HC nods to capital reduction scheme approved by majority of shareholders as it wasn't prejudicial to creditor’s rights

Where reduction of share capital was approved by majority of shareholders and did not involve any cash outflow to prejudice rights of creditors, same was to be confirmed

Facts:

a) The petitioner filed petition under section 101(1) of the Companies Act, 1956 for confirming the reduction of share capital account.

b) It was submitted that after the proposed reduction of the equity share capital by adjusting with debit balance and profit and loss account, financial statements of the company would exhibit realistic picture of the company's financial position.

c) The company also had no secured or unsecured creditors and, hence, there was no question of interest of the company's creditors to be adversely affected.

d) Further, the shareholders had unanimously passed the special resolution approving of the reduction of capital in extraordinary general body meeting. The petitioner also sought liberty of the Court for dispensing with the words 'and reduced' as contemplated in section 102(3) of the Companies Act, 1956.

The High Court of Madras held as under:

1) Since reduction of share capital was purely a commercial decision which was approved by majority of shareholders and reduction did not involve any cash out flow to prejudice rights of creditors with procedure laid down under section 100 of the Companies Act, 1956 having been fully complied with, reduction of share capital as resolved by company in its special resolution was to be confirmed and also the prayer for dispensing with the words 'and reduced' as contemplated in section 102(3) of the Companies Act, 1956 was to be allowed..-----Comtec Components Ltd., In re [2014] 52 taxmann.com 173 (Madras)