In Re: Kothari Industrial Corporation Ltd.

P. Jyothimani, J.—This company petition is filed under sections 78, 100 and 101 of the Companies Act 1956, for confirmation of the special

resolution passed by the petitioner-company in its extraordinary general body meeting held on February 12, 2009, for reducing the share capital.

The petitioner-company was started with the main object of acquiring by purchase or otherwise and to carry on the business of estate owners,

cultivators, planters, growers and manufacturers, etc., to carry on the business of agriculturists, horticulturists, planters, etc., to carry on the

business in all their branches of spinning and weaving mills and of spinners, weavers, etc., and to carry on the business of manufacture, import,

export, purchase, sale and as sales agents in fertilizers of all kinds including chemical and natural fertilizers and mixtures thereof.

The authorised share capital of the petitioner-company as on March 31, 2008, was Rs. 25 crores divided into 2,50,00,000 equity shares of Rs.

10 each and the issued share capital as on the said date was Rs. 15,89,90,520 (rounded to Rs. 15,89,91,000) and the subscribed share capital

was Rs. 15,61,90,520 (rounded to Rs. 15,61,91,000) and the paid-up share capital was Rs. 13,26,19,777.50 (rounded to Rs. 13,26,20,000)

made up of 1,24,83,885 equity shares of Rs. 10 each being fully called up with calls in arrears of Rs. 57,000 and 31,35,167 equity shares of Rs.

10 each partly called up and paid-up at Rs. 2.50 per share.

Due to the upset in the business and incurring of loss and accumulation of loss, the petitioner decided to restructure the capital position by

appropriately reducing the fully paid-up shares and also reducing the liability on partly paid-up shares.

Regulation 66 of the articles of association of the petitioner-company enables the petitioner to reduce the share capital by a special resolution.

The company convened an extraordinary general body meeting on February 12, 2009 and passed a special resolution unanimously which is as

follows:

Resolved that pursuant to the provisions of section 78, section 100 and other applicable provisions, if any, of the Companies Act, 1956, article 66

of the articles of association of the company and subject to the approval of the hon''ble High Court of judicature at Madras and such other

approvals as may be required--

(a)(i) with respect to fully paid-up 1,24,83,885 equity shares, the paid-up share capital of the company be reduced from Rs. 12,48,38,850

(divided into 1,24,83,885 equity shares of Rs. 10 each) to Rs. 6,24,19,425 (divided into 1,24,83,885 equity shares of Rs. 5 each) and that such

reduction be effected by cancelling the paid-up share capital which has been lost or is unrepresented by available assets, to the extent of Rs. 5 per

share upon each of the 1,24,83,885 equity shares of Rs. 10 each which have been issued and by reducing the paid-up value of all the shares in the

company''s paid-up share capital from Rs. 10 to Rs. 5 per share.

(ii) with respect to 31,35,167 shares of Rs. 2.50 partly paid-up shares, the uncalled up amount of Rs. 7.50 per equity share in respect of the said

31,35,167 equity shares of Rs. 10 each be reduced by Rs. 5 and accordingly the uncalled portion will be reduced to Rs. 2.50 per equity share,

being face value of Rs. 5 per equity share.

(b) an amount not exceeding Rs. 864.53 lakhs out of Rs. 1,290.06 lakhs of share premium account of the company as on March 31, 2008,

excluding premium on partly paid-up shares which has been lost or is unrepresented by available assets, be written off; and

(c) the aforesaid amounts, viz., reduction in the paid-up capital amount of Rs. 624.19 lakhs and the share premium amount of Rs. 864.53 lakhs be

utilised to set off the accumulated losses of the company (the debit balance in the profit and loss account), which stood at Rs. 4,476.79 lakhs as on

March 31, 2008.

Resolved further that for the purpose of giving effect to the above resolution and for removal of any difficulties or doubts, the board or the

committee of the board specially constituted for this purpose or any person(s) whom the board or the above committee may nominate, to exercise

its powers, including the power, conferred under this resolution, be and is hereby authorised to do all such acts, deeds, matters, things, as it may in

its absolute discretion, deem necessary, expedient, usual or proper and to settle any claim any question or difficulty that may arise with regard to

utilisation/adjustment of the paid-up share capital account and share premium account including passing of such accounting entries and/or making

such other adjustments in the books of account, as considered necessary to give effect to the above resolution or to carry out such

modifications/directions as may be ordered by the High Court of judicature at Madras to implement the aforesaid resolution.

By virtue of the said resolution, the petitioner-company has decided to reduce the face value of equity shares of the company from Rs. 10 per

equity share to Rs. 5 per equity share and to write-off an amount of Rs. 864.53 lakhs out of Rs. 1,290.06 lakhs of share premium account.

Consequently, it would result in the reduction of paid-up share capital of the company to Rs. 6,24,19,425 from Rs. 12,48,38,850. Based on the

special resolution passed by the company as per the powers vested under the articles of association, the company has filed the present petition for

confirmation of the said special resolution.

Pending the company petition, the petitioner-company filed C.A. No. 1226 of 2006 for settling a list of creditors and this court, by order dated

September 2, 2009, directed the petitioner to prepare a list of creditors of the company as on July 31, 2009 and produce the same by September

15, 2009, apart from directing to send individual notices to all the creditors and effect publication in all the editions of the English daily, The New

Indian Express and in all the editions of the Tamil daily, Daily Thanthi regarding the proposed reduction of share capital.

Accordingly, notices were sent to the creditors apart from effecting publication on October 2, 2009. The claims were received from 4 creditors,

viz.:

(i) Bhagyanagar Laboratories, S-12, EEIE Phase-II, Balanagar, Hyderabad-37 claiming an amount of Rs. 3,82,054.

