the approval of the preference shareholders be and hereby accorded to reduce the issued, subscribed and paid up share capital of Rs. 22,00,00,000 (Rupees Twenty Two Crores only) of the Company as under:
20,00,000 (Twenty Lakhs) 9% Redeemable Non-Cumulative Preference Shares (“Preference Share”) of Rs. 100 (Rupees One Hundred Only) each fully paid up amounting to Rs. 20,00,00,000 (Rupees Twenty Crores Only) by paying out Rs. 80/- (Rupees Eighty only) per preference Share to the preference shareholders. Upon reduction, the face value of each Preference Share be Rs. 20/- (Rupees Twenty Only) fully paid up.
RESOLVED FURTHER THAT pursuant to the provisions of Section 4, 13 and all other applicable provisions, if any, of the Companies Act, 2013 and Companies (Incorporation) Rules, 2014 (including any statutory modification or amendment or re-enactment thereof for the time being in force and as may be enacted from time to time) and subject to the confirmation of reduction by the NCLT, necessary registrations, approvals, consents, permissions and sanctions, if any, by the concerned Registrar of Companies, and/or any other appropriate authority and subject to such terms, conditions, amendments or modifications as may be required or suggested by any such appropriate authorities, which the Board is authorised to accept, as it may deem fit, the consent of the Preference shareholders be and is hereby accorded to substitute Clause V of the Memorandum of Association of the Company with following clause:
“V. The Authorised Share Capital of the Company is Rs. 22,00,00,000/- (Rupees Twenty Two Crores Only) divided into 2,00,000 (Two Lakhs) Equity Shares of Rs. 100/- (Rupees Hundred only) each and 1,00,00,000 (One Crore) Preference Shares of Rs. 20/- (Rupees Twenty only) each.
RESOLVED FURTHER THAT for the purpose of giving effect to the above resolutions, any of the directors of the Company be and is hereby severally authorised on Behalf of the Company to:
(a) file a company petition/application for reduction of share capital of the company before the concerned NCLT, and to do all such acts, deeds and things as they may deem necessary and desirable towards approval and sanction of the proposed capital reduction contemplated in this resolution by the NCLT;
(b) file application/petitions before the NCLT, seeking appropriate directions for dispensations from the procedure(s) prescribed under Section 66 of the Companies Act, 2013 (or any statutory re-enactment thereof);
(c) make applications to the relevant authorities or other persons for their approval to the proposed capital reduction and to make such disclosures to governmental or regulatory authorities as may be required for the purpose under applicable laws;
(d) withdraw or amend, as may be necessary, the company petition at any stage in case any change and/or modifications are suggested/required to be made or any condition imposed, whether by any shareholder, creditor, court and/or any other authority, and to do all such acts, deeds and things as they may deem necessary and desirable in connection herewith and incidental hereto;
(e) file any other application, petition, affidavit, form and/or report before any authority including but not limited to the concerned Registrar of Companies, in connection with the proposed capital reduction contemplated hereunder and/or in connection with sanction thereof, and to do all such acts, deeds and things as they may deem necessary and desirable in connections herewith and incidental hereto;
(f) represent the Company in general before any authority, NCLT and/or the court in relation to any matter pertaining to the proposed capital reduction and to exercise requisite powers on Behalf of the Company to settle, as they may in their absolute discretion deem fir, any questions, difficulties or doubts that may arise in this regard;
(g) appoint legal advisors to advice, submit recommendations and provide inputs on the proposed capital reduction and to draft the company petition/application for reduction of share capital and related documents and facilitate the entire process; and
(h) do all such acts, matters, deeds and things as they may in their absolute discretion deem necessary or desirable in connection with or incidental to giving effect to this resolution.
RESOLVED FURHTER THAT any of the directors of the Company be and is hereby authorized to consider and approve any or all matters as outlined above relating to the proposed capital reduction of the Company matters related herewith including cancellation of securities and do all such acts, deeds and thins necessary and incidental in order to effect the resolution.
RESOLVED FURTHER THAT certified true copy(ies) of these resolutions may be issued, wherever necessary, under the signature of any one of the directors of the Company.”
11. In the EOGM, the preference shareholders approved the special resolution for reduction of Preference Share Capital.
12. In view of the above said resolutions, the petitioner company reduced the Preference Share Capital of the petitioner company from the present level of Rs. 20,00,00,000/- divided into 20,00,000/- preference shares of Rs. 100/- each fully paid up to Rs. 4,00,00,000/- divided into 20,00,000 preference shares of face value of Rs. 20/- each fully paid up and, thereby, reduction to the extent of Rs. 16,00,00,000/- effected by paying off Rs. 80/- to each preference shareholder and, thereby, reducing the face value of preference share to Rs. 20/- each fully paid up.
