Case Note & Summary
The applicant, Starwood Capital India Advisors Private Limited, a company incorporated under the Companies Act, 1956, filed a Company Summons for Direction No. 388 of 2014 before the Bombay High Court seeking approval for reduction of its share capital under Sections 100 to 104 of the Companies Act, 1956. The company had passed a special resolution in an Extraordinary General Meeting held on 11 February 2014, approving the reduction of its issued and paid-up equity share capital from Rs. 1,71,30,000 (divided into 17,13,000 equity shares of Rs. 10 each) to Rs. 1,00,000 (consisting of 10,000 equity shares of Rs. 10 each). The reduction was to be effected by paying off an aggregate sum not exceeding Rs. 91,11,050 (Rs. 5.35 per share) proportionately to the holders of 17,03,000 equity shares. The company, through its director Mr. Sundaram Rajagopal, filed an affidavit stating that the company had no secured, unsecured or trade creditors. The court, after hearing the applicant's advocate Ms. Saeeda Bandukwala, noted that in view of the absence of any creditors, the procedure prescribed under Section 101(2) of the Companies Act, 1956, which requires consent of creditors or compliance with certain formalities, was dispensed with. The court allowed the reduction of share capital as proposed.
Headnote
A) Company Law - Reduction of Share Capital - Sections 100-104 Companies Act, 1956 - Dispensation of Creditor Procedure - The applicant company sought reduction of its issued and paid-up equity share capital from Rs. 1,71,30,000 to Rs. 1,00,000 by paying off shareholders holding 17,03,000 shares. The company had no secured, unsecured or trade creditors. The court dispensed with the procedure under Section 101(2) of the Companies Act, 1956, which requires consent of creditors, as there were no creditors to be affected. Held that where a company has no creditors, the requirement of obtaining creditor consent or following the procedure under Section 101(2) is not necessary (Paras 1-2).
Issue of Consideration
Whether the procedure under Section 101(2) of the Companies Act, 1956 requiring consent of creditors can be dispensed with when the company has no secured, unsecured or trade creditors.
Final Decision
The court allowed the reduction of share capital as proposed and dispensed with the procedure under Section 101(2) of the Companies Act, 1956 in view of the absence of any creditors.
Law Points
- Reduction of share capital
- Special resolution
- Dispensation of creditor consent
- Section 101(2) Companies Act 1956
