Share Capital Reduction u/s 66 a Matter of Domestic Concern of Company: NCLAT upholds Capital Reduction Offering 56% Premium to Minority Shareholders [Read Order]
The Bench took note of negligible shareholding of the appellant, the absence of any challenge to the valuation or consideration offered, and the overwhelming shareholder approval in order to reach a conclusion
The National Company Law Appellate Tribunal (NCLAT), Principal Bench at New Delhi, has dismissed an appeal challenging the selective reduction of share capital approved in favour of Reliance Retail Limited under Section 66 of the Companies Act, 2013. The Tribunal upheld the order passed by the Mumbai Bench of the National Company Law Tribunal, holding that the reduction was fair, reasonable, and in the interest of minority shareholders.
The appeal was filed by Naman Gurumurthi Joshi, a minority shareholder of Reliance Retail Limited, who held 129 equity shares representing 0.0000014% of the company’s paid-up share capital. He had objected to the capital reduction scheme on the ground that it was prejudicial to minority shareholders and did not satisfy the statutory requirement that paid-up capital must be in excess of the company’s needs.
Reliance Retail Limited had approved the reduction through a special resolution passed on July 4, 2023, proposing to cancel 78,65,423 equity shares held by non-promoter shareholders. The resolution was approved with 99.99% votes in favour, with more than 84% of the shareholders supporting the proposal.
Before the NCLAT, the appellant contended that selective reduction of share capital was impermissible unless the company demonstrated that its paid-up capital was in excess of its requirements. Rejecting this contention, the Appellate Tribunal held that Section 66 of the Companies Act permits reduction of share capital “in any manner.” And the instances enumerated under clauses (a) and (b) of Section 66(1) are illustrative and not exhaustive.
The Tribunal reiterated the settled legal position that reduction of share capital is a matter of domestic concern of a company, where the decision of the majority prevails. In support of this principle, the NCLAT relied on earlier decisions in Reckitt Benckiser (India) Ltd. (2005), Brillio Technologies Private Limited v. Registrar of Companies, and Elpro International Ltd., In Re (2007), which recognise the permissibility of selective reduction when fair value is paid.
Considering the negligible shareholding of the appellant, the absence of any challenge to the valuation or consideration offered, and the overwhelming shareholder approval, the NCLAT comprising Justice Yogesh Khanna (Judicial Member) and Ajai Das Mehrotra (Technical Member), found no reason to interfere with the order passed by the NCLT. The appeal was accordingly dismissed.
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