Dismissed

Sri. M.S. Nagappa v. Stumpp Schuele and Somappa Private Limited

Karnataka HC4 Jul 2023OSA/5/2016

Case brief

AI extract

What is this about?

The Karnataka High Court disposed of an appeal against the confirmation of a special resolution reducing paid-up capital. Upholding the Board's decision and the Company Judge's order, the Court held that the majority decision based on fair valuation and commercial interests was valid and entitled to respect.

What did the court decide?

Appeal dismissed; appellants entitled to share value but not interest; order of Company Judge confirmed.

Sri. M.S. Nagappa Vs Stumpp Schuele and Somappa… — Company and Corporate | Karnataka HC (2023)

¶1

¶2

NC: 2023:KHC:22990-DB OSA No.5 of 2016

¶3

IN THE HIGH COURT OF KARNATAKA AT BENGALURU

¶4

DATED THIS THE 4^TH DAY OF JULY, 2023

¶5

PRESENT

¶6

THE HON'BLE MR. JUSTICE ALOK ARADHE

¶7

AND

¶8

THE HON'BLE MR. JUSTICE ANANT RAMANATH HEGDE

¶9

ORIGINAL SIDE APPEAL NO.5 OF 2016

¶10

BETWEEN:

¶11

Digitally signed by RUPA V Location: High Court of Karnataka

¶12

SRI. M.S. NAGAPPA S/O LATE PADMASHRI MACHANI SOMAPPA AGED ABOUT 80 YEARS SINCE DECEASED BY HIS LRS.

¶13

1(a) MRS. PADMINI NAGAPPA W/O LATE M.S. NAGAPPA AGED ABOUT 80 YEARS NO.5, LAVELLE ROAD, 1ST CROSS RICHMOND CIRCLE, RICHMOND TOWN BENGALURU-560001.

¶14

1(b) MRS. ANURADHA NAGAPPA HARITA W/O BHASKAR RAMANATHAN HARITA D/O LATE M.S. NAGAPPA AGED ABOUT 57 YEARS NO.5, LAVELLE ROAD, 1ST CROSS RICHMOND CIRCLE, RICHMOND TOWN BENGALURU-560001.

¶15

1(c) MR. MACHANI NAGAPPA CHAITANYA S/O LATE M.S. NAGAPPA AGED ABOUT 56 YEARS NO.5, LAVELLE ROAD, 1ST CROSS RICHMOND CIRCLE, RICHMOND TOWN BENGALURU-560001.

¶16

1(d) MRS. GITANJALI NAGAPPA BALAGOPAL W/O AJAY KARAY BALAGOPAL D/O LATE M.S. NAGAPPA

¶17

2 - NC: 2023:KHC:22990-DB OSA No.5 of 2016

¶18

AGED ABOUT 52 YEARS #232/24, KANAKAPURA ROAD VISHRANTHI LAYOUT DODDAKALLASANDRA BENGALURU-560062.

¶19

1(e) MR. RAHUL KARAY BALAGOPAL S/O AJAY KARAY BALAGOPAL AGED ABOUT 25 YEARS #232/24, KANAKAPURA ROAD VISHRANTHI LAYOUT DODDAKALLASANDRA BENGALURU-560062.

¶20

1(f) MR. SAMIR KARAY BALAGOPAL S/O AJAY KARAY BALAGOPAL AGED ABOUT 22 YEARS #232/24, KANAKAPURA ROAD VISHRANTHI LAYOUT DODDAKALLASANDRA BENGALURU-560062.

¶21

SRI. M.S. NANDA PRAKASH S/O M. P. C. SOMANNA AGED ABOUT 45 YEARS RESIDING AT 198, 1ST MAIN 2ND CROSS, ISRO LAYOUT BANGALORE 560 078.

¶22

SRI. M.P.C. SOMANNA S/O LATE M. PAKEERAPPA AGED ABOUT 76 YEARS RESIDING AT 198, 1ST MAIN 2ND CROSS, ISRO LAYOUT BANGALORE 560 078 SINCE DECEASED BY HIS LRS.

¶23

3(a) MRS. M.S. BHAGIRATHI AGED ABOUT 73 YEARS W/O LATE M.P.C. SOMANNA R/AT. NO.198, 1ST MAIN 2ND CROSS, ISRO LAYOUT J.P. NAGAR, BENGALURU-560078.

