Karnataka High Court
Sri. M.S. Nagappa vs Stumpp Schuele And Somappa ... on 4 July, 2023
Bench: Alok Aradhe, Anant Ramanath Hegde
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IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 4TH DAY OF JULY, 2023
PRESENT
THE HON'BLE MR. JUSTICE ALOK ARADHE
AND
THE HON'BLE MR. JUSTICE ANANT RAMANATH HEGDE
ORIGINAL SIDE APPEAL NO.5 OF 2016
BETWEEN:
1. SRI. M.S. NAGAPPA
S/O LATE PADMASHRI
Digitally MACHANI SOMAPPA
signed by AGED ABOUT 80 YEARS
RUPA V SINCE DECEASED BY HIS LRS.
Location:
High Court 1(a) MRS. PADMINI NAGAPPA
of Karnataka
W/O LATE M.S. NAGAPPA
AGED ABOUT 80 YEARS
NO.5, LAVELLE ROAD, 1ST CROSS
RICHMOND CIRCLE, RICHMOND TOWN
BENGALURU-560001.
1(b) MRS. ANURADHA NAGAPPA HARITA
W/O BHASKAR RAMANATHAN HARITA
D/O LATE M.S. NAGAPPA
AGED ABOUT 57 YEARS
NO.5, LAVELLE ROAD, 1ST CROSS
RICHMOND CIRCLE, RICHMOND TOWN
BENGALURU-560001.
1(c) MR. MACHANI NAGAPPA CHAITANYA
S/O LATE M.S. NAGAPPA
AGED ABOUT 56 YEARS
NO.5, LAVELLE ROAD, 1ST CROSS
RICHMOND CIRCLE, RICHMOND TOWN
BENGALURU-560001.
1(d) MRS. GITANJALI NAGAPPA BALAGOPAL
W/O AJAY KARAY BALAGOPAL
D/O LATE M.S. NAGAPPA
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AGED ABOUT 52 YEARS
#232/24, KANAKAPURA ROAD
VISHRANTHI LAYOUT
DODDAKALLASANDRA
BENGALURU-560062.
1(e) MR. RAHUL KARAY BALAGOPAL
S/O AJAY KARAY BALAGOPAL
AGED ABOUT 25 YEARS
#232/24, KANAKAPURA ROAD
VISHRANTHI LAYOUT
DODDAKALLASANDRA
BENGALURU-560062.
1(f) MR. SAMIR KARAY BALAGOPAL
S/O AJAY KARAY BALAGOPAL
AGED ABOUT 22 YEARS
#232/24, KANAKAPURA ROAD
VISHRANTHI LAYOUT
DODDAKALLASANDRA
BENGALURU-560062.
2. SRI. M.S. NANDA PRAKASH
S/O M. P. C. SOMANNA
AGED ABOUT 45 YEARS
RESIDING AT 198, 1ST MAIN
2ND CROSS, ISRO LAYOUT
BANGALORE 560 078.
3. SRI. M.P.C. SOMANNA
S/O LATE M. PAKEERAPPA
AGED ABOUT 76 YEARS
RESIDING AT 198, 1ST MAIN
2ND CROSS, ISRO LAYOUT
BANGALORE 560 078
SINCE DECEASED BY HIS LRS.
3(a) MRS. M.S. BHAGIRATHI
AGED ABOUT 73 YEARS
W/O LATE M.P.C. SOMANNA
R/AT. NO.198, 1ST MAIN
2ND CROSS, ISRO LAYOUT
J.P. NAGAR, BENGALURU-560078.
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3(b) MRS. ANITHA RAMANATH
AGED ABOUT 57 YEARS
W/O MR. D. RAMANATH
D/O LATE M.P.C. SOMANNA
R/AT. NO.784, SRI. NANJUNDESHWARA NILAYA
SAMPIGE ROAD, 5TH CROSS
K.R. PURAM, ALUR, HASSAN-573201.
3(c) MRS. SAVITHA MACHANI SOMANNA
AGED ABOUT 55 YEARS
W/O MR. VIJAY KUMAR
D/O LATE M.P.C. SOMANNA
R/AT. NO.26/3, ANAND ALTAIR APARTMENT
112, OPP. SCMC LAYOUT
RAGHUVANAHALLI-KANAKAPURA ROAD
RAGHUVANAHALLI, TALAGHATAPURA
BENGALURU-560062.
3(d) MRS. KAVITA GOWTHAM JAYARAM
AGED ABOUT 53 YEARS
W/O MR. GOWTHAM JAYARAM
D/O LATE M.P.C. SOMANNA
R/AT. L-504, BRIGADE GATEWAY
NO.26/1, DR. RAJKUMAR ROAD
MALLESHWARAM WEST
BENGALURU-560055.
