Conditions for buy-back under Section 77A cannot be applied to a scheme under Sections 100-104 of the Companies Act, 1956
December 29, 2011
Conditions for buy-back under Section 77A cannot be applied to a scheme under Sections 100-104 of the Companies Act, 1956 as they operate in independent fields and it is not within the purview of the Court to change the economic policy of restricting the Sectoral caps. M/S. RECKITT BENCKISER (INDIA) LTD Vs. C.A., Decision by Delhi High Court, on 3rd October, 2011 M/s. Reckitt Benckiser (India) Limited (Petitioner Company) held an Extra-ordinary General Meeting(EOGM) on 24th April, 2010 and passed a special resolution for reduction of 4,07,145 equity shares constituting 1.55% of its issued and paid-up equity share capital by canceling and extinguishing 3,78,614 equity shares held by Lancaster Square Holdings SL (Lancaster) and 28,531 equity shares held by public. The resolution was passed by special majority of equity shareholders holding 2,62,51,081 equity shares of 10/- each and only one equity shareholder, Mr. Chander Bhan Gandhi(objector) holding 536 equity shares of 10/- each attended and voted against the motion. Pursuant to the reduction of issued and paid up equity share capital as mentioned above, the issued and paid-up share capital of the company would be held by Reckitt Benckiser Plc(Promoter) and Lancaster or their nominees. The Petitioner Company filed a petition for approval of scheme of reduction with Delhi High Court for reduction of capital u/s. 100 to 105 of the Companies Act, 1956 ('Act')read with Rule 46 of the Companies (Court) Rules, 1959.('Rules'). Initially, twenty-four shareholders had filed their objections to the present Scheme of Reduction. However, upon the petitioner company offering to pay to the public shareholders an amount of ` 1500/- per equity share, 23 shareholders accepted the offer and unconditionally withdrew their objections as well as affidavits. Decision: The Delhi High Court allowed the petition for reduction of paid up capital on the following grounds replying to the following queries raised by the objector such as 'forcible acquisition' of shares of minority public shareholders, not reducing the capital equally or proportionately over all the different classes of shareholders of Petitioner-Company:
- The conditions precedent in Section 77A(5) of the Act are applicable only to buy-back of shares under Sec.77A of the Act and does not apply to a scheme of reduction under section 100 of the Act, as the two operate in entirely differenct fields.
- It is not open for the court to strike down the Government policy of removing sectoral caps in personal care and health sector.
- Reduction of share capital is a commercial and business decision, which has been approved by 99.999% of the equity shareholders of the petitioner company.