R. Systems International Limited vs Na

R. Systems International Limited ...Appellant

Present: For Appellant:- Mr. Arun Kathpalia, Senior Advocate assisted by Mr. Rajeev Kumar and Mr. Mahesh Agarwal, Advocates.

J U D G M E N T

SUDHANSU JYOTI MUKHOPADHAYA, J.

The Appellant filed an application under Section 230 of the

Companies Act, 2013 read with Companies (Compromises,

Arrangements, and Amalgamations) Rules, 2016 before the National

Company Law Tribunal (hereinafter referred to as "Tribunal"), New Delhi

Bench, New Delhi, in relation to the Scheme of Arrangement which

contemplates reduction of Share Capital in relation to the Appellant

Company enclosed as Annexure "A" to the application.

Company Appeal (AT) No. 416 of 2017 2

2. The Tribunal by impugned order dated 8th December, 2017,

rejected the application being not maintainable, relevant portion of which

is quoted below:

"3. It is pertinent to note that Reduction of

Capital and sanction relating to the same has

been prescribed separately elsewhere in

Companies Act, 2013 and for the said purpose

separate rules have also been framed by the

Central Government. Thus reduction of capital

requires separate set of procedure to be

complied for which specific rules have been

framed and hence cannot be brought within

the confines of Section 230 of the Companies

Act, which is more for restructuring business.

At the cost of repetition where a separate

section deals in relation to the scheme

contemplated by the applicant company and

which also contains specific rules to be

complied with it will be appropriate for the

applicants to file the application under the

Company Appeal (AT) No. 416 of 2017 3

relevant provision and not under the one

presently under which, the application has

been preferred.

4. Hence, the Tribunal is constrained to dismiss

the application as provisions for exclusive

reduction of share capital is provided

elsewhere in Companies Act, 2013 and the

applicant, if so advised may prefer under the

said provision of the Act of 2013.

This application is accordingly dismissed.

No order as to costs."

3. Section 391 of the Companies Act, 1956 related to "Power to

Compromise or make Arrangements with Creditors and Members". The

Hon'ble High Court was empowered on an application of the Company or

any creditor or member of the Company or in case of a company which is

being wound up, of the liquidator, to pass order of meeting of the creditors

or class of creditors, or of the members or class of members, as the case

may be, in such manner as the Hon'ble High Court directs.

4. The Companies Act, 1956 has been repealed by the Companies Act,

2013 and power to 'compromise or make arrangements' with creditors

and members is now prescribed under Section 230 of the Companies Act,

2013, relevant of which reads as follows:

Company Appeal (AT) No. 416 of 2017 4

"230. Power to compromise or make

arrangements with creditors and members.─ (1)

Where a compromise or arrangement is proposed--

(a) between a company and its creditors or any

class of them; or

(b) between a company and its members or any

class of them, the Tribunal may, on the application

of the company or of any creditor or member of the

company, or in the case of a company which is

being wound up, of the liquidator, order a meeting

of the creditors or class of creditors, or of the

members or class of members, as the case may be,

to be called, held and conducted in such manner

as the Tribunal directs.

Explanation.--For the purposes of this sub-

section, arrangement includes a reorganisation of

the company's share capital by the consolidation of

shares of different classes or by the division of

shares into shares of different classes, or by both of

those methods.

(2) The company or any other person, by whom an

application is made under subsection (1), shall

disclose to the Tribunal by affidavit--

Company Appeal (AT) No. 416 of 2017 5

(a) all material facts relating to the company,

such as the latest financial position of the

company, the latest auditor's report on the

accounts of the company and the pendency of

any investigation or proceedings against the

company;

(b) reduction of share capital of the company,

if any, included in the compromise or

arrangement;

(c) any scheme of corporate debt restructuring

consented to by not less than seventy-five per

cent. of the secured creditors in value,

including--

(i) a creditor's responsibility statement

in the prescribed form;

(ii)safeguards for the protection of

other secured and unsecured creditors;

(iii) report by the auditor that the fund

requirements of the company after the

corporate debt restructuring as

approved shall conform to the liquidity

test based upon the estimates provided

to them by the Board;

