' MUHAMMAD ALI MAZHAR, J.---The petitioner has brought this petition under section 97 of the Companies Ordinance, 1984 for the orders of this court, confirming the reduction in the share capital. The petitioner has prayed as under:-- "(1) That the reduction of capital of the petitioner be confirmed in accordance with the special resolution set out in paragraph 10 above.
(2) That requirement of the phrase "and reduced" be added to the petitioner's name from the date of the order be dispensed with.
(3) That the proposed minute appearing in paragraph 4 above in relation to the reduction of the share capital be approved; and
(4) Any other order that this Hon'ble court deems fit."
2. The brief facts of the case are that the petitioner is a banking company incorporated under the Companies. Ordinance, 1984 as a company limited by shares. The petitioner is also licensed by the State Bank of Pakistan under section 27 of the Banking Companies Ordinance, 1962, to undertake and carry on banking business in Pakistan. The authorized capital of the petitioner is Rupees Fifteen billion only divided into one billion five hundred million shares having a face value of Rs,10 per share. The total paid up and issued share capital of the petitioner is rupees fourteen billion three hundred thirty four million seven hundred thirty four thousand one hundred and forty only.
3. That Article 44 of the Articles of Association of the petitioner provides as follows:- "REDUCTION OF SHARE CAPITAL: The Company may, by Special Resolution, reduce the Share Capital ip any manner, but subject to any incident authorized and consent required under sections 95-A, 96 and 97 of the Ordinance".
4. The petitioner is desirous of reducing its capital to the extent of Rupees Six billion two hundred fifty two million three hundred forty seven thousand six hundred and fifty six only under section 96 of the Companies Ordinance. The primary objective of the reduction in capital is to enable the petitioner to comply with the minimum capital requirements for years 2012 and 2013 as prescribed by the State Bank of Pakistan. An Extra-Ordinary General Meeting of the shareholders of the petitioner was convened on January 17, 2013 wherein it was resolved, by means of a special resolution that the capital of the petitioner be reduced.
5. The learned counsel for the petitioner argued that in terms of Article 44 of the Articles of Association, capital may be reduced by special resolution subject to provisions of section 96 and section 97 of the Companies Ordinance, 1984. It was further averred that this petition has been filed to seek confirmation for reduction of capital to the extent of PKR 6,252,347,656. The main purpose of the reduction of capital is to comply with the minimum capital requirements prescribed by the State Bank of Pakistan and to ensure that the capital is represented by the available assets and not by accumulated losses. He further argued that the petitioner has obtained the approval of shareholders. The State Bank of Pakistan and the Securities and Exchange Commission of Pakistan have already given their no objection in writing and also recommended that the requirement under section 98 of the Companies Ordinance of the words "and reduced" appearing as part of the name of the petitioner be dispensed with. The learned counsel further confirmed that the reduction of capital shall not involve any diminution of any liability in respect of un-paid share capital or payment to any shareholder of any paid up share capital. He concluded that the petitioner has completed all the formalities including EGM and approval of the concerned authorities and there is no material on record to suggest that the reduction would be against the public interest. In support of his arguments, he referred to the following case-law:--.
(1) 1999 CLC 1603. (Pak Asian Fund Limited). Section 97. Confirmation of reduction of authorized share capital. In a case for confirmation of a resolution for reducing share capital the questions for consideration are, should the court refuse its sanction to the reduction out of regard to the interests of those members of the public who may be induced to take shares in the company; is the reduction fair and equitable as between different classes of shareholders; whether the reduction is shared by all and is designed to work just and equitably and whether it does not involve diminution of the liability in respect of any unpaid capital or payment of any shareholder of any paid-up capital and there is evidence regarding the loss of capital and non-representation of available assets.
(2) 1988 M LD 1408 (Bankers &mitt) Ltd.). Reduction of subscribed and paid-up capital of company.
Application for confirmation of Scheme. Authority to reduce capital was conferred on Company under para 11(iv) of its Articles of Association and exercise of that power was reflected by resolution passed by majority of shareholders of the Company to whom material facts concerning reduction of capital under a statement envisaged by C 1.(b) of section 160 of Companies Ordinance, 1984 had been conveyed. Public shareholders were not debarred from converting their shareholding into the investment in the long term finance certificates as it was in the resolution that first preference would be given to them in case they chose to go for such conversion. There was a possibility of overall improvement in the return on paid-up capital by virtue of implementation of proposed scheme and alteration in framework of capital structure would be some advantage to company and its shareholders. Proposed scheme of reduction in capital of Company. Held. Appeared to be quite viable, fair and reasonable.