¶24

NC: 2023:KHC:22990-DB OSA No.5 of 2016

¶25

¶26

3(b) MRS. ANITHA RAMANATH AGED ABOUT 57 YEARS W/O MR. D. RAMANATH D/O LATE M.P.C. SOMANNA R/AT. NO.784, SRI. NANJUNDESHWARA NILAYA SAMPIGE ROAD, 5TH CROSS K.R. PURAM, ALUR, HASSAN-573201.

¶27

3(c) MRS. SAVITHA MACHANI SOMANNA AGED ABOUT 55 YEARS W/O MR. VIJAY KUMAR D/O LATE M.P.C. SOMANNA R/AT. NO.26/3, ANAND ALTAIR APARTMENT 112, OPP. SCMC LAYOUT RAGHUVANAHALLI-KANAKAPURA ROAD RAGHUVANAHALLI, TALAGHATAPURA BENGALURU-560062.

¶28

3(d) MRS. KAVITA GOWTHAM JAYARAM AGED ABOUT 53 YEARS W/O MR. GOWTHAM JAYARAM D/O LATE M.P.C. SOMANNA R/AT. L-504, BRIGADE GATEWAY NO.26/1, DR. RAJKUMAR ROAD MALLESHWARAM WEST BENGALURU-560055.

¶29

…APPELLANTS

¶30

(BY SRI. P.B. APPAIAH, ADV., FOR LRS OF APPELLANT NOS.1 TO 3)

¶31

AND:

¶32

STUMPP SCHUELE AND SOMAPPA PRIVATE LIMITED HAVING ITS REGISTERED OFFICE AT NO.139/2, HOSUR ROAD KORAMANGALA, BENGALURU-560 095.

¶33

…RESPONDENT

¶34

(BY SRI. PERIKAL K. ARJUN, A/W SRI. VIKRAM C, ADVS., FOR C/R)

¶35

4 - NC: 2023:KHC:22990-DB OSA No.5 of 2016

¶36

THIS OSA IS FILED UNDER SECTION 483 OF THE COMPANIES ACT, 1956 R/W SECTION 4 OF THE KARNATAKA HIGH COURT ACT, 1961, PRAYING TO CALL FOR RECORDS PERTAINING TO Co.P No.253/2015. SET ASIDE THE IMPUGNED ORDER DATED 08.01.2016 PASSED BY THE LEARNED SINGLE JUDGE AND ALL ACTIONS TAKEN IN PURSUANCE THEREOF AND ETC.

¶37

THIS APPEAL COMING ON FOR FINAL HEARING, THIS DAY, ALOK ARADHE J., DELIVERED THE FOLLOWING:

¶38

JUDGMENT

¶39

This appeal under Section 483 of the

¶40

Companies Act, 1956 has been filed against an order dated 08.01.2016 passed by the learned Company Judge by which the petition filed by the Stumpp Shuele and Somappa Private Limited (hereinafter referred to as 'the Company' for short) under Section 100 to 103 of the Act has been disposed of.

¶41

Facts giving rise to filing of this appeal briefly stated are that the company was established as a joint venture between Stumpp & Shuele GmBH and M.G. Brothers family of Andhra Pradesh with

¶42

- 5 - NC: 2023:KHC:22990-DB OSA No.5 of 2016

¶43

equity holding of 51% and 49% respectively. Subsequently, share holding of German

¶44

collaborator was reduced to 30%. The M.G.Brothers Group consists of various sub groups i.e., Somappa group, Ramanna Group, Lakshmanna Group and Pakeerappa Group. From 1972 onwards, day to day management of the company has been with Ramanna Group. The other sub groups are represented by the Board by one non-executive Director.

¶45

The Ramanna Group holds 89.34% shares

¶46

of the company, whereas, Somappa Group holds 8.64% shares. Lakshmanappa Group holds 0.67% shares, whereas, Pakeerappa Group holds 1.35% shares. The Board of the company was of the opinion that the capital of the company is in excess of its needs and therefore, the board thought it fit to

¶47

6 - NC: 2023:KHC:22990-DB OSA No.5 of 2016

¶48

give an exit to the other groups of share holders viz., Lakshmanappa, Pakeerappa and Somappa Groups at a fair value. The Board in its meeting held on 03.09.2015 appointed M/s M.A.Narasimhan & Co Chartered Accountants for carrying out the fair valuation of shares of the company.