Company Appeal (AT) No. 416 of 2017 6

(iv) where the company proposes to

adopt the corporate debt restructuring

guidelines specified by the Reserve

Bank of India, a statement to that

effect; and Investigation, etc., of foreign

companies. Penalty for furnishing false

statement, mutilation, destruction of

documents. Power to compromise or

make arrangements with creditors and

members

(v) a valuation report in respect of the

shares and the property and all assets,

tangible and intangible, movable and

immovable, of the company by a

registered valuer.

xxx xxx xxx

(12) An aggrieved party may make an application to

the Tribunal in the event of any grievances with

respect to the takeover offer of companies other than

listed companies in such manner as may be

prescribed and the Tribunal may, on application,

pass such order as it may deem fit.

Explanation.--For the removal of doubts, it is

hereby declared that the provisions of section 66 shall

Company Appeal (AT) No. 416 of 2017 7

not apply to the reduction of share capital effected in

pursuance of the order of the Tribunal under this

section."

5. Section 66 of the Companies Act, 2013 deals with "Reduction of

share capital", relevant portion of which reads as follows:

"66. Reduction of share capital.─ (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

Company Appeal (AT) No. 416 of 2017 8

reducing the amount of its share capital

and of its shares accordingly: Provided

that no such reduction shall be made if

the company is in arrears in the

repayment of any deposits accepted by

it, either before or after the

commencement of this Act, or the

interest payable thereon.

xxx xxx xxx

(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:

Provided that no application for reduction of

share capital shall be sanctioned by the Tribunal

unless the accounting treatment, proposed by the

company for such reduction is in conformity with the

accounting standards specified in section 133 or

any other provision of this Act and a certificate to

that effect by the company's auditor has been filed

with the Tribunal."

Company Appeal (AT) No. 416 of 2017 9

6. From the impugned order dated 8th December, 2017, it appears

that the Tribunal referred to Section 66, being the specific provision for

rejecting the application under Section 230 as the Scheme and

Arrangement related to reduction of share capital.

7. From explanation below Section 230, it will be evident that for

passing an order under Section 230 to compromise or make

arrangements with the creditors and the members, the provision of

Section 66 shall not apply for reduction of share capital. Such order can

be passed by the Tribunal under Section 230 of the Act.

8. In view of the aforesaid provisions, we hold that the Tribunal failed

to notice the 'Explanation' below Section 230, which makes it clear that

even for reduction of share capital effected in pursuance of the order of

the Tribunal under Section 230, the provision of Section 66 shall not

apply.

9. As noticed above, earlier the Hon'ble High Courts used to entertain

application(s) under Section 391 for reduction of share capital. This will

be evident from the decision of the Hon'ble Bombay High Court in

"Investment Corporation of India Ltd.─ (1987) 61 Com Cases 92

Bom"; Hon'ble High Court of Gujrat in "Gujarat Ambuja Exports

Ltd.─2003-(CC1)-GJX-0113-GUJ"; Hon'ble High Court of Madras in

"Panasonic Appliances India Co. Limited" in Company Petition No.

331 of 2013 and the Hon'ble High Court of Andhra Pradesh decision in

Company Appeal (AT) No. 416 of 2017 10

"M/s. Jyoti Inraventures Limited─ Company Petition No. 263 of

2013" decided on 21st April, 2014.

10. Now it is not necessary to refer the earlier decisions in view of the

'explanation' below Section 230. Having held that the Tribunal failed to

notice the aforesaid observations, we have no other option but to set aside

the order dated 8th December, 2017 passed in CA (CAA)-105(ND)/2017

which is accordingly set aside. The case is remitted to the Tribunal to

decide the application under Section 230 in accordance with law after

notice and hearing the parties.

11. The appeal is allowed with aforesaid observation. However, in the

facts and circumstances of the case, there shall be no order as to cost.

(Justice S.J. Mukhopadhaya) Chairperson

(Justice Bansi Lal Bhat) Member(Judicial)

NEW DELHI 16th July, 2018 AR

Company Appeal (AT) No. 416 of 2017