6. Heard the arguments. Under section 96 of the Companies Ordinance, 1984 a company may reduce its share capital by Special Resolution in any way and particularly in the circumstances such as to extinguish or reduce the liability On any of its share in respect of share capital not paid- up or either with or without extinguishing or reducing liability on any of its share, cancel any paid- up share capital which is lost or unrepresented by available assets or either with or without extinguishing or reducing liability on any of its share, pay-off any paid-up share capital which is in excess of needs of the company and may, if and so far as is necessary, alter its memorandum by reducing the amount of its share capital and of its share accordingly. After passing resolution for reducing share capital the company may apply to the court for confirming the reduction of share capital under section 97 of the Ordinance.
7. According to section 98 of the Ordinance, it is also incumbent upon the company that from making of the order confirming reduction, the company shall unless directed by the court for any special reason, add to it name until such date as the court may fix, the words "and reduced" as the last words thereof, and those words shall continue until that date be deemed to be part of the name of the company. However, the proviso attached to section 98 gives ample power and discretion to the court to dispensed with the addition of the words "and reduced" where reduction does not involve either the diminution of any liability in respect of un-paid share capital or payment to any shareholder of any paid up share capital.
8. In various foreign judgments quoted in the Guide to the Companies Act, 17th Edition 2010 authored by A. Ramaiya, at pages 1407 to 1409, the following instances are mentioned for reduction of share capital which are commonly adopted:--
(1) Reduction of excess capital. North Regent Securities Ltd., (No,00811 of 1953); Re, Blackburn Coal Stores Pty. Ltd., (1939) VLR 351.
(2) The cancellation of all the share capital as part of a scheme of arrangement. (1937) 81 SJ 922.
(3) Reduction to rectify an irregular repayment or purchase of shares by the directors. Re, Scottish A Queensland Mortgage Co., (1908) 46 SLR 22; Re, York Glass Co. Ltd., (1889)60 LT 744.
(4) Paying off part of the shares out of capital in excess of wants so as to enable the holders of the remaining shares in effect to acquire the interest of those paid off and become the only shareholders.
(5) Cancelling shares of two members by agreement to repay the company the loss resulting from misappropriation of funds by an official. Re, Banknock Coal Co. Ltd., (1897) 24 R 476. Cancelling shares surrendered, or the holders of which consent to cancellation. Re, Llynvi, etc. Iron Co., (1877) 26 WR 55; Re, Vivian 86 Co., (1886) 54 LT 384; Poole v.
National Bank of China Ltd., (1907) AC 229. In Randesia Base Mineral Mining and Development Co.
(Pty) Ltd., (1939) WLD 291, a reduction was confirmed to rectify the payment of a dividend out of capital.
(6) Paying off or returning paid-up capital not wanted for the purposes of the company. Re, Less Brook Spinning Co., (1906) 2 Ch 394; Re, Artisans Land and Mortgage Corpn., (1904) 1 Ch 796; Re, Piercy Whithwhani v. Piercy, (1907) 1 Ch 289.
(7) Paying off unpaid-up capital by issuing debentures or debenture stock in satisfaction Re, De La Rue and Co. Ltd, and Reduced, (1911) 2 Ch 361. This will not be sanctioned where it would result in the company becoming wholly insolvent: Re, Clark, (1921) NZLR 533 or where a company is satisfied that it can finance its requirements to the extent of capital repaid by raising money or loan or borrowing from its bankers.
(8) Paying off and cancelling preference shares, in pursuance of a contract in the memorandum and articles binding on both preference and ordinary shareholders, by applying for the purpose a portion of the profits of the company. See Re, Dicido Pier Co., (1891) 2 Ch 354.
(9) Reducing the liability of shareholders in respect of uncalled or unpaid capital.
(10) Reduction in excess of the wants of the company satisfied by the distribution of investments of greater value than the amount of the reduction. Re, Westburn Sugar Refineries Ltd., (1951) 1 All ER 881.
