Chitrali Properties Private Limited Vs

Lakshmi Gurung, Member (Judicial)

The present Petition has been filed by Chitrali Properties Private Limited (Petitioner Company) for confirmation of reduction of equity share capital of the Petitioner Company under Section 66 read with Section 52 of the Companies Act, 2013 and in accordance with the National Company Law Tribunal (Procedure for Reduction of Share Capital of Company) Rules, 2016 and other applicable provisions, if any.

The Petitioner Company is a private limited company incorporated on 22.11.1995 under the provisions of the Companies Act, 1956. The registered office of the Petitioner Company is situated in Pune and therefore, this Bench has the jurisdiction to entertain the petition.

The nature of business as per the Memorandum of Association of the Petitioner Company is as follows:

“To purchase land, development rights, immovable properties and to erect and construct houses, building of works or every description on any land of the company, or upon any other lands or property, and to pull down, rebuild, enlarge, alter and improve existing house, buildings or works thereon to convert appropriate any such land into and for roads, street, squares, gardens and other convenient and generally to deal with and improve the property of the company or any other property and to sell, lease, let, mortgage or otherwise dispose of the lands, houses, building and other property of the company or others.”

The present share capital of the Petitioner Company as per audited financial statement for the year ended 31.03.2023 is as follows:

Particulars

Amount (INR)

Authorized Capital

20,00,000 Equity Shares of Rs. 10 each

2,00,00,000

9,00,000 Preference Shares of Rs. 100 each

9,00,00,000

Total

11,00,00,000

Issued, subscribed and paid-up Share Capital

20,00,000 Equity Shares of Rs. 10 each

2,00,00,000

6,30,053  Series  A  non-cumulative  redeemable

non-convertible preference shares of Rs. 100 each

6,30,05,300

Total

8,30,05,300

It is submitted that there is credit balance of Rs. 81,06,60,000 (Rupees Eighty-One Crore Six Lakh Sixty Thousand Only) in the Securities Premium Account of the Petitioner Company. It is further stated that there are accumulated losses of Rs. 62,50,31,691.28 (Rupees Sixty-Two Crore Fifty Lakh Thirty-One Thousand Six Hundred and Ninety-One point Two Eight Only) reflected under “Reserves and Surplus – Retained Earnings” as part of the “Other Equity” of the Petitioner Company.

It is proposed to reduce the balance in the Securities Premium Account of the Petitioner Company from Rs. 81,06,60,000 to Rs. 18,56,28,308.72, and such reduction would be utilized in writing off the accumulated losses i.e. the debit balance of Rs. 62,50,31,691.28 in the ‘Reserves & Surplus-Retained Earnings’ Account of the Petitioner Company.

Rationale submitted for the reduction of share capital is reproduced hereinbelow:

a) “The Petitioner Company has been incurring losses since the financial year 2016-17. As at June 30, 2023, the accumulated losses of the Petitioner Company stood at Rs. 62,50,31,691.28 (Rupees Sixty-Two Crore Fifty Lakh Thirty Thousand Six Hundred and Ninety-One point Two Eight Only). The accumulated losses are reflected as a debit balance under “Reserves and Surplus – Retained Earnings” as part of the “Other Equity”.

b) The balance sheet of the Petitioner Company reflects an amount of Rs. 81,06,60,000 (Rupees Eighty-One Crore Six Lakh Sixty Thousand Only) standing to the credit of securities premium account as part of the “Other Equity” as on 30 June 2023.

c) The Petitioner Company believes that utilization of the securities premium account to set off the accumulated losses of the Petitioner Company would result in a fairer reflection of the “Other Equity” in the balance sheet and also enable the Petitioner Company to reward its shareholders, if so considered necessary, earlier that it would otherwise be possible.

d) The right-sizing of the balance sheet is also likely to facilitate the efforts of the Petitioner Company while raising funds.

e) Utilization of the securities premium account in the manner indicated above would be deemed to be a reduction of share capital of the Petitioner Company, which would therefore require compliance with section 66 read with section 52 of the Act.”

