NCLT Mumbai Approves Preference Share Capital Reduction Under Section 66 — Section 55 Challenge Rejected
Background and Overview
The Mumbai Bench of the National Company Law Tribunal (NCLT) has granted confirmation to a petition brought by Panama Wind Energy Godawari Private Limited seeking reduction of its entire preference share capital under Section 66 of the Companies Act, 2013. The decision is significant because it reaffirms the position that Section 66 operates as an independent and self-contained mechanism for capital reduction, distinct from the redemption framework prescribed under Section 55 of the Companies Act, 2013.
The matter involved the cancellation and extinguishment of 6,99,99,502 units of 8% Cumulative Non-Convertible Preference Shares (CNCPS) of Rs. 10 each — representing the company's entire issued, subscribed, and paid-up preference share capital — held exclusively by its sole preference shareholder, M/s. Panama Wind Energy Private Limited.
Company Profile and Nature of Business
Panama Wind Energy Godawari Private Limited is a private limited company incorporated originally under the Companies Act, 1956, with its registered office situated in Pune, Maharashtra, thereby conferring jurisdiction upon the Mumbai Bench of the NCLT. As per its Memorandum of Association, the company's principal objects include:
"To procure licenses and other authorities and concessions for or in relation to the generation and supply of energy from wind and to undertake, assist, promote developmental, scientific, technical, engineering research activities associated with the generation, transmissions and distribution of power derived from non-conventional source of energy i.e. wind and to take over any licenses or concessions hold by any person, firm or company, in and around Godawari basin of India."
The company operates as a wholly-owned subsidiary of O2 Power SG Pte. Ltd., Singapore.
Share Capital Structure Before Reduction
As per the unaudited financial statements for the year ended 31.03.2023, the share capital of the petitioner company stood as follows:
Authorized Capital
| Category | Shares | Amount (INR) |
|---|---|---|
| Equity Shares of Rs. 10 each | 33,53,50,000 | 3,35,35,00,000 |
| 8% Cumulative Non-Convertible Preference Shares of Rs. 10 each | 7,46,50,000 | 74,65,00,000 |
| Total | 4,10,00,00,000 |
Issued, Subscribed and Paid-Up Capital
| Category | Shares | Amount (INR) |
|---|---|---|
| Equity Shares of Rs. 10 each, fully paid up | 32,78,10,203 | 3,27,81,02,030 |
| 8% Cumulative Non-Convertible Preference Shares of Rs. 10 each, fully paid up | 6,99,99,502 | 69,99,95,020 |
| Total | 3,97,80,97,050 |
The Proposed Reduction — Key Features
The petitioner company proposed to cancel and extinguish all 6,99,99,502 units of its 8% Cumulative Non-Convertible Preference Shares by deploying internal cash resources available with the company. The key features of the proposed reduction were as follows:
- Consideration Per Share: Rs. 9.43 per preference share, as determined by a registered valuer, Samarth Valuation Advisory LLP (IBBI Registration No. IBBI/RV-E/06/2021/157), vide Valuation Report dated 17.05.2023.
- Total Cash Outflow: Rs. 66,00,95,304
- Face Value of Preference Share Capital: Rs. 69,99,95,020
- Accounting Adjustment: The difference of Rs. 3,95,99,716 between the face value and the actual cash payment was proposed to be adjusted against the Profit and Loss Account of the company, in accordance with applicable accounting standards under
Section 133of the Companies Act, 2013.
Note: The statutory auditors issued a certificate confirming that the proposed accounting treatment was compliant with the applicable accounting standards and also certified that the company had not accepted any deposits.
Shareholder and Creditor Approvals
Shareholder Resolutions
The company had two equity shareholders and one preference shareholder. All three unanimously passed special resolutions at their respective Extraordinary General Meetings held on 30th May 2023, approving the proposed reduction of preference share capital.
Creditor Position
- Secured Creditors: One secured creditor with outstanding dues of Rs. 2,64,26,57,039 as on 15.12.2023.
- Unsecured Creditors: Five unsecured creditors with aggregate outstanding of Rs. 1,94,53,149 as on 20.05.2023.
The NCLT, vide its earlier order dated 12.06.2023, had directed the petitioner company to serve notices upon all creditors. The sole secured creditor furnished a No-Objection Certificate dated 08.01.2024, which was placed on record through an Additional Affidavit filed on 09.01.2024.
The petitioner company submitted that the proposed reduction would not prejudicially affect any creditor, as:
- No creditor was being asked to compromise or sacrifice any portion of their dues.
- The reduction did not involve any arrangement with creditors.
- All creditor dues would continue to be honoured in the ordinary course of business.
Net Worth — Pre and Post Reduction
The net worth certificate issued by the statutory auditors reflected the following position as per audited financials for the year ended 31.03.2023: