Tefal India Household Appliances ... vs -
2016 Latest Caselaw 1933 Del

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*    IN THE HIGH COURT OF DELHI AT NEW DELHI
+      CO.PET. 721/2014
       IN THE MATTER OF
       TEFAL INDIA HOUSEHOLD
       APPLIANCES PVT LTD                         ..... Petitioner
                     Through: Mr Vikram Bajaj, Adv. for the petitioner.
                     Ms Aparna Mudiam, Asstt. ROC for the RD.

       CORAM:
       HON'BLE MR. JUSTICE RAJIV SHAKDHER
               ORDER

% 10.03.2016

1. This is a petition filed under Section 100 to 104 of the Companies Act, 1956 (in short the Act) read with Rules 46 and 47 of the Companies (Court) Rules, 1959 (in short the Rules).

1.1 The petitioner seeks cancellation of its paid-up equity share capital equivalent to Rs. 23,93,64,000/-, which is, presently, held by a single shareholder i.e. SEB Internationale SAS (in short the SEB). The reason put forth for seeking cancellation of the paid-up share capital to the extent indicated above, is that, it is lost and, is no longer represented by available assets of the petitioner, on account of accumulated losses.

2. The captioned petition came up for hearing, for the first time, on 21.11.2014, when, accommodation was granted to its counsel to place on record the resolution of the SEB, consenting thereto, to the reduction in the paid-up share capital.

2.1 The petitioner was also directed to place on record the authority conferred upon one, Mr Sunil Wadhwa, to accord consent on behalf of SEB.

3. The petition was, thereafter, taken up for hearing on 04.12.2014. On that date, this court allowed prayer clause (c), whereby the petitioner had sought leave of the court to dispense with the procedure laid down under Section 101(2) of the Act.

3.1 This court, by a detailed order examined the matter in the light of the relief sought in prayer clause (c). The court noted, the fact, which has been indicated above, qua cancellation of the paid-up share capital. The court, further observed and noted that, with the reduction, the paid-up share capital will stand reduced from Rs. 25,66,50,000/-, which is, divided into 2,56,65,000 equity shares of a face value of Rs. 10/- each (fully paid-up) to Rs. 1,72,86,000/- divided into 17,28,600 equity shares of Rs. 10/- each (fully paid up).

3.2 The fact that the petitioner had the necessary provision incorporated in Article 4 of its Articles of Association, was also noticed by this court. 3.3 Furthermore, the court observed that the Board of Directors (BOD) resolution, passed at its meeting dated 25.06.2014, in respect of the proposed reduction in the paid-up share capital was also in place. The fact that the equity shareholders had passed a specific resolution at the Annual General Meeting (AGM) held on 27.06.2014, was also noticed. The relevant extract of the resolution dated 27.06.2014, was extracted by the court in its order dated 04.12.2014. For the sake of convenience, the same is set forth hereafter :

"RESOLVED THAT pursuant to the provisions of Section 100 and other applicable provisions, if any, of the Companies Act, 1956 and Companies Act 2013, provisions of the Articles of Association of the Company and subject to the confirmation, sanction and/or approval

by the Hon'ble High Court of Delhi / National Company Law Tribunal and/or any other Court(s), judicial, quasi judicial or statutory Authority(ies) and subject to such terms, conditions or modifications if any, as may be prescribed by such Authorities / Court while granting the confirmation, sanction and/or approval, the issued, subscribed and paid up equity share capital of the Company be reduced from Rs. 25,66,50,000 (Rupees Twenty Five Crores Sixty Six Lakhs and Fifty Thousand) divided into 2,56,65,000 equity shares of Rs. 10/- (Rupees Ten) each, fully paid up, to Rs. 1,72,86,000 (Rupees One Crore Seventy Two Lakhs and Eighty Six Thousand) divided into 17,28,600 equity shares of Rs. 10 (Rupees Ten) each, fully paid up, and that such reduction be effected by canceling the paid up equity share capital amounting to Rs. 23,93,64,000 (Rupees Twenty Three Crores Ninety Three Lakhs and Sixty Four Thousand), comprised in 2,39,36,400 equity shares of Rs. 10 (Rupees Ten) each, fully paid up and presently held by SEB Internationale SAS, which has been lost and is unrepresented by the available assets of the Company, to the same extent, on account of the accumulated losses of the Company.

RESOLVED FURTHER THAT the accumulated losses of the company to the extent of the reduction of the paid up equity share capital, which is, Rs. 23,93,64,000 (Rupees Twenty Three Crores Ninety Three Lakhs and Sixty Four Thousand), be written off consequent to the cancelation of the paid up equity share capital of the Company as provided above.

RESOLVED FURTHER THAT the effective date of reduction of the equity share capital be 01.01.2014, in view of the date of the last audited Balance Sheet of the Company being 31.12.2013.

