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Judgment
273 paragraphs · 4,318 wordsL. N. Gupta, Member (T)
M/s CLP Wind Farms (India), a Private Limited by shares incorporated with CIN No. U40106DL2008PTC241157 on 29.07.2008, under the provisions of erstwhile Companies Act, 1956, having its registered office at Plot No. D-1, 3rd Floor, Salcon Ras Vilas, District Centre, Saket, New Delhi-110017 has filed this petition under Section 66 of the Companies Act, 2013 read with Rule 2 of the NCLT (Procedure for Reduction of Share capital of Company) 2016, seeking confirmation of reduction of its share capital approved by its Shareholders by way of special resolution.
To put succinctly, facts of the case as averred in the petition are as follows:
i) That Vide order dated 25.09.2020, this Bench had directed to serve notices to RD, RoC and Income Tax Departments and issue public notices in the newspapers "Financial Express" in English and "Jansatta" in Hindi.
ii) In compliance of the order dated 25.09.2020, the Petitioner Company has filed its Affidavit dated 05.11.2020 stating that on 30.09.2020, the notice along with copy of the petition was sent to each of the creditors of the company, RD, RoC and Income Tax Department. It is further stated that it had published notice in the Newspapers on 01.10.2020.
iii) That pursuant to the notice, the Ld. Counsel for the RD caused its appearance.
iv) That the petitioner Company is engaged in the business of generation and sale of wind power energy. As of now, it operates 774MW of wind power capacity across Gujrat, Karnataka, Tamil Nadu, Maharashtra, Rajasthan and Madhya Pradesh.
v) The main objects of the Applicant Company as per the Memorandum of Association of the Applicant Company are as follows :
"(i) To undertake and carry on in India and anywhere in the world the business of and as producers, manufacturers, buyers, sellers, suppliers, stockists, distributors, importers, exporters, lessors, lessees, managers, agents of and dealers in all kinds, types and forms of Wind Farms for electricity generation, as well as power generation equipment, components, apparatus, mechanism, know-how, processes including Wind Mills, Wind Turbine Generators, Hydro Turbines, Thermal Turbines, Solar Modules, Panels and generally to harness, procure, generate, accumulate, store, stock, supply and distribute, electrical energy, electricity and power for the purpose of industrial, domestic consumption and also for light, heat, motive power and for all purposes for which electrical energy, electricity, power and such sources of energy can be employed, utilized or channelized;
(ii) To undertake the business of investing in, developing, operating and managing power and power-related projects in India and expand and grow its business to cover other business opportunities in India from time to time".
vi) That the share capital structure of the Applicant Company as on March 31,2020 is as follow:
Authorized Share Capital
Amount (Rs.) in
Millions
1,000,000,000 Equity shares of Rs.10/- each
10,000
250,000,000 Compulsory Convertible Preference
2,500
Shares of Rs. 10/- each
Total
12,500
Issued, Subscribed and Paid up Share Capital
Amount (Rs.) in
Millions
754,945,016 Equity shares of Rs. 10/- each
7,549.45
156,455,750 Compulsory Convertible Preference
1,564.56
Shares of Rs. 10/- each
Total
9,114.01
vii) That the Article 4.9 of the Articles of Association ("AoA") of the Applicant Company provides that the Company may, from time to time, by special resolution reduce its capital in any manner permitted by law. The relevant extract of Article 4.9 of the AOA of the Applicant Company is reproduced hereunder:.