There are 2 (two) Equity Shareholders and 1(one) Preference shareholder in the Petitioner Company who have approved the proposed reduction by passing special resolution at the Extraordinary General Meeting held on 12th September 2023. Copy of the special resolution is annexed to the Petition. Relevant portion from the special resolution is reproduced below:

“RESOLVED THAT pursuant to the provisions of section 66 read with section 52 and other applicable provisions of the Companies Act, 2013 (the ‘Companies Act’), the National Company Law Tribunal (Procedure for Reduction of Share Capital) Rules, 2016 and other relevant rules made there under and in terms of Article 55 of the Articles of Association of the Company, and subject to the confirmation by The National Company Law Tribunal, Mumbai Bench, (‘NCLT’) and / or any other regulatory authority as may be prescribed under the Companies Act in this regard and such other approvals as may be required, approval of shareholders of the Company be and is hereby accorded to utilize Rs. 62,50,31,691.28/-(Sixty Two Crore Fifty Lakh Thirty One Thousand Six Hundred and Ninety One point Two Eight only) out of the balance available with the securities premium account to set-off the entire accumulated losses i.e., the debit balance in the profit & loss account of Rs. 62,50,31,691.28/- (Sixty Two Crore Fifty Lakh Thirty One Thousand Six Hundred and Ninety One point Two Eight only) as per the audited financial statements of the company as on June 30, 2023 appearing in “Reserves and Surplus – Retained Earnings” as part of the “Other Equity” (hereinafter referred to as ‘Capital Reduction’)

RESOLVED FURTHER THAT pursuant to the Capital Reduction all the pre-reduction shareholders will remain as the shareholders of the Company and there will be no change in their shareholdings.

RESOLVED FURTHER THAT the balances in the shareholder’s funds post the proposed Capital Reduction shall be as follows:

Sr.

No.

Shareholder’s

funds

Balance as on June 30, 2023

(Amount in Rs)

Proposed Utilization (Amount in Rs)

Balance Post Capital Reduction

(Amount in Rs)

1

Paid-up capital

8,30,05,300

-

8,30,05,300

2

Securities premium

account

81,06,60,000

(62,50,31,691.28)

18,56,28,308.72

3

Retained

Earnings

(62,50,31,691.28)

62,50,31,691.28

-

Total

26,86,33,609

26,86,33,609

Article 55 of Articles of Association of the Petitioner Company authorizes the Petitioner Company to reduce its share capital in any manner as authorized by law. The relevant extract of the said article is produced as under:

“55. The Company may, by special resolution, reduce in any manner and with, and subject to, any incident authorised and consent required by law:

(i) its share capital;

(ii) any capital redemption reserve account; or

(iii) any share premium account”

There are no secured creditors and 40 (forty) Unsecured Creditors in the Petitioner Company with outstanding value of Rs. 4,52,77,71,689 as on 11.09.2023. The Petitioner Company has served notices upon all creditors as required under section 66(2) of the Companies Act, 2013 in compliance with the directions of this Tribunal vide Order dated 20.10.2023. It is further submitted that the proposed reduction of share capital would not in any way adversely affect the ability of the Petitioner Company to honor its commitments or prejudicially affect the rights of the creditors of the Petitioner Company as there is no reduction in the amount payable to the creditors and no compromise or arrangement is contemplated with the creditors and they will be paid off in the ordinary course of business.

The Regional Director (Western Region), Ministry of Corporate Affairs, Mumbai, filed its Report dated 31.01.2024 inter-alia making some observations. Besides the standard observations, the Regional Director (WR) has made specific observations in the Report. Below are reproduced the comments of the Regional Director and the Reply of the Petitioner Company thereto:

Para No

Observations of the report of the Regional Director dated January 31, 2024

Response / Undertaking / Submission of the Petitioner Company

7(A

Reduction of capital is allowed from Securities Premium u/s 52(1) of the Companies Act, 2013, if company fulfils the conditions u/s 66 of the Companies Act, 2013.

The Petitioner Company submits that proposed utilization of securities premium account amounts to reduction of capital of the Petitioner Company by virtue of the provisions of Sections 52 and 66 of the Act. As Section 52 of the Act expressly provides that provisions of the said Act relating to the reduction of share capital of a Company shall, except as provided in Section 52 apply even for adjustment of securities premium account as if it were the paid-up share Capital of the Company. Utilization in the aforesaid circumstances as proposed would attract provisions of Sections 66 of the Act for which the Petitioner Company is required to seek approval of the shareholders by a special resolution in terms of Section 66 of the Act. The said special resolution was approved by the shareholders representing 100% of the equity paid-up share capital of the Petitioner Company in its Extraordinary General Meeting held on September 12, 2023. Further, the Petitioner Company has not accepted any deposits as defined in Section 2(31) of the Act read with the Companies (Acceptance of Deposits) Rules, 2014 from public and therefore, question of the Company being in any arrears in repayment of the deposits or interest thereon does not arise.

Hence, the reduction fulfills the conditionalities provided in Section 66 of the Act.