RESOLVED FURTHER THAT the share certificates encompassing the equity shares issued by the Company to SEB Internationale SAS, to the extent of the reduction of the paid up equity share capital, which is, Rs.

23,93,64,000 (Rupees Twenty Three Crores Ninety Three Lakhs and Sixty Four Thousand), be recalled and cancelled.

RESOLVED FURTHER THAT all the Directors of the Company be and are hereby severally authorized to submit the required application / petition to the Hon'ble High Court of Delhi / National Company Law Tribunal and/or any other Court(s), judicial, quasi judicial or statutory Authority(ies), in connection with the reduction of the paid up equity share capital and to do all such acts, deeds and things, as may be necessary and expedient, to give effect to these Resolutions."

RESOLVED FURTHER THAT all the Directors of the Company be and are hereby severally authorized and empowered to appoint legal counsel(s) and attorney(s), to appear and represent on behalf of the Company and/or the Directors in the said Court(s) / before the said Authority(ies) and to make any pleadings, applications or verification, etc. to conduct and prosecute in the above case, to deposit, to enter satisfaction on their behalf, to file and receive back any documents, papers or books filed as exhibits to make and appear in any application for new trial, to apply for execution of decree, to issue any process, to draw out money from Court, to issue any commission or commissions respecting the above case, to examine and cross examine any witness, any if necessary, to appeal from the order of the said Court / Authority(ies) to any higher Court(s) / Tribunal(s) and there to appear, plead and act on behalf of the Company and/or the Directors, whether as appellant(s) or respondent(s), as the case may be, and to do all and every and any other acts, deeds, matters and things whatsoever in or about the premises as fully and effectually to all intents and purposes as the Company and/or the Directors could do if personally present."

3.4 Importantly, the court noticed the fact that there were no secured and unsecured creditors in place as on the date of the provisional balance sheet, which reflects the financial position qua the petitioner, as obtaining, on 31.10.2014.

3.5 Accordingly, while granting relief in terms of prayer clause (c), this court also issued notice to the Regional Director (RD) and, consequently, accorded time to file its report. Direction was also issued, to the effect, that a copy of the petition be served on the Registrar of Companies (ROC). The petitioner was further directed to carry out publication in the Economic Times (English) and Nav Bharat Times (Hindi).

3.6 The matter was, thus, posted for further hearing on 30.01.2015.

4. The matter was taken up for hearing on 30.01.2015 when, on behalf of the RD, it was submitted that comments of the Income Tax Department were sought. Accordingly, Ms Mudiam, Asstt. ROC, who appeared for the RD, was given further four weeks to file a report.

5. To be noted, the Income Tax Department, as confirmed by Ms Mudiam, has not submitted its comments. The RD has, however, filed its report/ reply, which has been rebutted, to the extent necessary, by way of a rejoinder filed on behalf of the petitioner.

6. I must indicate herein that, on 03.08.2015, this court, in particular, adverted to paragraph 9(d) of the report/ reply. For the sake of convenience, the same is extracted hereinbelow:

".....(d) Registrar of Companies vide para 23 (g) of his report has stated that as per the said Balance Sheet as at 31.12.2013 and auditor's report thereto, there is no prima facie violation of section 295/297 of the Companies Act, 1956, however, as aspect regarding change in accounting year in 1999, reporting

of suspension of all subcontracts with vendors resulting into booking of massive losses in the initial years without disclosing related parties transactions, non-operation in subsequent years despite foreign funds prima facie raises doubts on the management of affairs the company and resultant reduction in share capital by way of the proposed Scheme......"

7. Having regard to the aforesaid, this court is, today, required to deal with only the following substantive prayers:

"..... a) Confirm the reduction of the share capital as resolved by the equity shareholders of the Petitioner Company by means of Special Resolution passed in the Nineteenth Annual General Meeting held on 27.06.2014 (June 27,2014) and as set out in paragraph 14 herein;

b) Approve the Form of Minutes under Section 103(1) of the Act as set out under paragraph 21 hereinabove, proposed to be filed with the ROC, NCT Delhi;.....

.......d) Dispense with the requirement of using the term "and reduced", while describing the capital structure of the Petitioner Company while confirming the proposed reduction of share capital;

e) Provide for the publication of the notice of registration of the order and of the minute as approved by this Hon'ble Court, and...."

7.1 For the sake of completion of the narrative, I may point out that the minutes, which the petitioner seeks approval of and, consequent registration thereto, in terms of Section 103(1) of the Act, as set out in paragraph 21 of the petition, read as follows:

"..... The share capital of the Company is henceforth Rs. 1,72,86,000/- (Rupees One Crore Seventy Two Lakhs and

Eighty Six Thousand) divided into 17,28,600 equity shares of Rs.l0/- each, reduced from Rs. 25,66,50,000/- (Rupees Twenty Five Crores Sixty Six Lakhs and Fifty Thousand) divided info 2,56,65, 000 equity shares of Rs.l 0/- each....."

