NCLT Mumbai Upholds Selective Reduction of Equity Share Capital for Delisted Company: In re Fairfield Atlas Limited

Overview of the Case

The National Company Law Tribunal (NCLT), Mumbai Bench, examined a company petition filed by Fairfield Atlas Limited seeking judicial confirmation of a special resolution passed by its equity shareholders for selective reduction of its issued, subscribed, and paid-up equity share capital under Section 66 of the Companies Act, 2013. The proceedings involved scrutiny of regulatory observations raised by the Regional Director (Western Region), Ministry of Corporate Affairs, and ultimately culminated in the Tribunal granting its confirmation to the proposed capital reduction.

Background and Rationale for Capital Reduction

Fairfield Atlas Limited had been delisted from the Bombay Stock Exchange (BSE) in October 2013, pursuant to a delisting offer initiated by its promoter, T-H Licensing Inc., under the Securities and Exchange Board of India (Delisting of Equity Shares) Regulations, 2009. Following this delisting, public shareholders of the company were left with no viable exit mechanism, as the shares ceased to be tradable on any recognised stock exchange platform.

At the time of filing the petition, public shareholders — defined as all shareholders other than the promoter and its nominees — collectively held 4,45,419 equity shares, representing merely 1.63% of the total paid-up equity share capital. These shares were spread across 2,516 shareholders, of whom 1,965 shareholders individually held 100 or fewer shares. Given the absence of any secondary market, their investments remained effectively locked with no means of liquidation or realisation.

The company proposed a selective reduction of share capital targeting exclusively the public shareholders' holdings, with the objective of:

• Providing public shareholders a structured and fair exit opportunity at an equitable price
• Eliminating the recurring administrative burden and costs associated with servicing a geographically dispersed public shareholder base spread across India and abroad
• Streamlining the company's share capital structure post-delisting

Capital Structure: Before and After Reduction

Pre-Reduction Capital Structure

Post-Reduction Capital Structure

Key Point: The authorised share capital remained unaltered at ₹28 crore. Only the issued, subscribed, and paid-up share capital was proposed to be reduced by cancelling and extinguishing 4,45,419 equity shares of ₹10 each held by public shareholders.

The 4,45,419 equity shares held by public shareholders were to be cancelled and extinguished. The face value of cancelled shares was to be debited to the equity share capital account, and the differential between the face value and the consideration payable was to be charged against Retained Earnings under the head of Reserves and Surplus — reducing the Reserves and Surplus by approximately ₹11,72,34,280.80.

Consideration offered to public shareholders: ₹273.20 per equity share.

Special Resolution Passed at EGM

The special resolution authorising the selective capital reduction was approved with the requisite majority at the Extraordinary General Meeting held on 10 May 2021, convened under Section 66(1) of the Companies Act, 2013 and read with the National Company Law Tribunal (Procedure for Reduction of Share Capital) Rules, 2016.