COMP/238/2008 1/9 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD COMPANY PETITION No. 238 of 2008 For Approval and Signature: HONOURABLE MR.JUSTICE K.A.PUJ Sd/- ==================================== 1. Whether Reporters of Local Papers may be allowed to see the judgment ? YES 2. To be referred to the Reporter or not ? NO 3. Whether their Lordships wish to see the fair copy of the judgment ? NO 4. Whether this case involves a substantial question of law as to the interpretation of the constitution of India, 1950 or any order made thereunder ? NO 5. Whether it is to be circulated to the civil judge ? NO ==================================== MICRO INKS LIMITED - Petitioner Versus - Respondent ==================================== Appearance : MR SN SOPARKAR, SENIOR ADVOCATE WITH MS VAIBHAVI PARIKH for Petitioner. None for Respondent. ==================================== COMP/238/2008 2/9 JUDGMENT CORAM : HONOURABLE MR.JUSTICE K.A.PUJ Date : 15/10/2008 ORAL JUDGMENT 1. This is a petition filed under Sections 78, 80, 100 to 103 of the Companies Act, 1956 seeking confirmation to the Scheme of Capital Reduction of the Company. 2. It has been contended that the petitioner Company herein is a listed public limited Company engaged in the business of production and marketing of Printing Inks & its Intermediates namely pigments, resins, adhesives, enamels etc. It is one of the largest companies of the country and has established its presence in more than 70 countries and is one of the top 14 of the world. However, as pointed out in greater detail in the petition, the Company has made total investments of RS.3918.52 Million in Subsidiary companies situated in Austria, USA and Singapore. 3. It has been submitted that these subsidiary Companies have made substantial losses during last few years. In view of the significant accumulated losses in the above COMP/238/2008 3/9 JUDGMENT companies and in absence of certainty of recovery of such losses in visible time, the management of the Company has realized that the aforesaid losses have eroded value of investments of the Company. It has been thought appropriate to write off the investments of two subsidiary Companies based on the valuation made by an independent firm of Chartered Accountants. The petitioner Company has substantial balance in its share premium account and Capital Redemption Reserve Account. The Company has proposed to use to the said balances in order to adjust the aforesaid reduction in the value of its investments. 4. By a special resolution of the Company, duly passed in accordance with Section 189 of the Companies Act, 1956, at a general meeting thereof, held after due notice as provided in the Act on the 30th day of August 2008, it was :- “RESOLVED THAT pursuant to Sections 78, 80 and 100 and other applicable provisions, if any, of the Companies Act, 1956, read with Article No.9 of the Articles of Association of the Company and subject to the confirmation by the Hon'ble COMP/238/2008 4/9 JUDGMENT High Court of Gujarat, as provided under Section 100 of the Companies Act, 1956 and any other relevant approval as may be required, the Board of Directors of the Company be and is hereby authorized to utilise the credit balances, as on December 31, 2007, in the Security Premium Account (to the extent of Rs.3371.43 Million) and Capital Redemption Reserve Account (to the extent of Rs.450 Million) of the Company for the purpose of writing-off of investments made by the Company in Subsidiary Companies namely Micro Inks GmbH, Austria (Rs.2233.57 Million) and Hostmann Steinberg Inc., USA (Rs.1587.86 Million) to the extent of Rs.3821.43 Million. RESOLVED FURTHER THAT for the purpose of giving effect to the aforesaid resolution, the Board of Directors of the Company (hereinafter referred to as “the Board” which term shall be deemed to include a Committee thereof) be and is hereby authorized to do and perform all such acts, deeds, matters and things as it may in its absolute discretion deemed necessary, expedient, usual or proper and to settle any question or difficulty that may arise with regard to the above resolution and accounting thereof or to carry out including agreeing with changes / modifications, if any, as may be COMP/238/2008 5/9 JUDGMENT expedient or suggested by the Hon'ble High Court of Gujarat and/or any other relevant authority, to implement the aforesaid resolution.” 