"4.9 Subject to the provisions of these Articles, and the requisite authorizations and consents required by Applicable Law, the Petitioner Company may by special resolution reduce in any manner:
(a) its Share Capital;
(b) any capital redemption reserve account; and
(c) Any share premium account."
viii) That the Petitioner Company is a wholly owned subsidiary of CLP India Private Limited ("the Holding Company"). It is added that 100% preference share capital of the Petitioner Company is also owned entirely by CLP India Private Limited.
ix) That considering the future business projections, the current financial position and other business factors, the Board of Directors of the Petitioner Company is of the considered opinion that the Petitioner Company has surplus funds available with it, which are in excess its requirements and for which, it does not have an effective deployment plan. Further, under the pandemic hit crisis, such surplus funds can be utilized efficiently within the group level itself if the funds are returned back to the Holding Company. Accordingly, the Board of Directors of the Petitioner Company have decided to remit back the excess share capital, by reducing the paid-up equity share capital of the Petitioner Company.
x) That the Pre and Post Reduction-Net Worth of the Petitioner Company based on the audited Financial Statements as on 31st March 2020as per the certificate dated August 14, 2020 issued by M/s G.K Choksi & Co., Chartered Accountants and as placed on record by the Petitioner Company is as under:
Particulars
Pre-reduction of
Post reduction of
Capital (Rs.)
Capital (Rs.)
(As on 31.03.2020)
Equity Share Capital
754,94,50,160
452,96,70,096
Preference Share Capital
156,45,57,500
156,45,57,500
Security Premium
506,32,27,099
506,32,27,099
Retained earnings
781,09,23,527
781,09,23,527
Debenture Redemption
28,90,00,000
28,90,00,000
Reserve
Net-worth
2227,71,58,287
1925,73,78,223
xi) That the Petitioner Company has also filed a certificate from BSR & Co. LLP, Statutory Auditors of the Company dated 22nd August, 2020 to the effect that the accounting treatment proposed by the Petitioner Company for the proposed reduction of share capital is in conformity with the accounting standards prescribed under Section 133 of the Companies Act, 2013.
It is submitted by the Petitioner that its Board of Directors in its meeting held on 13th August, 2020 considered and unanimously approved the proposed reduction of issued, subscribed and paid-up equity share capital. The Petitioner Company, then, convened the Combined Extraordinary General Meeting (EGM) of its equity shareholders and preference shareholders, on a short notice on 14TH August 2020 seeking their approval for the proposed reduction of issued, subscribed and paid-up equity share capital by way of a Special Resolution.
That it has been submitted by the Petitioner that the Combined EGM of the shareholders of the Petitioner Company held on 14th August, 2020, unanimously passed the Special Resolution, in accordance with section 66(1) of the Companies Act, 2013. The scanned copy of the relevant extracts of the minutes of the EGM are reproduced overleaf :
In terms of the aforesaid resolutions, the Petitioner Company has proposed to reduce its issued, subscribed and paid-up equity share capital from Rs.7,54,94,50,160/- divided into 75,49,45,016 Equity Shares of face value of Rs.10/- each to Rs.4,52,96,70,096/- divided into 75,49,45,016 Equity Shares of face value Rs.6/- each, by paying Rs.3,01,97,80,064/- to CLP India Private Limited.
That the Petitioner Company has filed a Certificate of Statutory Auditor and declaration by Directors to the effect that the Company has not obtained any public deposit and hence, there is no occurrence of default in payment of deposit/interest. The relevant Certificate and Declaration are placed at page 168-171 of the petition.
That in response to the Petition filed by the Petitioner Company, the RD (North) has filed its report and has raised certain objections towards the proposed reduction of the share capital. The relevant extracts of the RD's Report containing objections are reproduced overleaf :
xxxx xxxx xxxx
In response to the aforesaid observations of the Regional Director (North), the Petitioner has filed its Affidavit dated 27.02.2021 submitting as follows:
"Para wise reply to the RD Affidavit :
5.1. IN Para 1 to 6
5.1.1. That contents of para 1 to 6 of the RD Affidavit are factual and mere statements and the same do not merit any response.
5.2. IN Para 7
5.2.1. The Ld. RD in Para 7 of the RD Affidavit has disclosed the observation made by the RoC. The same is reproduced hereunder for the sake of convenience:
"It appears from the present petition and annexures thereto that with regard to the proposed reduction in share capital, the company has not obtained any consent/ no objection from the said creditor. Since, the Company is limited by shares, any reduction in share capital may affect the interest of the creditors, if company goes into winding up."