...APPELLANTS
(BY SRI. P.B. APPAIAH, ADV., FOR LRS
OF APPELLANT NOS.1 TO 3)
AND:
1. STUMPP SCHUELE AND SOMAPPA
PRIVATE LIMITED
HAVING ITS REGISTERED OFFICE
AT NO.139/2, HOSUR ROAD
KORAMANGALA, BENGALURU-560 095.
...RESPONDENT
(BY SRI. PERIKAL K. ARJUN, A/W
SRI. VIKRAM C, ADVS., FOR C/R)
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THIS OSA IS FILED UNDER SECTION 483 OF THE
COMPANIES ACT, 1956 R/W SECTION 4 OF THE KARNATAKA
HIGH COURT ACT, 1961, PRAYING TO CALL FOR RECORDS
PERTAINING TO Co.P No.253/2015. SET ASIDE THE
IMPUGNED ORDER DATED 08.01.2016 PASSED BY THE
LEARNED SINGLE JUDGE AND ALL ACTIONS TAKEN IN
PURSUANCE THEREOF AND ETC.
THIS APPEAL COMING ON FOR FINAL HEARING, THIS
DAY, ALOK ARADHE J., DELIVERED THE FOLLOWING:
JUDGMENT
This appeal under Section 483 of the
Companies Act, 1956 has been filed against an
order dated 08.01.2016 passed by the learned
Company Judge by which the petition filed by the
Stumpp Shuele and Somappa Private Limited
(hereinafter referred to as 'the Company' for short)
under Section 100 to 103 of the Act has been
disposed of.
2. Facts giving rise to filing of this appeal
briefly stated are that the company was established
as a joint venture between Stumpp & Shuele GmBH
and M.G. Brothers family of Andhra Pradesh with
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equity holding of 51% and 49% respectively.
Subsequently, share holding of German
collaborator was reduced to 30%. The M.G.Brothers
Group consists of various sub groups i.e., Somappa
group, Ramanna Group, Lakshmanna Group and
Pakeerappa Group. From 1972 onwards, day to day
management of the company has been with
Ramanna Group. The other sub groups are
represented by the Board by one non-executive
Director.
3. The Ramanna Group holds 89.34% shares
of the company, whereas, Somappa Group holds
8.64% shares. Lakshmanappa Group holds 0.67%
shares, whereas, Pakeerappa Group holds 1.35%
shares. The Board of the company was of the
opinion that the capital of the company is in excess
of its needs and therefore, the board thought it fit to
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give an exit to the other groups of share holders viz.,
Lakshmanappa, Pakeerappa and Somappa Groups
at a fair value. The Board in its meeting held on
03.09.2015 appointed M/s M.A.Narasimhan & Co
Chartered Accountants for carrying out the fair
valuation of shares of the company.
4. The fair value of each equity share of the
company was assessed at Rs.2,980/-. The Board of
Directors in its meeting held on 10.09.2015 after
taking note of the report submitted by aforesaid
chartered accountants, approved the reduction of
paid up capital by paying Rs.3,000/- per equity
share to the shareholders forming part of
Lakshmanappa, Pakeerappa and Somappa Groups.
The Board fixed the fair value of each equity share
at Rs.3,000/-.
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5. Thereafter, a notice was issued by the
Chairman of the company to all its shareholders
calling for annual general meeting. In the Annual
General Meeting held on 10.09.2015, the company
and the shareholders unanimously approved the
resolutions set forth in the notice. The creditors of
the company also found no objection to paid up
capital of the company.
6. The company thereafter filed a petition
under Section 100 to 103 of the Companies Act
before the learned Company Judge who by an order
dated 20.11.2015 dispensed with the procedure of
settling the list of creditors and directed the
company to carry out the notice of hearing of the
petition in English and Kannada Daily. Thereupon
the notice was published in Daily Hindu and
Kannada Daily Udayavani on 24.11.2015 intimating
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the date of hearing as 18.12.2015. The Company
Court by an order dated 08.01.2016 confirmed the
special resolution passed by the shareholders
approving the reduction of the share capital. Hence,
this appeal.
7. Learned counsel for the appellant
submitted that the learned Company Judge ought to
have appreciated that the provisions of Section
173(2) of the Act were not complied with inasmuch
as Select Group of shareholders was not specified. It
is further submitted that notice of meeting did not
contain a statement stating out the material facts in
respect of each item of business. It is further
submitted that the Learned Company Judge has
confirmed the scheme for reduction of share capital
in a mechanical manner without recording the
satisfaction that it will not work unjust and
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unequally. It is also submitted that the scheme is
unfair inasmuch as no separate class meeting for
sub class of those shareholders who were affected by
the scheme. It is pointed out that in any case,
appellants are entitled to the value of their shares,
along with interest, which has not been paid to
them. In support of aforesaid submissions, reliance
has been placed on decisions in RECKITT
BENCKISER (INDIA) LTD.', 122 (2005) DLT 612,
'M.R.GOYAL VS. USHA INTERNATIONAL LTD.',
(1998) 93 COMPCAS634 (DELHI) and SANDVIK
ASIA LIMITED VS. BHARAT KUMAR PADAMSI
AND ORS.', 2009 VOL.III (4) BOM. L.R. 1421.