5. The petition was admitted by this Court on 2nd September, 2008 and the same was ordered to be advertised in Vadodara edition of “Indian Express”, English daily and Surat edition of “Divya Bhaskar”, Gujarati daily. The same direction has been complied with by the Company and the notice of the petition has been duly advertised in Vadodara edition of “Indian Express”, English daily on 05.09.2008 and Surat edition of “Divya Bhaskar”, Gujarati daily on 05.09.2008. The same is confirmed by the affidavit dated 8th September, 2008 filed by the clerk of the learned advocate for the petitioner. Pursuant to the said advertisement, no one has come forward to raise any objection opposing the sanction to the proposed capital reduction. 6. It is further pointed out in the petition that the proposed reduction does not involve diminution of any COMP/238/2008 6/9 JUDGMENT liability of repayment of paid up capital. In fact, there is no reduction proposed in the Equity Share Capital of the Company. However, since the Securities Premium account forms the part of the capital in terms of Section 78 of the Companies Act, 1956, the utilization of the amount lying in this account needs to be treated as Reduction of Capital. The above proposal is not likely to have any adverse impact on the net worth of the Company for all practical purposes. However, out of abundant caution, the Company has obtained and placed on record the consent letters from its Secured Creditors. In view of this, while admitting the petition, this Court dispensed with the procedure prescribed in Section 101 (2) as well as the procedure prescribed under Rule 48 to 65 of the Companies (Court) Rules, 1959. 7. I have heard Mr. S. N. Soparkar, learned Senior advocate with Ms. Vaibhavi Parikh appearing for the petitioner. Having perused the petition and more particularly the reasons given in support of the proposed reduction, in my view, there is no reason not COMP/238/2008 7/9 JUDGMENT to confirm the proposed action of the petitioner to reduce its capital in the form of utilizing its Share Premium Account as well as the Capital Redemption Account. The said proposal does not prejudicially affect any one as it does not involve extinguishments or diminution of the capital of the Company nor does it involve pay off of any capital received by the Company. 8. The Bankers of the petitioner Company have issued No Objection Certificates for writing off the investment in subsidiary Companies out of Reserves and surpluses, subject to the condition that all other working capital / Term Loan lenders will issue similar NOC and that the Company shall obtain necessary approvals from appropriate authorities / RBI / shareholders and that the Company shall comply with relevant provisions under Company Law / SEBI Directives. All these “No Objection Certificates” are produced on the record of this petition at Annexure D, pages 16 to 22. On query being raised by the Court, Mr. Soparkar has produced report of the Chartered Accountant, namely, M/s. SSPA & Co., dated July 24, 2008 on the valuation of COMP/238/2008 8/9 JUDGMENT investments of the Company in its three foreign subsidiaries. Mr. Soparkar has also produced copy of RBI approval dated January 7, 2000 for direct investment in wholly owned Subsidiary in Austria and submitted that similar approvals were obtained in respect of other two foreign subsidiaries. 9. Considering the submissions of Mr. Soparkar and perusing the documents, the Resolution dated August 30, 2008 is hereby confirmed subject to the condition that the Company shall obtain necessary approvals from appropriate authorities and/or Reserve Bank of India and that Company shall observe the requisite formalities under the applicable statutes including FEMA. 10.The form of the minute proposed to be registered under Section 103 (1) (b) is as follows :- MINUTE UNDER SEC. 103 (1) The Share Premium Account and Capital Redemption Reserve Account of Micro Inks COMP/238/2008 9/9 JUDGMENT Limited is by virtue of a Special Resolution of the Company dated 30th August, 2008 and by virtue of the sanction granted by the High Court of Gujarat on 15th day of October 2008, reduced from Rs.4177.43 Million to Rs.806 Million and Rs.450 Million to Rs. Nil respectively. 11.Thus, the prayers made in terms of para 17 (A), 17 (B) and 17 (C) are hereby granted. 12.The petitioner is directed to publish the Notice of Confirmation of Reduction of Capital and approving of Minutes in the Vadodara edition of Indian Express – English Daily and Surat Edition of Divya Bhaskar – Gujarati Daily, within 14 days of the registration of the order with the Registrar of Companies. 13.The petition is accordingly disposed off with no orders as to costs. Sd/- [K. A. PUJ, J.] Savariya