7(B)

Applicant to submit an Affidavit to the effect that the interest of the creditors and all stakeholders and Government Revenue are protected as well as statutory dues are paid off.

“28. It is clarified that the proposed reduction of share capital does not involve extinction, reduction or diminution of any liability in respect of unpaid share capital, if any. It is also clarified that the reduction of share capital does not involve cancellation of any paid-up share capital which is lost or is unrepresented by available assets. The proposed reduction of share capital would not in any way adversely affect the ability of the Petitioner Company to honor its commitments or prejudicially affect the rights of the creditors of the Petitioner Company.”

The reduction of capital does not call for sacrifice on the part of any creditor and would not in any way adversely affect the ability of the Petitioner Company to honor its commitments or prejudicially affect the rights of the creditors of the Petitioner Company. Further, the reduction of capital will not have any adverse impact on the ability of the Petitioner Company to pay its statutory dues regularly in accordance with the relevant regulations and will also not affect prejudicially interests of Governmental Revenue or any other stakeholders.

Accordingly, the Petitioner Company submits that the stipulation as contained in Para 7(B) stands fulfilled.

7(C)

The tax implication if any arising out of the proposal for reduction is subject to final decision of Income Tax Authorities. The approval of the Company Petition by this Hon’ble Court may not deter the Income Tax Authority to scrutinize the tax return filed by the Company after giving effect to the proposed reduction. The decision of the Income Tax Authority is binding on the petitioner Company.

The Petitioner Company submits that the tax implications, if any, arising out of the proposal for reduction is subject to final decision of the Income Tax Authorities. The approval of the company petition by this Hon’ble Tribunal may not deter the Income Tax Authority to scrutinize the tax return filed by the Petitioner Company after giving effect to the proposed reduction.

7(D)

The petitioner Company is engaged in the business of Real Estate Business; therefore, petitioner company may be directed to place on record prior approval of RERA.

The Petitioner Company submits that it is in the business of construction, renting and maintenance of immovable properties and presently owns and operates “Nexus Westend Mall” in Pune, Maharashtra. Hence, it is not registered with the Maharashtra Real Estate Regulatory Authority. Accordingly, no intimation or approval is required from Real Estate Regulatory Authority.

The certificate issued by the Statutory Auditors confirming that the accounting treatment for reduction of equity share capital is in accordance with the accounting standards specified under section 133 and other provisions of the Companies Act, 2013 is annexed to the Petition.

The Statutory Auditors have also issued a certificate certifying that the company has not accepted any deposits.

The Petitioner Company’s submission that though it is in real estate business yet RERA registration and approval from RERA is not required is taken on record. However, RERA is not precluded from examining the statement of the Petitioner Company.

Considering the entire facts and circumstances of the case, the report filed by Regional Director (Western Region) dated 31.01.2024 and Affidavit in reply to observations of the Regional Director filed by the Petitioner Company dated 31.01.2024, reduction of share capital of the Petitioner Company is confirmed.

The Effective Date shall be the date of approval of this Tribunal.

Consequent to proposed reduction, if there arises any action that may be necessary under the Income Tax Act, 1961, the Income Tax Authorities would be at liberty to take those and the Petitioner Company or the equity shareholder as the case may be, would comply with such action/order of the Income Tax Authorities.

The Petitioner Company shall file the certified copy of the order and form of minutes duly certified by the Designated Registrar of this Tribunal with the Registrar of Companies within 30 days or an extended timeline with payment of additional fees, as may be applicable, from the date of receipt of the certified Order from the Registry of this Tribunal.

The Petitioner Company to publish notices about registration of order and minutes by the concerned Registrar of Companies in two newspapers namely ‘Business Standard’ in English language and translation thereof in ‘Navshakti’ in Marathi language both having wide circulation in the State of Maharashtra within 30 days of registration.

All concerned regulatory authorities to act on certified copy of the order, duly certified by designated Registrar of this Tribunal.

The minutes set forth in the Schedule hereto be and is hereby approved.

Schedule

Form of Minutes

“The balance in the securities premium account of Chitrali Properties Private Limited is henceforth Rs 18,56,28,308.72/- (Rupees Eighteen Crore Fifty Six Lakh Twenty Eight Thousand Three Hundred and Eight point Seven Two only) reduced by Rs. 62,50,31,691.28/-

(Rupees Sixty Two Crore Fifty Lakh Thirty One Thousand Six Hundred and Ninety One point Two Eight only) from Rs. 81,06,60,000/- (Rupees Eighty One Crore Six Lakh Sixty Thousand only).”

Accordingly, the Company Petition No. 253 of 2023 is allowed and disposed of.