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“The term ‘Share Capital’ is a ‘genus’ of which ‘Equity and Preference share capital’ are ‘species’”: NCLAT

“‘Reduction of Capital’ is a ‘Domestic Affair’ of a particular Company in which, ordinarily, a Tribunal will not interfere because of the reason that it is a ‘majority decision’ which prevails.”

By: Ayushi Sahu 

Economy Hotels India Services Private Limited, a wholly-owned subsidiary of AAPC Singapore Pvt. Ltd., a company incorporated under the laws of Singapore, filed the company appeal aggrieved by the order passed by the ‘National Company Law Tribunal,’ New Delhi, whereby the NCLT rejected the petition filed under Section 66(1)(b) of the Companies Act, 2013 and granted liberty to file a fresh application after complying with all the requirements of Section 66 of the Companies Act.  

The ‘Articles of Association’ of the Economy Hotels in Article 9 specifies that the Company may, from time to time by a special resolution, reduce its share capital in any manner permitted by law. 

Characterizing the ‘special resolution’ as ‘unanimous ordinary resolution,’ the NCLT vide order dated 27.05.2020 observed, “Article 9 of the Articles of Association of the Company (page 81) of Paper book) allows it to reduce the share capital by passing a special resolution. Board resolution dated 29.7.19 recommended reduction in the capital as per Article 9 of Articles of Association and subject to members’ consent by a special resolution (page 111). We have perused the minutes of the Annual General Meeting of the Company held on 19.08.2019 (page 123 to 126 of the paper book). Page 123 of the Paper book records that “With the consent of the Members present, Mr. Balvinder Sahrawat was elected to chair the meeting.” On Page 124 of the paper book, it is recorded that the meeting has passed the resolution for reduction of capital “as an ordinary resolution.” The minutes of the meeting have been signed by the Chairman of the meeting on pg 126 of the paper book. Thus, we observe that the Company has not met the specific requirement of Section 66 of the Companies Act by passing ‘Special Resolution’ to reduce share capital. The Company has also not complied with the requirements of its Articles of Association. We are left with no choice but to reject the present application in view of the fact that there is no special resolution for reduction of share capital as prescribed under Section 66 of the Companies Act 2013 and as required in Article 9 of Articles of Association of the Company. Section 66 of Companies Act also requires this Tribunal to approve the minutes of the resolution passed by the Company which has been passed as ordinary resolution as against the requirement of special resolution [mentioned in Para 2(ii) above also as part of prayer]; the Tribunal is not in a position to approve such minutes in this case.”

Mr. Rajat Rai, Authorized representative of the Economy Hotels, authorized as per Board Resolution dated 03.07.2020 filed the appeal contending that 

1. The Company has placed enough documents on record to prove ‘special resolution’ as required under Section 66 of the Companies Act, 2013, as well as in terms of the requirement under Article 9 of the ‘Articles of Association.’ 

2. A ‘typographical error’ in the extract of ‘Minutes,’ a resolution passed unanimously by the shareholders will not cease to be a ‘special resolution.’

3. NCLT has failed to appreciate that the resolution passed on 19.08.2019 was a ‘Special Resolution’ passed unanimously by the ‘shareholders’ of the Appellant and also fulfills the statutory requirements of section 114 of the Companies Act 

The NCLAT held,

On a careful consideration of respective contentions and this Tribunal, after subjectively satisfying itself that the Appellant/Company has tacitly admitted its creeping in of typographical error in the extract of the minutes and also taking into consideration of the 1st Respondent’s stand that the Appellant/Company had filed the special resolution with it, which satisfies the requirement of Section 66 of the Companies Act, 2013, allows the Appeal by setting aside the impugned order passed by the ‘National Company Law Tribunal, Bench V in the Company Petition 149/66/ND/2019, thereby confirming the reduction of the share capital of the Appellant Company as resolved by the ‘Members’ in their ‘Annual General Meeting’ that took place on 19.08.2019 and further this Tribunal approves the form of Minutes required to be filed with Registrar of Companies, Delhi u/s 66(5) of the Companies Act, 2013, by the Appellant/Company. No costs. I.A. No. 1575 and I.A.No. 1576/2020 are closed.

The NCLAT propounded, 

Section 66 of the Companies Act, 2013 mentions the term ‘reduction Of Share Capital’. For a valid resolution, it must satisfy the relevant provisions contained under the Companies Act. A ‘special resolution’ is required to determine those matters for which the Act requires a ‘special resolution,’ and except these matters in all other situations, an ‘Ordinary Resolution’ is to be passed. It is pertinently pointed out that Section 114(2) of the Companies Act, 2013 enjoins that ‘Special Resolution’ means a resolution where the decision is reached by a special majority of more than 75% of members of a Company voting in person or proxy. In reality, Section 114(2) of the Act applies to all Companies.” 

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