In Re: Advanced Medical Optics India P. Ltd. - Court Judgment

Mohan Shantanagoudar, J.

1. The petition is filed for confirmation of the reduction of paid-up equity share capital and securities premium account, as resolved by the petitioner-company by the special resolution dated December 4, 2008.

2. The petitioner-company was incorporated under the provisions of the Companies Act, 1956 ('the Act' for short) on June 29, 2004, with the Registrar of Companies in Karnataka. It has the registered office at No. 51, Bangalore Stock Exchange, Annexure 2, J.C. Road, First Cross, Bangalore-560027. The main objects of the company as set out in the memorandum of association are as follows:

To manufacture, produce, formulate, prepare, buy, distribute, exchange, supply, sell, market, import, export and deal in ophthalmic products of every kind and description, their ingredients, parts, components, compounds, by products or derivatives or interrelated chemicals or other fine chemicals, medical devices, and all types of human, pharmaceutical, medical, propriety and ethical eye care, health care and allied fields.

It also carries on the business of agents for the purpose of selling in India or elsewhere and sourcing for and from India various pharmaceutical, medical, surgical or ophthalmic products and medical devices of every kind and description.

3. Share capital of the petitioner-company as on March 31, 2008 is Rs. 2,40,00,000 divided into 24,00,000 equity shares of Rs. 10 each. All shares have been issued and have been fully paid-up and are credited as fully paid-up.

4. Subsequent to March 31, 2008, the company has increased its authorised share capital of Rs. 47,17,744 equity shares of Rs. 10 each amounting to Rs. 4,71,77,440. Thus, as on November 30, 2008, the authorised share capital is reduced to Rs. 4,71,77,440 divided into 47,17,744 equity shares of Rs. 10 each. The audited balance-sheet is produced along with the application at annexure 'B'.

5. Article 4 of the Articles of association of the petitioner-company empowers the company to reduce its capital in accordance with the provisions of the Act. The petitioner-company in the course of its operations has an accumulated loss to the tune of Rs. 48,36,48,074 as on March 31, 2008. As on November 30, 2008, the petitioner-company has equity share capital to the tune of Rs. 4,71,77,440 and a balance of Rs. 55,62,58,560 in the securities premium account, which outweighs the capital necessary for carrying on business as of now. In view of the accumulated losses, the petitioner-company seems to be looking at rationalising the balance-sheet to depict the actual position of its assets and liabilities.

6. In this context, it is relevant to reproduce paragraph 8 of the petition, as follows:

8. Thus, from a financial restructuring viewpoint it is proposed to reduce the paid equity share capital by an extent of Rs. 3,71,77,440, i.e., from Rs. 4,71,77,440, divided into 47,17,744 equity shares of Rs. 10 each to Rs. 1,00,00,000 divided into 47,17,744 equity shares of Rs. 2.1197 by adjusting and setting it off against the debit balance in the profit and loss account of the company. It is further proposed that the securities premium account be reduced by a sum of Rs. 44,64,70,634, from Rs. 55,62,58,560 to Rs. 10,97,87,926, by adjustment and set-off of the said amount against the balance amount standing to the debit of the profit and loss account. This is expected to enhance the shareholder value through improvement in future profits and consequent increase in the earnings per share and return on capital employed. By such adjustment the well-being of the company would be accurately reflected enabling the company to service its shareholders better and also procure finances more easily, if necessary.

7. To consider this proposal, the extraordinary meeting of the company was called at the Gurgaon office on December 4, 2008 and the special resolution as per annexure 'E' is passed. By the special resolution, the aforementioned proposal was accepted.

8. In my considered opinion, the proposed reduction of paid-up equity share and securities premium account of the company may not prejudice the rights of any of the creditors of the company.

9. Section 78 of the Companies Act, 1956, provides for application of premiums received on issues of securities. Sub-section (2) of Section 78 provides that securities premium account may, notwithstanding anything in Sub-section (1) be applied by the company in the circumstances mentioned therein. Section 78(1) of the Act provides that company shall issue securities at a premium whether for cash or otherwise, a sum equal to the aggregate amount or value of the premiums on those securities shall be transferred to an account, to be called 'the securities premium account' and the provisions of this Act relating to the reduction of the securities capital of the company shall, except as provided in this section, apply as if the securities premium account were paid-up securities capital of the company. Sub-section (2) provides for mode on which the said amount could be utilised. Admittedly, in this case, the security premium account is not utilised for the aforesaid purpose. Therefore, in law, it becomes necessary for the petitioner to follow the procedure prescribed for reduction of security premium account as contained under Sections 100 and 101 of the Act. Therefore, the petitioners have made this application under Section 101 of the Act seeking permission of this Court for reduction of securities premium account and paid-up equity shares.

10. On entertaining this company petition, the petitioner was permitted to take out paper publication in English daily The Hindu and the Kannada daily Udaya Vani newspapers, Bangalore edition, on or before January 5, 2009. The date of hearing was indicated as January 28, 2009. After publication of the notice, the petition is listed for further hearing. No one has filed objection for the proposed action of the petitioner.

11. From the aforesaid facts, it is clear that if the debts are allowed to be continued, it would seriously affect the working and the profitability of the company. It is in those circumstances, the directors of the company proposed a scheme whereby the amount in the security premium account could be utilised for writing-off the accumulated losses. The proposed reduction of securities premium account of the company will not result in any reduction of unpaid share capital or payment to any shareholder of any paid-up share capital.

12. As aforementioned, the action of the company is approved in the general meeting of the shareholders and no one has opposed the said action. Hence, I am of the view that the resolution passed by the company is for the benefit of the company, its shareholders and creditors and is not contrary to law. Accordingly, I pass the following:

ORDER

(A) That the reduction of the securities premium account and paid-up equity share capital of the petitioner-company as resolved and effected by a special resolution passed in the general meeting on December 4, 2008, held at Gurgaon office is hereby confirmed. The resolution (relevant portion) was in the following words and figures:

(a) Resolved that pursuant to Section 100 and any other applicable provisions, of the Companies Act, 1956 (hereinafter referred to as 'the Act') and the Articles of association of the company and confirmation of the hon'ble High Court of Karnataka or any other appropriate authority as required under the Act, the issued, subscribed and paid-up equity capital of the company be reduced from Rs. 4,71,77,440, divided into 47,17,744 equity shares of Rs. 10 each to Rs. 1,00,00,000 divided into 47,17,744 equity shares of Rs. 2.1197 each by adjustment of Rs. 3,71,77,440 against the debit balance in the profit and loss account of the company.

(b) Resolved further that pursuant to the provisions of Section 78 read with Section 100 and any other applicable provisions of the Act, and subject to the confirmation of the hon'ble High Court of Karnataka, the securities premium account be reduced by a sum of Rs. 44,64,70,634 from Rs. 55,62,58,560 to Rs. 10,97,87,926 by adjustment and set-off of the said amount against the debit balance in the profit and loss account after adjustment of Rs. 3,71,77,440 of the paid-up equity share capital against the debit balance in the profit and loss account.

(B) That the minutes set forth in the schedule vide annexure 'G' is hereby approved.

(C) That a certified copy of this order including the minutes as approved be delivered to the Registrar of Companies within three weeks from the date of receipt of copy of this order.

(D) That the notice of registration by the Registrar of Companies of this order and the said minutes be published in the English daily The Hindu and the Kannada daily Udaya Vani newspapers, Bangalore edition, issues within 14 days of the registration aforesaid.