¶49

The fair value of each equity share of the company was assessed at Rs.2,980/-. The Board of Directors in its meeting held on 10.09.2015 after taking note of the report submitted by aforesaid chartered accountants, approved the reduction of paid up capital by paying Rs.3,000/- per equity share to the shareholders forming part of Lakshmanappa, Pakeerappa and Somappa Groups. The Board fixed the fair value of each equity share at Rs.3,000/-.

¶50

¶51

NC: 2023:KHC:22990-DB OSA No.5 of 2016

¶52

Thereafter, a notice was issued by the

¶53

Chairman of the company to all its shareholders calling for annual general meeting. In the Annual General Meeting held on 10.09.2015, the company and the shareholders unanimously approved the resolutions set forth in the notice. The creditors of the company also found no objection to paid up capital of the company.

¶54

The company thereafter filed a petition

¶55

under Section 100 to 103 of the Companies Act before the learned Company Judge who by an order dated 20.11.2015 dispensed with the procedure of settling the list of creditors and directed the company to carry out the notice of hearing of the petition in English and Kannada Daily. Thereupon the notice was published in Daily Hindu and Kannada Daily Udayavani on 24.11.2015 intimating

¶56

- 8 - NC: 2023:KHC:22990-DB OSA No.5 of 2016

¶57

the date of hearing as 18.12.2015. The Company Court by an order dated 08.01.2016 confirmed the special resolution passed by the shareholders approving the reduction of the share capital. Hence, this appeal.

¶58

Learned counsel for the appellant submitted that the learned Company Judge ought to have appreciated that the provisions of Section 173(2) of the Act were not complied with inasmuch as Select Group of shareholders was not specified. It is further submitted that notice of meeting did not contain a statement stating out the material facts in respect of each item of business. It is further submitted that the Learned Company Judge has confirmed the scheme for reduction of share capital in a mechanical manner without recording the satisfaction that it will not work unjust and

¶59

9 - NC: 2023:KHC:22990-DB OSA No.5 of 2016

¶60

unequally. It is also submitted that the scheme is unfair inasmuch as no separate class meeting for sub class of those shareholders who were affected by the scheme. It is pointed out that in any case, appellants are entitled to the value of their shares, along with interest, which has not been paid to them. In support of aforesaid submissions, reliance has been placed on decisions in RECKITT BENCKISER (INDIA) LTD.', 122 (2005) DLT 612, 'M.R.GOYAL VS. USHA INTERNATIONAL LTD.', (1998) 93 COMPCAS634 (DELHI) and SANDVIK ASIA LIMITED VS. BHARAT KUMAR PADAMSI AND ORS.', 2009 VOL.III (4) BOM. L.R. 1421.

¶61

On the other hand, Learned counsel for the respondent submitted that decision to reduce the share capital of the company has been taken by the majority of shareholders of the company whose

¶62

10 - NC: 2023:KHC:22990-DB OSA No.5 of 2016

¶63

decision does not call for any interference in this appeal. It is further submitted that the procedure prescribed for reduction of share capital was followed and the appellants did not raise any objection with regard to valuation of shares of the company. It is further submitted that requirement of a class meeting is not a requirement under Section 100 of the Act. In support of aforesaid submissions, reliance has been placed on decisions in BRITISH AND AMERICAN TRUSTEE AND FINANCE CORPORATION LIMITED VS. JOHN COUPER (1894) A.C. 399; RAMESH B. DESAI VS. BIPIN VADILAL MEHTA, (2006) 5 SCC 638; SANDVIK ASIA LIMITED VS. BHARAT KUMAR & ORS (2009) 3 BOM CR 57; RECKITT BENCHISER (INDIA) LTD., (2005) 122 DLT 612; RAM KOHLI

¶64

VS. INDRAMA INVEST PVT. LTD., 2013 SCC

¶65

11 - NC: 2023:KHC:22990-DB OSA No.5 of 2016

¶66

ONLINE DEL 1987; ELPRO INTERNATIONAL LTD., IN RE (2009) 149 COMP CAS 646 (BOM); RS LIVEMEDIA PVT. LTD., 2014 SCC ONLINE DEL 1346; RAYBAN SUN OPTICS INDIA LTD., 2015 (1) RLW 759 (RAJ).

