Charanjeet Singh Gulati, Member (Technical)
1. The present Petition is filed by Fabula Trading Company Private Limited (Petitioner Company) for confirmation of reduction of equity share capital of the Petitioner Company under Section 66 of the Companies Act, 2013 and in accordance with the National Company Law Tribunal (Procedure for Reduction of Share Capital of Company) Rules, 2016 and other applicable provisions.
2. The Petitioner Company is a private limited company incorporated under the provisions of the Companies Act, 1956. The registered office of the Petitioner Company is situated in Mumbai and therefore, this Bench has the jurisdiction to entertain the petition.
3. The nature of business as per the Memorandum of Association of the Petitioner Company is as follows:
“To carry on the business of merchants, traders, dealers, sellers, importers, exporters, suppliers, stockists, wholesalers, retailers, collectors, in India or elsewhere, in respect of goods, commodities, merchandise, produce, products, articles, things, materials, substances, of all types and descriptions.”
4. The share capital of the Petitioner Company as per audited financial statement for the year ended 31.03.2023 is as follows:
|
Particulars |
Amount (INR) |
|
Authorized Capital |
|
|
8,57,50,000 Equity Shares of Rs. 2 each |
17,15,00,000 |
|
Total |
17,15,00,000 |
|
Issued, subscribed and paid-up Share Capital |
|
|
1,23,37,467 Equity Shares of Rs. 2 each fully paid up |
2,46,74,934 |
|
Total |
2,46,74,934 |
5. It is stated that Article 4.11 of the Articles of Association of the Petitioner Company authorizes it to reduce its share capital, any capital redemption reserve account, or any securities premium account including share premium account, in any manner as authorized by law by passing a special resolution.
6. It is proposed to reduce the issued, subscribed and paid-up equity share capital of the Petitioner Company by way of cancelling and extinguishing 1,15,27,467 equity shares of Rs. 2 each held by M/s. Fabula Holdings, leading to a reduction in the issued, subscribed and paid-up share capital of the Petitioner Company from Rs. 2,46,74,934 consisting of 1,23,37,467 equity shares of Rs. 2 each to Rs. 16,20,000 consisting of 8,10,000 equity shares of Rs. 2 each.
7. The said reduction is being proposed on the instructions of Reserve Bank of India (RBI) vide email dated 18.04.2022. Relevant communications between the RBI and the Petitioner Company through emails are reproduced below:
i) Email dated 18.04.2022 sent by RBI to Petitioner Company:
“2. The company is advised to unwind transaction and regularize the transaction by applying for compounding of Para 5.2.C of FEMA 101/2003- RB dated October 3rd, 2003.”
ii) Email dated 02.08.2022 sent by RBI to Petitioner Company:
“2. The Company is advised to adhere to the RBI instructions as per email dated April 18, 2022.”
iii) Email dated 11.10.2022 sent by Petitioner Company to RBI:
“2. With reference to your trail email dated 0 August 2022, the Company has decided to go ahead to unwind the transaction by remitting the balance share capital of Rs. 2 per share and thereafter cancel the shares. In order to comply with your directions, the Company would go for buyback of shares to the extend permissible under the Companies Act, 2013 and for balance shares the Company will go for refund/capital reduction by making an application to the National Company Law Tribunal (NCLT) for its approval. This process may take around 12 months’ time. Hence, we request your goodself to grant us time of 12 months or till NCLT gives us approval (whichever is later) for refund of share capital.”
iv) Email dated 13.10.2022 sent by RBI to Petitioner Company:
“2. The Company is advised to unwind the transaction at the earliest, failing which the RBI shall be constrained to initiate action against the Company under Chapter VI of FEMA, 1999.”
8. Rationale for the proposed Reduction:
“The Board of Directors of the Company had at their meeting held on 20 March 2015, approved and allotted 1,56,39,953 Equity Shares on a repatriable basis and 7,76,398 Equity Shares on non-repatriable basis to M/s. Fabula Holdings on rights basis, an erstwhile Oversees Corporate Body (OCB) under the Foreign Exchange Regulations. It is however brought to the notice of this Tribunal that the initial acquisition of shares by OCB on a rights basis was not permissible in terms of regulation 5(2)(c) of Foreign Exchange Management [Withdrawal of General Permission to Overseas Corporate Bodies (OCBs)] Regulations, 2003 (Notification No. FEMA 101/2003-RB dated 3 October 2003). Fabula Holdings, being an erstwhile OCB, cannot transfer the shares under consideration either to an NRI/PIO or to any other person in terms of the said regulations. As such, as advised and directed by the Reserve Bank of India (RBI), the only option available with the Company is unwinding the transaction. For such purposes, the balance consideration of Rs. 2 per share is proposed to be remitted to M/s Fabula Holdings after NCLT approval and thereafter cancel the shares. The Company has already bought back 41,12,486 (Forty-one Lakhs twelve thousand four hundred and eighty-six) equity shares out of the shares held on a repatriable basis at Rs. 2/- per share from M/s Fabula Holdings.