(ii) Vaibhav Plastimoulds P. Ltd., J-2, MIDC Industrial Estate, Hingna Road, Nagpur-16 claiming an amount of Rs. 50,000.

(iii) Indian Potash Ltd., 312, B-Wing, III Floor, Mittal Tower, 6, M.G. Road, Bangalore-1 claiming an amount of Rs. 6,00,664.52.

(iv) Bekae Properties P. Ltd., 603, Kesava, 6th Floor, Bandra-Kurla Complex, Bandra East, Mumbai-51 claiming an amount of Rs. 19.39

crores.

In respect of the first claim made by Bhagyanagar Laboratories, Hyderabad, the claim which was admitted to the extent of Rs. 3,82,054 was

paid by way of cheques as it is seen from the receipts (i) for Rs. 89,887 dated January 1, 2010; (ii) Rs. 89,887 dated March 1, 2010; (iii) Rs.

1,00,000 dated March 12, 2010; and (iv) Rs. 1,02,280 dated March 30, 2010. Therefore, the entire claim in respect of the said creditor has been

settled.

In respect of Vaibhav Plastimoulds P. Ltd., Nagpur, the admitted claim of Rs. 50,000 was settled, as it is seen in the acknowledgment issued by

the said creditor dated July 26, 2010.

In respect of the claim by Indian Potash Ltd., Bangalore, viz., Rs. 6,00,664.52, a reference to the statement of account of the petitioner-

company for the period from October 1, 2009 to October 31, 2009, shows that on October 24, 2009, Indian Potash Ltd., was paid an amount of

Rs. 8,11,323 by cheque which is more than the amount of claim.

In respect of the claim made by Bekae Properties P. Ltd., Mumbai of Rs. 19.39 crores, the petitioner-company disputes the entire claim. The

claim itself was made by the said company based on an assignment said to have been made by HDFC Bank on November 8, 2006. It is seen that

the said HDFC Bank approached the Debts Recovery Tribunal by filing O.A. No. 925 of 2004 against the petitioner-company claiming the

outstanding as on October 31, 2000, of Rs. 3,44,62,144.80. In the assignment deed executed by HDFC Bank in favour of the said Bekae

Properties P. Ltd., on November 8, 2006, particularly in the schedule to the deed, the bank stated the outstanding as per banks book of Rs.

2,27,67,157.97 with interest from October 1, 1999, at the contractual rate of 22 per cent.

It is brought to the notice of this court and as it is also seen in the application filed by the HDFC Bank against the petitioner-company in the

Debts Recovery Tribunal that as security for repayment of the said amount, the petitioner gave the property, viz., Kothari Buildings, Old Door No.

20, New Door No. 114, Mahatma Gandhi Salai (Nungambakkam High Road), Chennai-34 in Old Survey No. 330 and Resurvey No. 58/2 and

58/81 along with an undivided two-third share of land measuring about 17.5 grounds together with 6 storied building, for which the valuation

report was given by the valuer at Rs. 2,987.95 lakhs as fair market value and Rs. 2,400 lakhs as realisable value. By virtue of the assignment made

by the HDFC Bank in favour of the said creditor, the mortgage security over the above the said property also stands assigned. Even though

HDFC Bank made a claim against the petitioner-company as on August 31, 2000, for Rs. 3,44,62,144.80, sufficient security is available for the

claim of the creditor, Bekae Properties P. Ltd., for Rs. 19.39 crores.

The State Bank of Travancore, Asset Recovery Management Branch, Chennai-600 018, in the letter dated August 6, 2010, has also

confirmed that the amount due to it from the petitioner-company has been paid and the entire one-time settlement amount of Rs. 350 lakhs as

sanctioned has been paid and the same has been recorded in the compromise order passed by the Debts Recovery Tribunal-II, Chennai in O.A.

No. 240 of 2003, as settled out of court on July 12, 2010 and the company has no other liability to the bank.

The petitioner-company filed company application in C.A. No. 113 of 2010 to dispense with the settlement of disputed creditors as required

under rule 58 of the Companies (Court) Rules, 1959 and for sending notice to the major creditors of the company for hearing objections to the

reduction in share capital. By order dated January 19, 2010, this court permitted the petitioner to send notices to the major creditors of the

company and to effect publication in two newspapers one in Tamil (Daily Thanthi) and the other in English (The New Indian Express), fixing the

date of hearing as February 26, 2010. Accordingly, the publication was effected and notices were sent as it is seen from the proofs filed by the

petitioner.

On notice, the Regional Director, Southern Region, Ministry of Corporate Affairs filed an affidavit in which he has raised only one objection,

viz., the petitioner-company being a listed company, is required to obtain approval from the Securities and Exchange Board of India as per section

55A of the Companies Act, 1956.

On the above said factual matrix, it is seen that the claims of the creditors have been considered in proper perspective and the above said

claims were settled except the claim of Bekae Properties P. Ltd., as the same was objected to by the petitioner. However, it is seen that by way of

assignment from the HDFC Bank, the claim of the creditor Bekae Properties P. Ltd., is fully protected with the immovable property, the value of

which has been ascertained through valuers.

Taking into consideration all the aspects of the matter, the special resolution of the company dated February 12, 2009, stands confirmed as

stated in the minutes of the resolution and thereby the company is permitted to add the words, and reduce the words. However, the confirmation is

subject to the condition that the company shall obtain necessary approval from the Securities and Exchange Board of India in accordance with

section 55A of the Companies Act, 1956. Learned senior panel counsel for the Regional Director shall be paid a sum of Rs. 2,500 by the

petitioner-company.