¶67

We have considered the submissions made

¶68

on both sides and have perused the record. In BRITISH AND AMERICAN TRUSTEE FINANCIAL CORPORATION VS. COOPER, 1894 AC 399, the House of Lords held that majority of shareholders of a company are entitled to decide whether there should be a reduction of the capital of the company and if so, in what manner and to what an extent. A division bench of Madras High Court in PANRUTI

¶69

INDUSTRIAL COMPANY PVT. LTD., IN RE, AIR

¶70

1960 MADRAS 537 held that question of reduction of capital is a matter of domestic concern, one for

¶71

- 12 - NC: 2023:KHC:22990-DB OSA No.5 of 2016

¶72

decision of majority of the shareholders of the company. It was further held that since, the decision for reduction of share capital is based on commercial considerations undertaken by

¶73

businessmen who are in best position to know the necessities and interest of the company, in the absence of serious allegation with regard to bonafides of the proposed scheme, the courts are hesitant in interfering with the view of the majority. The aforesaid decision of Madras High Court was referred to with approval by Bombay High Court in

¶74

ELPRO INTERNATIONAL LTD., IN RE', 2007 SCC

¶75

ONLINE BOM 1268.

¶76

We may advert to the facts of the case in hand. Admittedly, provisions of Section 100 to 104 of the Act for reduction of the paid up capital of the

¶77

13 -

¶78

NC: 2023:KHC:22990-DB OSA No.5 of 2016

¶79

company has been followed. Section 173 (2) of the Act reads as under:

¶80

Where any items of business to be transacted at the meeting are deemed to be special as aforesaid, there shall be annexed to the notice of the meeting a statement setting out all material facts concerning each such item of business, including in particular the nature of the concern or interest], if any, therein, of every director, the managing agent, if any, the secretaries and treasurers, if any, and the manager, if any: Provided that where any item of special business as aforesaid to be transacted at a meeting of the company relates to, or affects, any other company, the extent of shareholding interest in that other company of every director, the managing agent, if any, the secretaries and treasurers, if any, and the manager, if any, of the first- mentioned company shall also be set out in the statement if the extent of such shareholding interest is not less than

¶81

14 -

¶82

NC: 2023:KHC:22990-DB OSA No.5 of 2016

¶83

twenty per cent. of the paid- up share capital of that other company.

¶84

Thus, where a special business has to be transacted at a meeting, a statement setting out all material facts concerning each item of business have to be annexed along with notice. In the instant case, from perusal of Annexure-R5 i.e., the notice issued for annual general meeting of the company, the particulars of agenda item No.4 have been annexed with the notice. The relevant extract reads

¶85

as under:

¶86

4. To consider and if thought fit, to pass with or without modifications, the following resolution as a Special Resolution :

¶87

"RESOLVED THAT pursuant to the provisions of Sections 100 to 103 of the Companies Act, 1956 and subject to the confirmation by the Hon'ble High Court of

¶88

15 -

¶89

NC: 2023:KHC:22990-DB OSA No.5 of 2016

¶90

Karnataka, the Paid-up Share Capital of the Company be and is hereby reduced from Rs.2,98,50,000/- (Rupees Two Crores Ninety Eight Lakhs Fifty Thousand Only) consisting of 2,98,500/- (Two Lakhs Ninety Eight Thousand Five Hundred) equity shares of Rs.100/- (Rupees One Hundred) each to Rs.2,66,69,300/- (Rupees Two Crores Sixty Six Lakhs Sixty Nine Thousand Three Hundred Only) divided into 2,66,693 (Two Lakhs Sixty Six Thousand Six Hundred And Ninety three) equity shares of Rs.100/(Rupees One Hundred) by paying off an aggregate sum of Rs.9,54,21,000/- (Rupees Nine Crores Fifty Four Lakhs Twenty One Thousand only), being the fair value of equity shares, to a select group of shareholders being the holders of 31,807 (Thirty One Thousand Eight Hundred and Seven) equity shares and thereby extinguishing all such 31,807 (Thirty One Thousand Eight Hundred and Seven) equity shares.

¶91

RESOLVED FURTHER THAT , the reduction of the Company's Paid-up Equity Share

¶92

NC: 2023:KHC:22990-DB OSA No.5 of 2016

¶93

16 -

¶94

Capital as indicated above is subject to the following terms and conditions:

¶95

a) The holders of the equity shares whose shares are being reduced shall be paid by the Company the net consideration due to them within 30 days of the Effective date being the date on which order of the Hon'ble High Court of Karnataka confirming the reduction is registered by the Registrar of Companies, Karnataka. All such payments will be made by cheque, pay order or demand draft.