5.2.2. In respect thereof, it is humbly submitted that there is no mandatory requirement for obtaining prior consent(s) from the secured and unsecured creditors of the company seeking confirmation in respect of the reduction of its share capital either under the Act or under the Reduction Rules.
5.2.3. It is further humbly submitted that section 66 (2) of the Act read with rule 3 of the Reduction Rules requires a company to serve notice of the Petition for reduction of share capital of a company to the concerned RD, RoC, Securities and Exchange Board of India (in case of a listed company) and the creditors of the company seeking their objection(s) or representation(s).
5.2.4. It is further submitted that the Petitioner Company in pursuance of the order dated September 25, 2020 and in compliance with the provisions of section 66(2) of the Act. read with rule 3 of the Reduction Rules, had duly served notice of the Petition to its secured and unsecured creditors on September 30, 2020 through email as well as speed post seeking their objection(s) to the proposed reduction within a period of three months' from the date of the notice. A true and correct copy of the notices of Petition sent to each secured creditor and unsecured creditor of the Petitioner Company vide emails are annexed herewith and marked as Annexure-A (Colly). A true and correct copy of the speed post receipts of the said notices are annexed herewith and marked as Annexure-B (Colly).
5.2.5. It is further reiterated that the Petitioner Company has also published the notice of Petition in the newspapers namely, 'Financial Express' (English) edition and 'Jansatta' (Hindi) edition having wide circulation in Delhi on October 1, 2020 seeking objection(s) or representation(s) from the secured and unsecured creditors of the Petitioner Company to the proposed reduction. A true and correct copy of the newspaper advertisements are annexed herewith and marked as Annexure-C (Colly).
5.2.6. It is important to mention that despite there being no such requirement under section 66 of the Act read with the Reduction Rules to obtain consent from the creditors of the company whilst seeking confirmation on the proposed reduction of its share capital from the Hon'ble Tribunal and the fact that the Petitioner Company duly served the notice of the Petition upon its secured and unsecured creditors seeking objections as is the only requirement under applicable law, the Petitioner Company, on its volition and active discussions with the creditors, received no-objections to the proposed reduction from almost all the secured and unsecured creditors vide their respective consent letters. A true and correct copy of the consent / no-objection letters are attached herewith and marked as Annexure-D (Colly).
Sr.
Name
Class/
Amount
Description
No.
type
1
IDFC Bank
Secured
7,333,332/-
Notice Served
Limited
as per
Direction of
NCLT and
consent
received
2
HDFC
Secured
1,470,511,620/-
Notice Served
Bank
as per
Limited
Direction of
NCLT and
consent
received
3
State
Secured
1,618,625,000/-
Notice Served
Bank of
as per
India
Direction of
NCLT and
consent
received
4
IDBI
Secured
890,000,000
Notice Served as
Trusteeshi
per Direction of
p Services
NCLT and
Limited
consent
received
5
The
Secured
706,313,677
Notice Served
Hongkong
as per Direction
and
of NCLT and
Shanghai
consent
Banking
received
Corporation
Limited,
India
6
BNP
Secured
1,127,693,736
Notice Served
Paribas
as per Direction
Bank
of NCLT and
Consent
Received
7
CLP India
Secured
2,969,095,801
Notice Served as
Pvt. Ltd.
per Direction of
(Parent
NCLT and
Company)
consent
received
8
Standard
Secured
1,789,526,550
Notice Served
Chartered
as per Direction
Bank,
of NCLT and
India
consent
received
9
DBS Bank
Secured
1,287,128,013
Notice Served
Limited
as per
Direction of
NCLT and
consent
received
10
BARCLAYS
Un-
1,229,592,760
Notice Served as
BANK PLC
Secure
per Direction of
d
NCLT and
consent
received
11
Gamesa
Un-
46,250,156
Notice Served as
Wind
Secure
per Direction of
Turbines
d
NCLT and
Pvt. Ltd.
consent
received
Obtaining consent letters from the creditors shall mean that the creditors do not have any objection to the said proposed reduction.