In view of the aforesaid backdrop and as advised by the RBI, the Board of Directors of the Company have at their meeting held on 24th May 2023, concluded that the Company proposes to refund the balance share capital aggregating to INR 2,30,54,934 (Rupees Two Crore Thirty Lakh Fifty Four Thousand Nine Hundred and Thirty-Four) to M/s Fabula Holdings, which is currently holding 11,527,467 equity shares of the Company on a repatriable basis.
In this regard, the Board had recommended to reduce 100% of the repatriable paid-up share capital of the Company which is in contravention of regulation 5(2)(c) of Foreign Exchange Management [Withdrawal of General Permission to Overseas Corporate Bodies (OCBs)] Regulations, 2003, i.e. balance 11,527,467 Equity Shares held by M/s Fabula Holdings, by cancelling and extinguishing 100% of the paid-up value of the shares of Rs. 2 per share and returning Rs. 2/- per share to M/s Fabula Holdings. As a result, the revised paid-up value of 11,527,467 equity shares held on a repatriable basis by M/s Fabula Holdings will be Nil. However, the shares on a non-repatriable basis will not be cancelled and will continue to remain as 7,76,398 equity shares of INR 2 each.”
9. There are 3 (three) Equity Shareholders in the Petitioner Company holding 1,23,37,467 equity shares. The said reduction of equity share capital of the Petitioner Company was approved by the Equity shareholders by passing special resolution at the Extraordinary General Meeting held on 06th June 2023. Copy of the special resolution is annexed to the Petition.
10. The Petitioner Company has 3 (three) Creditors having an outstanding amount of Rs. 6,07,829/- as on 31.05.2023. The Petitioner Company has served notices upon all its creditors in compliance with this Tribunal’s direction vide Order dated 19.06.2023. The Petitioner Company submits that the proposed reduction is not likely to cause any prejudice to its creditors in any manner and they will be paid off in the ordinary course of business.
11. The pre and post share capital structure is as follows:
|
PRE-REDUCTION |
POST-REDUCTION |
||
|
Particulars |
Amount (INR) |
Particulars |
Amount (INR) |
|
Authorized |
Authorized |
||
|
8,57,50,000
Equity |
17,15,00,000 |
8,57,50,000
Equity |
17,15,00,000 |
|
Total |
17,15,00,000 |
Total |
17,15,00,000 |
|
Issued, subscribed |
Issued, subscribed |
||
|
1,23,37,467
Equity |
2,46,74,934 |
8,10,000
Equity Shares of Rs. 2 |
16,20,000 |
|
Total |
2,46,74,934 |
Total |
16,20,000 |
12. The Net-Worth Certificate dated 07.06.2023 as certified by the statutory auditors as per the audited financial statements as on 31.03.2023 is as follows:
|
Particulars |
Pre-reduction (INR) |
Post reduction (INR) |
|
|
Issued,
subscribed and paid- |
2,46,74,934 |
16,20,000 |
|
|
Profit/(Loss) |
4,02,54,317 |
4,02,54,317 |
|
|
Capital Reserve |
- |
- |
|
|
Total Net Worth |
6,49,29,251 |
4,18,74,317 |
13. The Regional Director (Western Region), Ministry of Corporate Affairs, Mumbai, filed its Report dated 19.10.2023 inter-alia making some observations. Besides the standard observations, the Regional Director have made specific remarks in the Report. Below is reproduced the comments of the Regional Director and the Reply of the Petitioner Company thereto:
|
Para |
Observation by the Regional Director |
Undertaking of the Petitioner Company/ Rejoinder |
|
6 |
Interest of Creditors and
shareholders should be protected. |
The Petitioner Company submits that the interest of creditors would be protected. |
|
7(A) |
Applicant to submit an
Affidavit to the effect that the interest of the creditors and all
stakeholders and Government Revenue are protected as well as
statutory dues are paid |
The Petitioner Company through their Counsel states that the interest of creditors and all the stakeholders and government revenues shall be protected and the statutory dues will be paid off in the ordinary course of business. |
|
7(B) |
The tax implication if any
arising out of the proposal for reduction is subject to final decision
of Income Tax Authorities. The approval of the Company
Petition by this Hon'ble Court may not deter the Income Tax
Authority to scrutinize the tax return filed by the Company after
giving effect to the proposed reduction. The decision of the
Income Tax Authority is binding on the |
The Petitioner Company through their Counsel states that it shall comply with all applicable provisions of the Income-tax Act, 1961 and all tax laws (if any) arising out of the Company Petition will be met and answered. Further, the approval of the Company Petition by this Tribunal may not deter any such tax authorities to deal with any of the issues arising after giving effect to the Reduction of Share Capital and all the taxes required to be paid in accordance with law will be paid. |
|
