TELLICHERRY MEDICAL FOUNDATION ANDINFRASTRUCTURES LIMITED v. THE REGISTRAR OF COMPANIES

dividend due on the redeemed preference shares amounting to Rs. 2,56,43,342/- passed in the Special Resolution of the Company at the Extra Ordinary General Meeting held on 03^rdJanuary 2022 and also to permit the conversion of the said shares into A class Equity shares of Rs 1000 each in the event the company fails to redeem the said shares within the period of one year in accordance with the agreement that the company was entered into with the sole preference shareholder namely M/s. Tellicherry Co-Op Hospital Society Limited.

2. The Brief facts, in a nutshell, are narrated herein below: -

2.1 The petitioner company namely M/s. Tellicherry Medical Foundation and Infrastructures Limited is a Public Limited Company registered under the Companies Act 1956. The main object of the company is to establish, maintain and run a hospital and allied services

2.2 The authorised share capital of the company is Rs 9 Crores divided into 87,500 A class Equity Shares of Rs 10,000/- each and 10,000 B Class Equity shares of Rs 250 each. The paid-up capital of the company is Rs 5,22,18,000/- divided into 51718 A class Equity shares of Rs 1000 each and 2000 B class Equity shares of Rs 250 each. The company was promoted by M/s. Tellicherry Co-Operative Hospital Society Limited which holds around 55.98% of the Equity shares of the company.

2.3 In order to partly finance the project, the company had offered 20,000 Nos of 13.5% Cumulative Redeemable preference shares of Rs 1000 each aggregating to Rs 2 Crores with a redemption tenure of 10 Years. The entire redeemable preference shares were subscribed by and allotted to M/s. Tellicherry Co-Operative Hospital Society Limited in the year 2003. Again, in the year 2011, 2800 Cumulative Redeemable preference shares of Rs 1000 each aggregating to Rs 28 Lakhs were allotted to M/s. Tellicherry Co-operative Hospital Society Limited. Thus, the said society was the sole holder of the 13.5% Cumulative Redeemable preference shares of Rs 1000 each.

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2.4 The redeemable preference shares, so allotted to the said society were due for redemption on 25.06.2013 (20000) and 30.06.2021 (2800) respectively. However, due to continuous losses and the resultant adverse liquidity position, the company was unable to redeem the said preference shares on the dates on which the same were due for redemption. Therefore, with the permission of the sole preference shareholder M/s. Tellicherry Co-Operative Hospital Society Limited fresh redeemable preference shares were issued to them in lieu of the old redeemable preference shares as per a Special Resolution passed unanimously at the EGM held on 26.07.2013. Since the company was unable to make any profit till date the entire preference shares were converted into equity shares in the year 2015 after obtaining necessary approvals and complying with all the statutory requirements in this regard.

2.5 The Petitioner further stated that the accumulated unpaid dividend due on the redeemable preference shares so converted into equity shares is Rs 2,56,43,342/-. This has not been paid till date. The company requested the sole preference shareholder to provide 6 years' time to pay this accumulated unpaid dividend and they agreed that in case the company fails to pay the dividend within the agreed period the same can be converted into preference shares. This agreement was mutually agreed between the company and the sole preference shareholder on

12.02.2015.

2.6 It is stated that even after the elapse of 6 years since the company was unable to make any payment towards the accumulated unpaid dividend, a discussion was held with the sole preference shareholder and based on such mutual discussion it has been agreed as follows;

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i. The company shall issue 25643 nos of 0.5% preference shares to M/s. Tellicherry Co-Operative Hospital Society Limited in lieu and in full satisfaction of accumulated unpaid dividend amounting to Rs 256,43,342/-.

ii. Such preference shares shall carry cumulative interest @ 0.5%.

iii. The preference shares so issued shall be compulsorily converted into A-class equity shares of Rs 1000 each after the expiry of one year from the date of the issue.

2.7 It is stated that the above proposals were approved by all the stakeholders and equity shareholders of the company by way of a special resolution at the EGM held on 01.02.2022.

3. On 15.06.2022, the Registrar of Companies filed his reply and stated that the Petitioner Company has failed to comply with the requirement of Section 55 of the Companies Act read with Rule 9 of the Companies (Share Capital and Debentures) Rules, 2014.

4. To this objection, the Petitioner filed a rejoinder on 26.04.2023 and stated that the Registrar of Companies has not specified, how the Petitioner has failed to comply with the requirement of Section 55 read with Rule 9 of the Companies (Share Capital and Debentures) Rule 2014. Section 55 specifies the conditions upon which the preference shares can be issued. Section 55(1) prohibits the issue of Irredeemable preference shares. Section 55 (2) permits the companies to issue redeemable preference shares, which shall be redeemed within a period not exceeding 20 years. Proviso to Section 55 (2) contains the conditions upon which the redeemable preference shares can be redeemed and the manner in which payment of premium on such redemption can be made. Section 55(3) provides for the issuance of further redeemable preference shares equivalent to the amount due on the unredeemed preference shares and accumulated unpaid dividends on such unredeemed preference shares in compliance with the conditions contained therein.

