Non-disclosure of Secured Creditors in Capital Reduction Petition: NCLT Imposes 5 lakh Penalty on Lifestyle [Read Order]

The National Company Law Tribunal (NCLT), Bangalore bench has slapped a penalty of Rs 5,00,000 on Lifestyle International Private Ltd for the non-disclosure of secured creditors in a capital reduction plea.

The petition was filed by Lifestyle International Pvt. Ltd. under Section 66 of the Companies Act, 2013, seeking approval for the reduction of its share capital. The Petitioner, Lifestyle International Private Limited, was incorporated on 24th November 1997 under the Companies Act, 1956, as a private limited company, limited by shares, with the Registrar of Companies (ROC).

The petition was supported by a special resolution passed at the ExtraordinaryGeneral Meeting (EGM) of shareholders on October 31, 2023, proposing the cancellation of 60,83,093 equity shares of ₹10 each held by non‑promoter and non‑management shareholders, representing 4.96% of the company’s paid‑up capital.

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The scheme envisaged paying these shareholders ₹1,195 per share, amounting to a total payout of approximately ₹726.92 crore.

The company argued that it has surplus idle funds that was not required for its current business it was also contended that the reduction of Capital of the shareholders of the Company, other than the promoters and the management Group would not have any adverse effect on the Petitioner Company’s ability to honour its commitments or meet its obligations in the ordinary course of its business.

However, the ROC and the Regional Director (RD) raised objections in their common order. They pointed out that the company has failed to disclose secured creditors and open charges amounting to hundreds of crores even though the audited financial statements showed borrowings and credit facilities.

It was argued that the omission amounted to concealment and misrepresentation that can attract liability under sections 447 and 449 of the Companies Act. Although Lifestyle later filed affidavits and produced No Objection Certificates (NOCs) from secured creditors, the ROC/RD questioned the authenticity of these documents and urged the Tribunal to verify compliance.

Another concern flagged was related to minority shareholder protection. Out of the 25 shareholders whose shares were to be extinguished, only 5 of them attended the EGM. The ROC united that while quorum requirements were met technically, the interests of the minority shareholders are to be scrutinised. Lifestyle responded that proxies represented over 94% of the paid up capital and that notices and newspaper publications were issued and no objections were received from the shareholders.

The ROC/RD observed that the company’s balance sheet showed only ₹160 crore in cash and ₹202 crore in liquid investments, far short of the 365 crore payout. They questioned how Lifestyle would mobilise funds without jeopardising working capital and day‑to‑day operations. In reply, Lifestyle submitted that as of October 2024, it had surplus investments of ₹1,635 crore, sufficient to meet the payout, and reiterated that creditors would not be prejudiced.

The report further had highlighted outstanding statutory dues of around ₹71 crore, including VAT, service tax, GST, and income tax, as well as unpaid obligations to Micro, Small and Medium Enterprises (MSMEs) amounting to ₹446 crore.

The ROC/RD asked the Tribunal to ensure compliance with the MSME Development Act and settlement of statutory liabilities before approving capital reduction. Lifestyle countered that the reduction would not compromise its ability to meet obligations and that assets would remain in excess of liabilities post‑reduction.

Procedural lapses were also flagged, including incomplete disclosure of unsecured creditors with dues exceeding ₹1,625 crore, absence of proof of advertisement under Section 66. And also the need for undertakings regarding compliance with FEMA/RBI guidelines for non‑resident shareholders. Lifestyle subsequently filed affidavits, postal receipts, and publication proofs, asserting that all statutory requirements had been met.

The two member bench comprising Radhakrishna Sreepada (Technical Member) and Sunil Kumar Aggarwal( Judicial Mmeber) observed that on the issue of Non-disclosure of the Secured Creditors of the Company, the explanation given by the Petitioner was not satsiafctory.

It was observed that only after the Tribunal pointed