Introduction
The Hon’ble Principal Bench of National Company Law Appellate Tribunal (“NCLAT”) at New Delhi, has upheld the order of the National Company Law Tribunal (“NCLT”) Mumbai, allowing selective reduction of share capital under Section 66 of the Companies Act, 2013. The said decision was given in the judgement of Naman Gurumurthi Joshi vs M/s Reliance Retail Ltd1. The judgment highlights that reduction of share capital is treated as a matter of domestic concern wherein the decision of the majority prevails and can be permitted if fair value is paid.
1. Facts of the case
- M/s Reliance Retail Ltd (“Respondent”) had undertaken a corporate action of reduction of selective share capital, held by the shareholders, other than the promoters/holding company of the Respondent company, by passing a special resolution.
- The said resolution was passed with 99.99% board’s approval and the percentage of identified shareholders voting in favour of the reduction was to an extent of 84.65%.
- Respondent is paying a consideration of INR 1,380 per share, which is at a premium of 56% to its fair value as is determined by two independent valuers.
- Naman Gurumurthi Joshi (“The Appellant”), one of the shareholders in M/s Reliance Retail Ltd, holding 129 shares (i.e. 0.0000014% stake) in Reliance Retail Ltd, objected to Respondent’s proposal to cancel 78,65,423 equity shares held by non-promoter shareholders.
- The Appellant alleged that such reduction of share capital is against the minority interest and is not permitted under section 66 of the Companies Act, 2013 since the Respondent company is forcefully removing its shareholders thereby increasing the promoters stakes.
- Learned NCLT had approved the scheme and categorically held the scheme to be fair and reasonable and in the interest of minority shareholders. Aggrieved against the said approval, Appellant has filed a case before Hon’ble Principal Bench of NCLAT.
2. Judgements referred
- Reckitt Benckiser (India) Ltd2
- Brillio Technologies P Ltd Registrar of Companies and Anr3 and
- Elpro International Ltd4
3. Appellant’s contention
- The Appellant objected that the reduction of selective share capital is against the minority interest and is not permitted under section 66(1) of the Companies Act, 2013, as there was no proof that the Respondent company had the paid up share capital in excess of wants of the company.
- The Appellant also claimed that the selective reduction of share capital is detrimental to minority shareholders and aimed at increasing promoter stake.
4. Issues raised before NCLAT
- Whether selective reduction of share capital is justifiable in case there is no proof on record that the paid up capital is in excess of want of the Company.?
- Whether such reduction is unfair to minority shareholders.?
5. NCLAT findings & decision
- Section 66 of the Companies Act, 2013 allows reduction “in any manner” and clauses (a) and (b) of the said section are illustrative in nature, not exhaustive.
- It is settled law that the question of reduction of share capital is treated as a matter of domestic concern, i.e. it is the decision of the majority which prevails. In considering a petition for reduction of share capital, the Tribunal has to be satisfied the transaction is fair and reasonable.
- Selective reduction is permissible if objecting shareholders are paid fair value of their shares.
5. Conclusion
The NCLAT emphasized that once it is demonstrated that non-promoter shareholders have been offered a fair and reasonable value for their shares, and no objections were raised regarding the adequacy of such compensation, coupled with overwhelming shareholder voting in favour of the reduction, there exists no substantive basis to interfere with the well-reasoned order passed by NCLT.
[1] Company Appeal (AT) No. 155 of 2025 & I.A. No. 3839 of 2025
[2] (2005) 122 DLT 612
[3] 2021 SCC OnLine NCLAT 508
[4] 2007 SCC OnLine Bom 1268
