Share Capital Reduction A 'Domestic Decision', Minority Shareholders Can't Veto It: NCLT Chennai

The National Company Law Tribunal (NCLT) at Chennai has approved a scheme of reduction of share capital for Ocean Healthcare Private Limited, holding that the reduction of share capital under Section 66 of the Companies Act is a “Domestic decision” of the company, with minority shareholders not having a “Veto Right”.

A coram of Judicial Member Sanjiv Jain and Technical Member Venkataraman Subramaniam passed the order.

Referring to precedents, the Bench observed:

"It is imperative to take note of the abovementioned decisions, as they emphasise that the nature of decision of reduction of share capital made under Section 66 of Companies Act is a 'Domestic decision' and there is no restriction under the Act which curtails the discretion of a Company in adopting the manner in which the Company chooses to reduce its capital.”

The tribunal further held that "the minority shareholders are not given any 'Veto Right'.”

“In facts and circumstances of this matter, this Tribunal is of the view that it is just and proper to confirm the reduction of share capital of the Company as resolved by the members of the Company by passing a special resolution.”

The petition was filed by Ocean Healthcare Private Limited under Section 66 and other applicable provisions of the Companies Act, 2013, seeking confirmation of reduction of share capital.

As per the company's Articles of Association, the company is enabled to reduce its share capital by way of special resolution. The authorised share capital of the company is Rs. 32,25,00,000 and the issued, subscribed and paid-up capital is Rs. 31,50,44,770.

The company proposed to reduce its issued, subscribed and paid-up capital by cancelling and extinguishing an amount aggregating to Rs. 26,77,88,055.50, by reducing the face value of equity shares from Rs. 10 each to Rs. 1.50 each, thereby reducing the paid-up capital to Rs. 4,72,56,715.50.

The proposal was approved by the Board of Directors and a special resolution was passed in the Extra Ordinary General Meeting, with 82.03% votes cast in favour and 17.97% votes cast against the resolution.

An intervention application was filed by Veera Venkatesh, a founding director, shareholder holding 28,00,000 shares, and an unsecured creditor for an amount of Rs. 70,00,000, opposing the reduction.

The intervenor contended that the reduction of share capital was unfair, unjust and prejudicial to minority shareholders, alleged oppression and mismanagement, and stated that relevant material had not been furnished to stakeholders for informed decision-making. He further suggested that the company be restructured by appointment of an administrator or be wound up.

The tribunal noted that the Regional Director had pointed out inconsistencies in the petition, pursuant to which an amended petition was filed, and thereafter no further objections were raised.

The tribunal observed that its interference is restricted to the question of coercion by the majority shareholders on the minority shareholders.

It found that the intervenor had not demonstrated how the reduction of share capital is an attack on minority shareholders and that the act of coercion by majority shareholders had not been established. It also noted that no petition for oppression and mismanagement had been preferred.

“The decision is a matter of 'Domestic Concern,' and no illegality/ contravention has been found that can be attributed to the scheme. It is a decision sustained by the commercial wisdom of the shareholders sanctioned by the requisite majority.”

Addressing Section 66(3) of the Companies Act, the tribunal noted that the intervenor, in his capacity as an unsecured creditor, had not given consent to the reduction and that the debt had not been discharged, determined or secured.

Subsequently, the petitioner undertook to repay Rs. 70 lakh to the intervenor within 30 days of approval of the petition, which was recorded by the Tribunal.

Accordingly, the tribunal allowed the petition and confirmed the reduction of share capital and approved the proposed form of minutes to be registered under Section 66(5) of the Companies Act, 2013.

For Intervenor: Advocate Vedhavel

For Company: Advocate Amir Bavani