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5. The Petitioner stated that the relevant provisions applicable to the present petition is Section 55 (3) which provides for the issue of further redeemable preference shares equivalent to the unredeemed preference shares and the dividend accrued thereon. Hence, the Petitioner is before this Tribunal for reliefs aforesaid.

6. The Petitioner further stated that the only condition that Section 55 (3) envisages for such issues are;

a) Issue can be made only with the consent of the holders of three- fourths (¾) in value of such preference shares.

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b) With the approval of the Tribunal.

7. It is stated that the issue of 25,643 shares as aforesaid has been approved by the sole preference shareholder namely M/s. Tellicherry Co-operative Hospital Society Limited as per its letter dated 03.01.2022. Apart from the above, such issue of preference shares was also approved by the Equity shareholders of the company by way of a special resolution passed unanimously. It is further stated that after getting the approval for the issue of preference shares in lieu of the accumulated unpaid dividend by way of a unanimous special resolution by the shareholders, Form MGT 14 was filed by the Petitioner with the Registrar of Companies as SRN T83403832 dated 26.02.2022.

8. It is further stated that the present proposed issue is only for the purpose of liquidating and settling the accumulated unpaid dividend due on preference shares and not for any other purpose. There will not be any cash inflow to the company on account of such issue and consequent to such issue the accumulated unpaid dividends on the preference shares, which were redeemed earlier, will be fully paid and satisfied.

9. The Petitioner stated that it has complied with all the procedural formalities such as disclosure in the resolution, disclosure in the explanatory statement etc., as contemplated under Rules 9(2) and (3) of the Companies (Share Capital and Debentures) Rules 2014 in as much as such disclosures are applicable to the Petitioner Company. It was based on such compliance that the Registrar of Companies approved

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Form MGT 14 submitted by the company. Since the Registrar has not specifically mentioned the ground upon which he has come to the conclusion that the petitioner has failed to comply with the requirements of Section 55 of the Companies Act 2013 read with Rule 9 of the Companies (Share Capital and Debentures) Rules 2014, it is presumed that the objection of the Registrar of Companies may be based on the fact that there was a subsisting default in payment of dividend due on the preference shares. The Act confers a wide and unbridled right to this Tribunal to sanction the issue of Preference shares in lieu of unredeemed preference shares as well as the accumulated and unpaid dividend thereon.

10. It is further stated that the issuance of preference shares in lieu of unredeemed preference shares and /or accumulated unpaid dividends thereon is a perfect tool for those companies whose liquidity position is very poor to redeem the preference shares or for payment of accumulated unpaid dividends thereon. This clear position has been mandated not only by Section 55(3) but also by the various judicial decisions.

11. We have heard Mr. K.P. Satheesan, the learned Authorised Representative/PCS for the Petitioner and perused the entire case records/documents. We have gone through the Resolution passed by the Board of Directors of the Company on 01.02.2022 which is quoted as under: -

"RESOLVED THAT a Petition may be made to the National Company Law Tribunal (NCLT, Kochi) u/s 55 of the Companies Act, 2013 for approval pertaining to the issue of 25,643 Twenty Five Thousand Six Hundred and Forty Three) 0.5% Compulsorily Convertible Cumulative Preference shares of Rs 1000 each, aggregating to Rs 2,56,43,000 (Rupees Two crores Fifty Six Lakhs Forty- Three Thousand only) in lieu of the Accumulated Preference Dividend of Rs 2,56,43,342 (Rupees Two crores Fifty-Six Lakhs Forty-Three Thousand Three Hundred and Forty-Two) payable to Tellicherry Co-operative Hospital Society Limited on the following terms and conditions:

a) The Preference Shares shall carry dividend of 0.5% (Zero-point Five percentage).

b) The 0.5% Preference Shares shall' carry Cumulative Interest.

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c) The 0.5% Preference Shares shall be compulsorily convertible into A Class Equity Shares of Rs 1000/- each after the expiry of One year from the date of their issue.

RESOLVED FURTHER that the draft Petition as approved by the Board may be filed with the National Company Law Tribunal Kochi Bench in the same or modified form as the Directors/Authorized Signatories in their discretion deem fit or necessary.

RESOLVED FURTHER that the Board of Directors be authorized to do all acts, deeds and things as may be considered necessary and expedient in relation thereto and be hereby authorized to take all steps necessary in connection with the said Petition.