8. On the other hand, Learned counsel for
the respondent submitted that decision to reduce
the share capital of the company has been taken by
the majority of shareholders of the company whose
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decision does not call for any interference in this
appeal. It is further submitted that the procedure
prescribed for reduction of share capital was
followed and the appellants did not raise any
objection with regard to valuation of shares of the
company. It is further submitted that requirement
of a class meeting is not a requirement under
Section 100 of the Act. In support of aforesaid
submissions, reliance has been placed on decisions
in BRITISH AND AMERICAN TRUSTEE AND
FINANCE CORPORATION LIMITED VS. JOHN
COUPER (1894) A.C. 399; RAMESH B. DESAI VS.
BIPIN VADILAL MEHTA, (2006) 5 SCC 638;
SANDVIK ASIA LIMITED VS. BHARAT KUMAR &
ORS (2009) 3 BOM CR 57; RECKITT BENCHISER
(INDIA) LTD., (2005) 122 DLT 612; RAM KOHLI
VS. INDRAMA INVEST PVT. LTD., 2013 SCC
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ONLINE DEL 1987; ELPRO INTERNATIONAL LTD.,
IN RE (2009) 149 COMP CAS 646 (BOM); RS
LIVEMEDIA PVT. LTD., 2014 SCC ONLINE DEL
1346; RAYBAN SUN OPTICS INDIA LTD., 2015 (1)
RLW 759 (RAJ).
9. We have considered the submissions made
on both sides and have perused the record. In
BRITISH AND AMERICAN TRUSTEE FINANCIAL
CORPORATION VS. COOPER, 1894 AC 399, the
House of Lords held that majority of shareholders of
a company are entitled to decide whether there
should be a reduction of the capital of the company
and if so, in what manner and to what an extent. A
division bench of Madras High Court in PANRUTI
INDUSTRIAL COMPANY PVT. LTD., IN RE, AIR
1960 MADRAS 537 held that question of reduction
of capital is a matter of domestic concern, one for
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decision of majority of the shareholders of the
company. It was further held that since, the decision
for reduction of share capital is based on
commercial considerations undertaken by
businessmen who are in best position to know the
necessities and interest of the company, in the
absence of serious allegation with regard to
bonafides of the proposed scheme, the courts are
hesitant in interfering with the view of the majority.
The aforesaid decision of Madras High Court was
referred to with approval by Bombay High Court in
ELPRO INTERNATIONAL LTD., IN RE', 2007 SCC
ONLINE BOM 1268.
10. We may advert to the facts of the case in
hand. Admittedly, provisions of Section 100 to 104
of the Act for reduction of the paid up capital of the
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company has been followed. Section 173 (2) of the
Act reads as under:
Where any items of business to be
transacted at the meeting are deemed to be
special as aforesaid, there shall be
annexed to the notice of the meeting a
statement setting out all material facts
concerning each such item of business,
including in particular the nature of the
concern or interest], if any, therein, of every
director, the managing agent, if any, the
secretaries and treasurers, if any, and the
manager, if any: Provided that where any
item of special business as aforesaid to be
transacted at a meeting of the company
relates to, or affects, any other company,
the extent of shareholding interest in that
other company of every director, the
managing agent, if any, the secretaries and
treasurers, if any, and the manager, if any,
of the first- mentioned company shall also
be set out in the statement if the extent of
such shareholding interest is not less than
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twenty per cent. of the paid- up share
capital of that other company.