5.3. IN Para 8
5.3.1. The Ld. RD in Para 8 of the RD Affidavit has disclosed its few observations. All of them are replied in seriatim.
5.3.2. In Para 8(a) of the RD Affidavit, the Ld. RD has raised an observation w.r.t the consent letters from the secured and unsecured creditors of the Petitioner Company confirming the said proposed reduction. In this regard, it is submitted that the Ld. RoC has also raised a similar observation and the same has already been replied in para 5.2 above. Copies of the consent letters are already attached herewith and marked as Annexure-D (Colly).
5.3.3. In Para 8(b) of the RD Affidavit, the Ld. RD has a raised another observation that the Petitioner Company intends to reduce its paid-up share capital without paying-off outstanding dues and have further opposed the proposed reduction.
5.3.4. In respect thereof, it is humbly submitted that section 66(1)(b) of the Act enables a company to reduce its share capital in any manner. Relevant extract of section 66(1) is reproduced hereunder for reference:
"1) Subject to confirmation by the Tribunal on an application by the company, a company limited by shares or limited by guarantee and having a share capital may, by a special resolution, reduce the share capital in any manner and in, particular, may :
(a) extinguish or reduce the liability on any of its shares in respect of the share capital not paid-up; or
(b) either with or without extinguishing or reducing liability on any of its shares,-
(i) cancel any paid-up share capital which is lost or is unrepresented by available assets; or
(ii) pay off any paid-up share capital which is in excess of the wants of the company, alter its memorandum by reducing the amount of its share capital and of its shares accordingly:
5.3.5. It is submitted that the proposed reduction of the equity share capital of the Petitioner Company was solely for the purpose of returning the excess capital to its shareholders. Further, as evident from the balance sheets of the Petitioner Company, the business of the Petitioner Company is highly profit making, resulting into accumulation of cash surplus, year on year. This has resulted in the accumulation of funds that are in excess of the requirements of the Company. Thus, the only intent behind the said reduction/restructuring is to return surplus cash to the shareholders by reduction of the nominal value of each share. The outstanding liabilities as stated by Ld. RD have not become due for payment. As this Hon'ble Tribunal would appreciate that the payments to secured creditors are required to be made based on the repayment schedule agreed with them. Further, this Hon'ble Tribunal would appreciate that the Petitioner Company has not defaulted in its repayment schedule agreed with its creditors at any point of time. Otherwise, the secured and unsecured creditors could have filed their objections before this Hon'ble Tribunal. After serving notices to all the secured and unsecured creditors and even after giving newspaper advertisements, no objection has been filed by any of the secured and unsecured creditors of the Petitioner Company. Accordingly, there is surplus capital available with the Petitioner Company which it intends to return to its shareholder for further development of the business of the group.
5.3.6. It is further submitted that the substantial dues of the Petitioner Company are secured and the Petitioner Company is strictly governed by the terms & conditions of the loan agreements executed between the Petitioner Company and its lenders. Considering the ongoing business potential and availability of liquid funds with the Petitioner Company particularly in these unprecedented times, it can be said that the dues of the creditors of the Petitioner Company are well protected and safe. Even upon sanctioning of this scheme under the Petition, it is submitted that the Petitioner Company shall retain sufficient cash flows, investments and revenue generating capacity. It can be appreciated that the Petitioner Company has achieved turnover of INR 751.36 crores and profit of INR 246.23 crores for the year ended 31st March, 2020. The operating cash flow from the business of the Petitioner Company was INR 576.37 crores for the year ended 31stMarch, 2020. Accordingly, the Petitioner Company has an annual cash flow from its business operations that can more than sufficiently cover the dues payable to the secured and unsecured creditors, as and when they become due for repayment. Furthermore, the advances of lenders are duly secured. Thus, in no sense or manner the sanctioning of such scheme of reduction of share capital and allowing the present Petition of the Petitioner Company can act prejudicially to the interest of stakeholders or be against the public at large. Hence, therefore, there is no merit in the aforesaid observation of the Ld. RD vis-a-vis the solvency or financial position of the Applicant Company particularly after the reduction of share capital.