¶96

The paid up equity share capital of the company presently stands at Rs.2,98,50,000/(rupees Two Crores Ninety Eight Lakhs Fifty Thousand Only) consisting of 2,98,500 (Two Lakhs Ninety Eight Thousand Five Hundred) equity shares of Rs.100/- (Rupees One Hundred) each fully paid up.

¶97

17 - NC: 2023:KHC:22990-DB OSA No.5 of 2016

¶98

The shareholders are aware that the entire

¶99

shareholding of the company is held by four groups of shareholders viz., Lakshmanna Group,

¶100

Pakeerapppa Group, Somappa Group and Ramanna Group. The company is primarily being managed by the members of the Ramanna Group who hold 89.34% of the shares in the share capital of the company. The members of the other groups are not in any way involved in the management and day to day affairs of the company and therefore, the Board has felt that these groups could be given an exit from the company at a fair value. The Board is of the view that the present capital of the company is in excess of its wants and the Board is of the opinion

¶101

that this is an opportunity for the company to reduce its paid up share capital by canceling the equity shares held by the members of other groups

¶102

18 - NC: 2023:KHC:22990-DB OSA No.5 of 2016

¶103

of shareholders by paying of Rs.3000/- (Rupees Three Thousand Only) per equity share which is the fair value per equity share. The fair value has been computed by M/s M A Narsimhan & Co. Chartered Accountants, appointed by the Board at its meeting held on 3rd September 2015.

¶104

Thus, it is evident that material facts pertaining to special business are to be transacted in the meeting have been given. Therefore, the contention about non compliance with Section 179(2) of the Act does not deserve acceptance.

¶105

It is pertinent to mention here that the notice for convening the annual general meeting was issued by the Chairman of the company to all its shareholders. The notices were sent by registered posts. The appellant No.1 also received notice who acknowledged the receipt of notice vide email dated

¶106

19 - NC: 2023:KHC:22990-DB OSA No.5 of 2016

¶107

16.09.2015. The notice of the meeting to other appellants was also served. However, the appellants neither attended the meeting nor submitted any objection to reduction of paid up capital of the In the annual a company. general meeting, unanimous decision was taken to reduce the paid up capital of the company.

¶108

The aforesaid decision has been taken by the majority of shareholders of the company after taking into account the fair value of equity shares as per the report prepared by the Chartered Accountant. The decision for reduction of share capital is based on commercial considerations, which is taken by majority of shareholders who are in best position to know the necessities and interest of the company. There are no allegations as regards the bonafides of the proposed scheme of reduction of

¶109

20 - NC: 2023:KHC:22990-DB OSA No.5 of 2016

¶110

share capital. No ground to interfere with the aforesaid decision, which has been taken by majority of the shareholders is made out. It is pertinent to note that appellants have filed a petition under Section 241 and 244 of the Companies Act by seeking a declaration that reduction of share capital made by resolution dated 10.09.2015, extinguishing the shares of the appellants is an act of oppression, which has resulted in prejudice to the interest of the appellants. However, the aforesaid petition has been dismissed by an order dated 08.10.2018 passed by the national Company Law Tribunal

¶111

For the aforementioned reasons, we do not find any ground to interfere with the order passed by the Learned Company Judge. Needless to state that the appellants shall be entitled to value of their shares. The company is held not entitled to payment

¶112

21 - NC: 2023:KHC:22990-DB OSA No.5 of 2016

¶113

of interest on the value of shares of the appellants as the amount due to the appellants on account of value of their shares was handed over to the appellants by the company by way of a demand draft.

¶114

Accordingly, the appeal is disposed of.

¶115

Sd/JUDGE

¶116

Sd/JUDGE

¶117

Sri. M.S. Nagappa v. Stumpp Schuele and Somappa Private Limited

Case brief

What is this about?

What did the court decide?

Sri. M.S. Nagappa v. Stumpp Schuele and Somappa Private Limited

Case brief

What is this about?

What did the court decide?

What the court decided

A compact analysis

Issues for consideration

Cases cited

Statutes considered

Parties & counsel

Coram

Case details

Similar cases

Sri v M Ganesh Vs the Union of India

Smt a C Lalitha Vs Sri G Hareesh

Sri.K.Murthy Vs Smt.v.Kalaivani

Mr K Ravikumar Vs Smt Mamatha

Bengaluru Development Authority Vs Smt Rashme Hegde Gopi

Sri Satyanarayana Muniyappa Vs Siemens Financial Services Pvt. Ltd.