12. We have also gone through the Resolution passed by the Board of Directors of the Company on 11.03.2015 which is quoted as under: -

RESOLVED THAT the existing Authorized Capital of the Company amounting to Rs.600 Lakhs consisting of 34,700 "A" Class Equity Shares of Rs 1000/- each aggregating to Rs 3,47,00,000, 10,000 "B" Class Equity Shares of Rs 250/- each aggregating to Rs 25,00,000 and 22,800 Nos 13.5% Redeemable Cumulative Preference Shares of Rs. 1000/- each aggregating to Rs. 2,28,00,000 be reclassified by converting 22,800 13.5% Redeemable Cumulative Preference Shares of Rs 1000/- each into 22,800 "A" Class Equity Shares of Rs 1000/- each and thereafter the Authorized Capital of the Company be and are hereby classified as follows:

i. 57,500 "A" Class Equity Shares of Rs 1000/- each.

ii. 10,000 "B" Class Equity Shares of Rs 250/- each.

RESOLVED THAT consequent to the conversion of Redeemable Cumulative Preference Shares into Equity Shares, the existing Capital Clause V of the Memorandum of Association be and is hereby changed as under

"V. The Authorised Share Capital of the Company is Rs 6,00,00,000 (Rupees Six Crores only divided into 57,500 (Fifty-Seven Thousand Five Hundred) A' Class Equity Shares of Rs 1000/- (One Thousand) each and 10,000 (Ten Thousand) 'B' Class Equity Shares of Rs 250- (Two Hundred and Fifty) each. with power to

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increase, reduce or re-organize the share capital in accordance with the provisions of the Companies Act, 2013."

RESOLVED THAT Article 5 of Articles of Association be and is hereby deleted and the following Article be and is hereby substituted in place and stead thereof.

"5. The Authorised Share Capital of the Company is Rs 6,00,00,000 (Rupees Six Crores only divided into S7,500 (Fifty-Seven Thousand Five Hundred) 'A' Class Equity Shares of Rs 1000/- (One Thousand) each and 10,000 (Ten Thousand) 'B' Class Equity Shares of Rs. 250/- (Two Hundred and Fifty) each with the power of increase, reduce or re-organize the share capital in accordance with the provisions of the Companies Act, 2013"

13. In order to decide the issue, it is profitable to quote Section 55 of the Companies Act,2013 which deals with the issue and redemption of preference. The relevant portion of this Section is Section 55(3) which is as under: -

Section 55: Issue and redemption of preference shares

(3) Where a company is not in a position to redeem any preference shares or to pay dividend, if any, on such shares in accordance with the terms of issue (such shares hereinafter referred to as unredeemed preference shares), it may, with the consent of the holders of three-fourths in value of such preference shares and with the approval of the Tribunal on a petition made by it in this behalf, issue further redeemable preference shares equal to the amount due, including the dividend thereon, in respect of the unredeemed preference shares, and on the issue of such further redeemable preference shares, the unredeemed preference shares shall be deemed to have been redeemed:

Provided that the Tribunal shall, while giving approval under this sub-section, order the redemption forthwith of preference shares held by such persons who have not consented to the issue of further redeemable preference shares. Explanation -For the removal of doubts, it is hereby declared that the issue of further redeemable preference shares or the redemption of preference shares

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under this section shall not be deemed to be an increase or, as the case may be, a reduction, in the share capital of the company. (Notified on 01-06-2016)

14. The submission of the Petitioner that the Company has filed Form-MGT 14 before the ROC has not been disputed by the ROC. Therefore, we are of the view that the present Company Petition squarely falls within the ambit of Section 53(3) of the Companies Act, 2013. Therefore, this Tribunal approves the issuance of 25,643 numbers of 0.5% compulsorily convertible cumulative preference shares of Rs. 1000/- each aggregating to Rs. 2,56,43,000/- for a period of one year in lieu of the amount of accumulated unpaid dividend due on the redeemed preference shares amounting to Rs. 2,56,43,342/- and also to permit the company to convert the said shares into A class Equity shares of Rs 1000 each in the event the company fails to redeem the said shares within the period of one year.

15. Accordingly, this Company Petition is hereby Allowed and disposed of. No order as to costs.

16. The Petitioner is directed to place a copy of this Order before the Registrar of Companies, Kerala.

17. The Registry is to communicate this order by e-mail to both sides immediately.

18. Let the certified copy of the order be issued upon compliance with requisite formalities.

19. File be consigned to records.

Satya Ranjan Prasad P. Mohan Raj Member (Technical) Member (Judicial)

Signed on this, the 23^rdday of June, 2023. Rajasree R. Nair.

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