13. It is stated that the reduction of Preference Share Capital will not affect the ability of the petitioner company to meet with its obligations to any creditor or to its shareholders post reduction. The proposed reduction of Preference Share Capital does not involve either the diminution of any liability in respect of unpaid capital nor cancellation of any paid up share capital which is lost or unrepresented by available assets. It is stated that the petitioner company does not have any secured or unsecured creditor as on the date of filing of the petition and, therefore, no creditor is affected by the reduction of Preference Share Capital. It is also stated that the petitioner company has sufficient assets to meet with any future liability and the proposed reduction would not affect the ability of the petitioner company to meet with any future liability. It is stated that the proposed Form of Minutes to be registered under Section 66(5) of the Act is as follows:—
“PROPOSED FORM OF MINUTES
The 9% Redeemable Non-Cumulative Preference Share Capital (“Preference Share Capital”) of the Aquagel Chemicals (Bhavnagar) Private Limited, is from March 10, 2017 and henceforth Rs. 4,00,00,000/- (Rupees Four Crores only) divided into 20,00,000 9% Redeemable Non-Cumulative Preference Shares (“Preference Share”) of Rs. 20/- (Rupees Twenty Only) reduced from Rs. 20,00,00,000/- (Rupees Twenty Crores only) Preference Share Capital divided into 20,00,000 Preference Share of Rs. 100/- (Rupees One Hundred Only) each. At the date of the registration of this minute all 20,00,000 Preference Share have been issued and are deemed to be fully paid up and none of the Preference Share is lying unissued.”
14. Along with this petition, the petitioner company has filed an application, being IA No. 53 of 2017, seeking dispensation of notice to the Securities and Exchange Board of India (SEBI) and secured and unsecured creditors. This Tribunal, by order dated 6 April, 2017, exempted the petitioner company from sending notice to SEBI on the ground that the petitioner company is not a listed company. This Tribunal, on the basis of the certificate of Chartered Account stating that there are no secured or unsecured creditors of the petitioner company as on 15.3.2017, dispensed with the notice to creditors.
15. This Tribunal directed the petitioner company to issue notice to the Central Government through the Regional Director, Western Region, Gujarat and the Registrar of Companies, Gujarat, in Form No. RSC-2 calling for their representations, if any, within a period of three months from the date of receipt of the notice. This Tribunal also directed the petitioner company to issue public notice in Form No. RSC-4 within seven days from 6.4.2017 in English language newspaper “Indian Express”, Ahmedabad Edition and vernacular Gujarati newspaper “Sandesh”, Ahmedabad Edition calling for objections from the public. Tribunal also directed the petitioner company to upload the publication on the website of the petitioner company, if any, calling for objections from the creditors, if any, within three months and intimating the date of hearing. This Tribunal also directed the petitioner company to file an affidavit before this Tribunal in Form No. RSC-5 confirming the dispatching of notices and publication of notice not later than seven days from the date of issuance of notices and publication. This Tribunal fixed the date of hearing on 13.07.2017.
16. On 13.07.2017, the petitioner filed proof of compliance of directions 1 to 5. The Regional Director filed his representation. No objection was received from the public at large. No other representation was received from any other Statutory Authorities. The petitioner company requested for time to file reply and the reply was filed on 19.07.2017.
17. The Regional Director in paragraph 2(b) of the representation stated about the paid up share capital of the petitioner as Rs. 22,00,000/- divided into 2,00,000 equity shares of Rs. 100/- each and 20,00,000 preference shares of Rs. 100/- each. In the reply, the petitioner company stated that it is factually incorrect and there is a typographical mistake. In fact, the issued, subscribed and paid up share capital of the petitioner company is Rs. 22,00,00,000/- divided into 2,00,000 equity shares of Rs. 100/- each and 20,00,000 preference shares of Rs. 100/- each. Therefore, the representation of the Regional Director is nothing but a typographical mistake.
18. The Regional Director in paragraph 2(c) of the representation stated that the petitioner company does not have sufficient reserves to permit redemption of the entire Preference Share Capital and for the creation of capital redemption reserve in compliance with Section 55 of the Act. In reply to the said observation made in representation of the Regional Director, it is stated by the petitioner that Section 55 of the Act deals with redemption of preference shares only out of profits of the company, which would otherwise be available for dividend or from the proceeds of a fresh issue of shares. It is further stated that Section 66 of the Act deals with reduction of share capital, which includes reduction of Preference Share Capital also, which is governed by Section 66(1)(b)(ii) of the Act. The petitioner company opted for reduction of Preference Share Capital instead of redemption of Preference Share Capital and, therefore, there need not be any profits which would be sufficient to redeem the entire Preference Share Capital and there is no occasion to issue fresh shares for such redemption purpose. It is stated that since the company is not doing business, it is reducing the value of preference shares from Rs. 100/- to Rs. 20/- by paying the reserve amount under Section 66 of the Act, which is duly approved by the Board of Directors, equity shareholders and preference shareholders.
19. A perusal of Section 55 of the Companies Act, 2013 shows that it exclusively deals with redemption of Preference Share Capital, whereas Section 66 of the Companies Act deals with reduction of Share Capital, which includes reduction of Preference Share Capital. The company is having sufficient assets and capabilities to meet with any future liabilities. The company is not having any secured and unsecured creditors to be paid. Further, no objection is received from the public on the reduction of Preference Share Capital, i.e. value of preference shares.
20. In view of the above discussion, this Tribunal is of the view that it is just and proper to confirm the reduction of Preference Share Capital of the petitioner company as resolved by the equity shareholders and preference shareholders of the company by passing special resolutions, set out in paragraphs 18 and 21 of the petition. This Tribunal waives the use of the words “and reduced” after the name of the petitioner company. This Tribunal also approves the proposed Form of Minutes set out in paragraph 27 of the petition.
21. Petitioner Company shall publish the order of confirmation of reduction of share capital in Indian Express Ahmedabad Edition in English and Sandesh Daily Ahmedabad Edition in Gujarati.
22. This petition is disposed of accordingly.