11. Thus, where a special business has to be
transacted at a meeting, a statement setting out all
material facts concerning each item of business
have to be annexed along with notice. In the instant
case, from perusal of Annexure-R5 i.e., the notice
issued for annual general meeting of the company,
the particulars of agenda item No.4 have been
annexed with the notice. The relevant extract reads
as under:
4. To consider and if thought fit, to
pass with or without modifications, the
following resolution as a Special
Resolution:
"RESOLVED THAT pursuant to the
provisions of Sections 100 to 103 of the
Companies Act, 1956 and subject to the
confirmation by the Hon'ble High Court of
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Karnataka, the Paid-up Share Capital of the
Company be and is hereby reduced from
Rs.2,98,50,000/- (Rupees Two Crores Ninety
Eight Lakhs Fifty Thousand Only) consisting
of 2,98,500/- (Two Lakhs Ninety Eight
Thousand Five Hundred) equity shares of
Rs.100/- (Rupees One Hundred) each to
Rs.2,66,69,300/- (Rupees Two Crores Sixty
Six Lakhs Sixty Nine Thousand Three
Hundred Only) divided into 2,66,693 (Two
Lakhs Sixty Six Thousand Six Hundred And
Ninety three) equity shares of Rs.100/-
(Rupees One Hundred) by paying off an
aggregate sum of Rs.9,54,21,000/- (Rupees
Nine Crores Fifty Four Lakhs Twenty One
Thousand only), being the fair value of equity
shares, to a select group of shareholders
being the holders of 31,807 (Thirty One
Thousand Eight Hundred and Seven) equity
shares and thereby extinguishing all such
31,807 (Thirty One Thousand Eight Hundred
and Seven) equity shares.
RESOLVED FURTHER THAT, the reduction
of the Company's Paid-up Equity Share
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Capital as indicated above is subject to the
following terms and conditions:
a) The holders of the equity shares whose
shares are being reduced shall be paid by
the Company the net consideration due to
them within 30 days of the Effective date
being the date on which order of the Hon'ble
High Court of Karnataka confirming the
reduction is registered by the Registrar of
Companies, Karnataka. All such payments
will be made by cheque, pay order or
demand draft.
12. The paid up equity share capital of the
company presently stands at Rs.2,98,50,000/-
(rupees Two Crores Ninety Eight Lakhs Fifty
Thousand Only) consisting of 2,98,500 (Two Lakhs
Ninety Eight Thousand Five Hundred) equity shares
of Rs.100/- (Rupees One Hundred) each fully paid
up.
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13. The shareholders are aware that the entire
shareholding of the company is held by four groups
of shareholders viz., Lakshmanna Group,
Pakeerapppa Group, Somappa Group and Ramanna
Group. The company is primarily being managed by
the members of the Ramanna Group who hold
89.34% of the shares in the share capital of the
company. The members of the other groups are not
in any way involved in the management and day to
day affairs of the company and therefore, the Board
has felt that these groups could be given an exit
from the company at a fair value. The Board is of the
view that the present capital of the company is in
excess of its wants and the Board is of the opinion
that this is an opportunity for the company to
reduce its paid up share capital by canceling the
equity shares held by the members of other groups
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of shareholders by paying of Rs.3000/- (Rupees
Three Thousand Only) per equity share which is the
fair value per equity share. The fair value has been
computed by M/s M A Narsimhan & Co. Chartered
Accountants, appointed by the Board at its meeting
held on 3rd September 2015.
14. Thus, it is evident that material facts
pertaining to special business are to be transacted
in the meeting have been given. Therefore, the
contention about non compliance with Section
179(2) of the Act does not deserve acceptance.
15. It is pertinent to mention here that the
notice for convening the annual general meeting was
issued by the Chairman of the company to all its
shareholders. The notices were sent by registered
posts. The appellant No.1 also received notice who
acknowledged the receipt of notice vide email dated
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16.09.2015. The notice of the meeting to other
appellants was also served. However, the appellants
neither attended the meeting nor submitted any
objection to reduction of paid up capital of the
company. In the annual general meeting, a
unanimous decision was taken to reduce the paid
up capital of the company.
16. The aforesaid decision has been taken by
the majority of shareholders of the company after
taking into account the fair value of equity shares as
per the report prepared by the Chartered
Accountant. The decision for reduction of share
capital is based on commercial considerations,
which is taken by majority of shareholders who are
in best position to know the necessities and interest
of the company. There are no allegations as regards
the bonafides of the proposed scheme of reduction of
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share capital. No ground to interfere with the
aforesaid decision, which has been taken by
majority of the shareholders is made out. It is
pertinent to note that appellants have filed a petition
under Section 241 and 244 of the Companies Act by
seeking a declaration that reduction of share capital
made by resolution dated 10.09.2015, extinguishing
the shares of the appellants is an act of oppression,
which has resulted in prejudice to the interest of the
appellants. However, the aforesaid petition has been
dismissed by an order dated 08.10.2018 passed by
the national Company Law Tribunal
17. For the aforementioned reasons, we do not
find any ground to interfere with the order passed
by the Learned Company Judge. Needless to state
that the appellants shall be entitled to value of their
shares. The company is held not entitled to payment
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of interest on the value of shares of the appellants
as the amount due to the appellants on account of
value of their shares was handed over to the
appellants by the company by way of a demand
draft.
Accordingly, the appeal is disposed of.
Sd/-
JUDGE
Sd/-
JUDGE
SS