5.3.7. It is also submitted that Hon'ble Delhi High Court, in the matter of Mis Reckitt Benckiser India Limited [(2005) 122 DLT 612} held that it is the decision of majority shareholders which matters and the said majority has complete right to decide on how the reduction ought to be executed. Relevant extract of the judgement is reproduced hereunder for reference:
"21. The principles, which can be distilled from the aforesaid judicial dicta, are summarized as under:
(i) The question of reduction of share capital is treated as matter of domestic concern, i.e., it is the decision of the majority which prevails.
(ii) If majority by special resolution decides to reduce share capital of the company, it has also right to decide as to how this reduction should be carried into effect........"
[Emphasis Supplied]
In view of the foregoing, if the equity and preference shareholders have, by special resolution, approved the reduction of share capital and all the creditors have provided their no-objections thereto, there shall not arise any instance for the Hon'ble Tribunal to reject the matter.
5.3.8. Further, the Applicant Company places reliance on the order passed by Andhra High Court in the matter of IL&FS Engineering and Construction Co Limited v. Wardha Power Company Limited, where it was held that the court shall not intervene in the commercial wisdom of the stakeholders and the company. Relevant extract of the order is reproduced hereunder for reference:
"10. Either in the case of a reduction of capital or a scheme of arrangement or both, the Court cannot interfere with the discretion and commercial wisdom of the stakeholders and the Board of Directors. If the reduction is one which is properly passed by the shareholders who are treated equitably, have had the facts explained, and provided the creditors are safeguarded. The court will habitually sanction reductions and exercise its discretion in favor of them unless the act is a pointless and hollow act. Provided those requirements are satisfied, the company may reduce its capital in any way that it thinks fit. The court does not exercise any appellate power over the decision of the Company or its management."
Accordingly, it is abundantly clear from the settled position of law and the judgments referred hereinabove that the commercial wisdom of the stakeholders and the company is paramount and cannot be interfered with by the court or tribunal. It is submitted that the contention of the Ld. RD rejecting the said reduction on the ground that there are outstanding dues in the company is misconceived since, paying-off the dues to the creditors of the company exclusively falls within the domain of commercial wisdom and neither the same can be interfered with nor can be the basis to reject reduction of share capital.
5.3.9. In Para 8(c) of the RD Affidavit, the Ld. RD has a raised an observation that the Applicant Company has not reduced face value of the authorized share capital from Rs. 10/-to Rs. 6/-in its memorandum of association and accordingly, it cannot contemplate such reduction of share capital.
5.3.10. In this regard, it is hereby submitted that the Applicant Company is a private limited company and has adopted the provisions of Table A as mentioned in Schedule I of the Actin its memorandum of association ("MoA"). Table A of the Schedule I of the Act discloses the share capital of the company in clause V of MoA. The Applicant Company in clause V has disclosed its authorized share capital.
5.3.11. It is hereby submitted that the Petition clearly discloses that Applicant Company contemplates to reduce its issued, subscribed and paid-up share capital from Rs. 10/- per share to Rs. 6/- per share. Consequently, the authorized share capital of the Applicant Company shall be modified as per issued share capital of the Applicant Company, only post approval of the Scheme by the Hon'ble NCLT. Accordingly, the Applicant Company hereby undertakes follow due process of law for amendment to the MoA and make necessary filings in this regard, including to file amended MoA with the order of Hon'ble Tribunal in e-form INC-28."
We have heard the parties and perused the case records filed by the Applicant, report of RD and petitioner's reply thereto.