7(C) |
Applicant shall undertake to
serve notice to RBI as shareholders of the company are
foreign entity and shall ensure compliance of FEMA/RBI |
The Petitioner Company submits that they will comply with FEMA/ RBI provisions. The Reduction of Share Capital is done on the instruction of the Reserve bank of India. |
|
7(D) |
The petitioner company has not filed BEN-2 for its corporate shareholder Fabula Holding (parent company) holding 99.99% shareholding in the petitioner company as on 31st March, 2023 for declaration of name of significant beneficial owner holding substantial equity in the company in the compliance of section 90 of Companies Act, 2013. |
The Petitioner Company declares that the petitioner company have filed the BEN-2 on 23rd day of October, 2023 vide SRN No. F70572201. |
|
7(E) |
It is observed that in the proposed scheme the applicant proposes to pay off Rs.2/- per share to the shareholders, which is the nature of buy back. Therefore, Petitioner may be directed to comply with the provision of Section 68 along with Section 66 of the Companies Act, 2013 |
The Petitioner Company submits that that the present reduction is not to circumvent the provisions of the Section 68. All the equity shareholders of the Company have duly consented to the proposed capital reduction. It is also their right to decide the manner in which the shareholding is to be reduced. Capital reduction enables the Company to provide a full exit to the Exiting Shareholders at the fair value and at the same time without discriminating amongst the Exiting shareholders. Further, we would like to submit that the entire process of capital reduction is more transparent and fairer because the approval of Registrar of Companies, Regional Director and National Company Law Tribunal is mandatory. |
14. The certificate issued by the Statutory Auditors confirming that the accounting treatment for reduction of equity share capital is in accordance with the accounting standards specified under section 133 and other provisions of the Companies Act, 2013 is annexed to the Petition.
15. The Statutory Auditors have also issued a certificate certifying that the company has not accepted any deposits.
16. Considering the entire facts and circumstances of the case, the report filed by Regional Director (Western Region) and reply filed by the Petitioner Company to observations of the Regional Director, the Company Petition is hereby allowed.
17. Consequent to the proposed reduction, if there arises any action that may be necessary under the Income Tax Act, 1961, the Income Tax Authorities would be at liberty to take those and the Petitioner Company or the equity shareholder as the case may be, would comply with such action/order of the Income Tax Authorities.
18. The Effective Date shall be the date of approval of this Tribunal.
19. The Petitioner Company shall file the certified copy of the order and form of minutes duly certified by the Designated Registrar of this Tribunal with the Registrar of Companies within 30 days or an extended timeline with payment of additional fees, as may be applicable, from the date of receipt of the certified Order from the Registry of this Tribunal.
20. The Petitioner Company to publish notices about registration of order and minutes by the concerned Registrar of Companies in two newspapers namely ‘Free Press Journal’ in English language and translation thereof in ‘Navshakti’ in Marathi language both having circulation in the State of Maharashtra within 30 days of registration.
21. All concerned regulatory authorities to act on certified copy of the order, duly certified by designated Registrar of this Tribunal.
22. The minutes set forth hereto be and is hereby approved.
Form of Minutes
“The capital of Fabula Trading Company Private Ltd. is reduced by INR 2,30,54,934 (Rupees Two Crores Thirty Lakhs Fifty-Four Thousand Nine Hundred and Thirty Four Only) by repaying M/s. Fabula Holdings, the existing equity shareholder holding 1,15,27,467 Equity Shares of the Company on a repatriable basis at a price of Rs. 2 per share, and the remaining paid up share capital of the Company is INR 16,20,000 (Rupees Sixteen lakhs Twenty Thousand only) which is divided into 8,10,000 (Eight Lakhs Ten Thousand Only) Equity Shares of INR 2/- each.
The Share Capital of Fabula Trading Company Private Ltd. henceforth shall be INR 16,20,000/- (Rupees Sixteen lakhs Twenty Thousand Only) divided into 8,10,000 (Eight Lakhs Ten Thousand Only) Fully Paid up Equity Shares of INR 2/-(Rupees Two only) each. At the date of registration of the minute 8,10,000 (Eight Lakhs Ten Thousand Only) Equity Shares numbered have been issued and are deemed to be fully paid (and NIL shares are unissued).”
23. Accordingly, the Company Petition No. 149 of 2023 is allowed and disposed of.