8. Ms Mudiam, who appears for the RD, does not dispute the factual aspect of the matter, which is that, the petitioner, has suffered losses, and that, a situation has arisen, whereby, the paid-up capital does not represent available assets as a result of the accumulation of losses. 8.1 There is also no dispute raised as regards the quantum of reduction, sought for by the petitioner.

8.1 Ms Mudiam affirms the fact, which is evident, based on the document placed on record, that there is a provision made in Article 4 of the Articles of Association, which empowers the petitioner to reduce its paid-up share capital.

8.2 There is also no dispute about the fact that as per the record made available, the petitioner, has no secured or unsecured creditors in place. 8.3 I must also indicate herein, which is a fact demonstrable from the averments made in paragraph 9(d) of the report/ reply filed by the RD (the averments made therein have been extracted hereinabove), that, according to the RD, there is prima facie no perceivable violation of provisions of Section 295 and 297 of the Act.

9. The principal observation, if I may call it so, of the RD, is that, there was a change in the accounting year in 1999, and that, sub-contracts with the vendors were suspended, resulting in booking of massive losses in the initial years without disclosing related-party transactions. The RD has also sought to flag a related issue which is that, despite, availability of foreign investment, the affairs of the petitioner went awry.

10. These objections have been attempted to be met by the petitioner, as indicated above, by way of a rejoinder. The petitioner has submitted that the decision to reduce the share capital is a well considered decision, which according to it, has been taken in consultation with its shareholders and parent company i.e. SEB France.

10.1 The petitioner further avers that the SEB Group is a world leader in small home appliances and, is a professionally managed group. 10.2 It is further averred that related-party transactions were not reflected, as none existed at the relevant point in time. Furthermore, the petitioner avers that its accounts were audited by a reputed chartered accountancy firm i.e. M/s Price Waterhouse Coopers.

10.3 In so far as the doubts raised by the RD and/or ROC with regard to the manner in which the affairs of the petitioner are managed and/or run, the petitioner, has averred that this objection/observation can have no impact on the reliefs sought in the petition. In other words the objection raised is untenable in law.

10.4 The petitioner has also submitted that the SEB Group is a professionally managed group and is listed on the French Stock Exchange i.e. Euronext. It is stated that globally the said group engages 25,000 employees and has a turnover of 4,253 million Euros. 10.5 Learned counsel for the petitioner has also reiterated these submissions at the bar.

11. Having heard the learned counsel for the petitioner, and Ms Mudiam, who represents the RD and the ROC, I am of the view that there are, as a matter of fact, no legal impediments in granting the prayers sought for in the

present petition. As indicated above, the petitioner fulfils the following criteria, which is the requirement of the extant provisions of the Act. 11.1 First, that there is a provision in Article 4 of the Articles of Association permitting reduction in the share capital. Second, a special resolution has been passed to that effect by the share holders at their AGM held on 27.06.2014. Third, there were no secured and unsecured creditors in place as on 31.10.2014 (i.e. the date) when the provisional balance sheet was prepared. Fourth, and, most importantly, the reduction in the paid-up share capital is sought as it has been lost and does not represent the available assets, on account of accumulated losses.

11.2 Thus, in so far as reduction in share capital is concerned, to my mind, there are no impediments in so far as the provisions of the Act are concerned.

12. The observation of the RD, with regard to the possible reasons, which led to losses being suffered, in my view, cannot come in the way of the reliefs sought in the petition as there is no material placed on record, which would show that losses did not occur in the usual and normal course. The fact that the petitioner may perhaps have not been run as efficiently as it ought to have been run, in the opinion of the RD, cannot, in my opinion, impede the reliefs sought for in the petition.

13. Accordingly, prayers (a) and (b) are allowed. The minutes of the meeting, as set out in paragraph 21 of the petition, will be filed with the ROC in the prescribed manner as per the extant provisions of law. The reduction in share capital to the extent of Rs. 23,93,64,000/-, is allowed; the details of which are reflected in the special resolution passed at the AGM held on 27.06.2014; the extract of which is provided in paragraph 3.3 above.

13.1. In so far as prayer (d) is concerned, having regard to the fact that there are no secured and unsecured creditors in place, the said prayer is also allowed.

13.2. As regards prayer clause (e), the petitioner will carry out publication of registration of the order and the minutes, as approved by this court, in the Business Standard [(in English), Delhi Edition] and the Jansatta [(in Hindi), Delhi Edition].

14. No further orders are called for in the petition. The petition is disposed of in the aforesaid terms.

RAJIV SHAKDHER, J MARCH 10, 2016 kk