That the objections of the RD (North) can be summarized as below:
(a) That the Applicant Company has not obtained 'No objections' from its creditors in respect of proposed reduction of paid-up capital.
(b) That the company has an outstanding dues of Rs.1314.21 crore to its creditors, therefore, reducing its capital by paying off the shareholders of the company is in gross disregard to the interest of its creditors viz., public financial institutions, nationalized banks and foreign banks, and
(c) The Applicant Company has not amended its MoA (Authorized Share Capital) and without that the reduction of Face Value of shares should not be allowed.
As regards objection regarding consent of creditors, it is submitted by the Petitioner Company that the notices in terms of the Reduction Rules and Section 66 were duly served by the company to its creditors. The Petitioner has also stated that the company is earning good profits and have surplus, so the interest of the creditors is sufficiently protected. The Petitioner Company has also placed on record the No Objection letters received from the Creditors by way of emails along with the its Affidavit dated 27.02.2021.
That when we peruse the "No Objection Certificates", it is observed that out of 11 Creditors, only 09 Creditors have given their consent. That the unsecured creditors namely, Barclays Bank Plc having debt of Rs. 122.96 Crore and M/s Gamesa Wind Turbines Pvt. Ltd. having debt of Rs 4.62 crore have not given their consents. Further, out of the rest 09 Secured Creditors, 8 have given their consent by email. The said consents have not been obtained in the form of a Certificate or an Affidavit. Furthermore, it is difficult to ascertain sanctity of these mails in the absence of the letters of authority (of respective management of the creditor) in favour of the persons writing such emails. It is also a matter of fact that the majority of the creditors are Banks, thereby Crores of Public money is involved.
Here it is worthwhile to refer to contents of Section 66(3) of Companies Act, 2013, which reads as below :
"66. Reduction of share capital.:
(1)...
(2)...
(3) The Tribunal may, if it is satisfied that the debt or claim of every creditor of the company has been discharged or determined or has been secured or his consent is obtained, make an order confirming the reduction of share capital on
such terms and conditions as it deems fit:"
That from the contents of Section 66(3) of the Companies Act, 2013 it is observed that before allowing any reduction of Share Capital this Tribunal needs to ensure that the interest of each of the Creditor is protected and no prejudice is caused to any of the creditors. We also feel that before arriving at a decision in the matter, opportunity to each of the creditor is granted to express their views in the interest of natural justice and equity.
Here, we consider it apt to refer to Rule 51 of NCLT Rules 2016, which empowers this Tribunal to formulate its own procedure :
"51. Power to regulate the procedure.- The Tribunal may regulate its own procedure in accordance with the rules of natural justice and equity, for the purpose of discharging its functions under the Act."
That in view of the RD's Report (supra) and the aforesaid discussion, in order to protect the right of all the Creditors and afford them clear opportunity to express their views in favour or against the proposed reduction of the share capital of the petitioner company, this Bench while exercising its powers under Section 66(3) of Companies Act 2013 read with Rule 11 and Rule 51 of NCLT Rules 2016, directs that a meeting of all the 11 Creditors shall be conducted by virtual/physical/hybrid mode on 22.11.2021.
That notice to all the 11 Creditors shall be given by the petitioner company via speed post/ Courier and Email at their present address at least clear 21 days before the date of meeting.
That the meeting shall be held under the supervision of Mr. Dilip Kumar Niranjan, having IBBI Registration No. IBBI/IPA-002/IP-N00552/2017-18/11690 (dilip.niranjan@gmail.co ) IP who shall be paid remuneration of Rupees One lakh only.
That all the Creditors shall sent there duly Authorized persons for voting.
In case any of the Creditors does not appear/participate in the meeting, it shall be presumed that the creditor concerned does not have any objection to the proposed reduction.
That the supervisor of the meeting shall file his report with this Authority within 7 days from the conclusion of the meeting.
List the matter on 30.11.2021.