(11) Lost capital. Cancelling capital which has been lost or is unrepresented by available assets. In such case where a company has lost part of its capital, nothing, as SIR GEORGE JESSEL said in Ebbw Vale Steel etc. Co., (1877) 4 Ch D 827 can be more beneficial to the company than to admit the loss, and to write it off, e.g., to reduce its Eurol shares to 10s., and thus place itself in a position to resume payment of dividends, or raise further capital.
(12) Reduction to reduce all shares of a company which has lost its register of members and cancel all shares the holders of which do not signify their wish to continue as members. Re, Kasudan Holdings Ltd., (No,0063 of 1956).
(13) Paying off paid-up capital on the footing that it may be called up again. Re, Fore Street, etc., Co., (1888) 59 LT 214; Re, Brown, Sons & Co., (1931) SC 701; Watson-Walker & Quickfall, (1898) WN 69; Re, Scottish Vulcanite Co, Ltd.,(1894) 21 R 752; Re, Stevenson, Anderson & Co. Ltd., 1951 SLT 235.
Repaying capital to the holders of fully paid-up shares of a class on the footing that it can be called up again so as to bring them into line with the partly paid shares of the class. Neale v. City of Birmingham Tramways, (1910) 2 Ch 464.
(14) Where the amount unpaid on shares was cancelled and money was raised by the issue of new shares. Hoggan v. Tharsis Sulphur & Copper Co. Ltd: (1882) 9 R 1191. In Morrison (W) & Co. Ltd., (1892)
19 R 1049, the court refused the reduction where the nominal amount of the shares was unaffeted by the paid-up amount was reduced.
(15) Writing off unpaid capital.---The company proposed to cancel shares which were allotted to public but which remained unpaid. A special resolution was passed for cancellation of such shares and reduction of capital accordingly. There was no opposition to the resolution. The minute of reduction as proposed by the company was confirmed by the court. Vantech Industry Ltd. Re, (1999) 2 Comp LJ 47: (1999) 20 SCL 370 (AP).
(16) Reduction need not be qua all shareholders. The company proposed to reduce its issued and paid-up shared capital. The proposed resolution was to extinguish and cancel shares held by shareholders constituting 25% of the issued and paid-up capital. The capital was to be returned to the shareholders. The scheme was applicable to shareholders who either assented or did not object to it. The court said that it was not necessary that a proposal of this kind should be applicable to every shareholder. A speculative variation in price of shares of the company could invalidate an otherwise valid resolution. The court allowed the petition. Elpro International Ltd., Re., (2009) 149 Corn Cases 646 (Born): (2008) 86 CLA 47 (Bom).
9. The Court has first to be satisfied that the creditors if any objected to the reduction either their consent to the reduction has been obtained or their debts or claims have been discharged or settled. The court's power in such type of matters is discretionary with further powers to impose conditions if found necessary keeping in view the facts and circumstances of each case. The court generally require the company to use the words "and reduced" as part of their name and to publish in newspapers for the sake of public knowledge of the reasons for the reduction but such condition may be dispensed with if the reduction does not involve diminution of any liability in respect of up- paid share capital or payment of any share holder of any paid-up share capital. The extent and amount of reduction is a domestic matter and so long as there is no injustice to the creditors or the shareholders, the court is not concerned with the precise amount of reduction of capital as decided in the case of Westburn Sugar Re fineries Ltd., [19511 1 All ER 881. The power conferred on the court in order to enable it to protect the interests of dissenting shareholders and even those who do not appear. In making its order the court approves a minute and embodying minute in a confirmatory order is a sufficient approval. The minute is designed to show the altered structure of the company capital, the amount of remaining share capital, the number of shares into which it is to be divided, the amount of each share if any at the date of registration of minute deemed to be paid-up on each share.
10In reaching its decision whether to approve the reduction of capital or not, the court will consider the factors whether shareholders have been treated equitably, whether the reduction proposals have been properly explained, whether creditors or third party interests have been prejudiced and whether the reduction has a discernible purpose. (Ref: Palmer's Company Law, Vol: 1 25th Edn.). In British and American Corporation. V. Couper case reported in 118941 A.C. 399, Lord Herschell L.0 said "it will be observed that neither all these statutes prescribed the manner in which the reduction of capital is to be effected nor is there any limitation of the power of the court to confirm the reduction, except that it must first be satisfied that all the creditors entitled to object to the reduction have either consented or being paid or secured. I think it was the policy of the Legislature to entrust the prescribed majority of the shareholders with the decision whether there should be a reduction of capital and if so, how it should be carried into effect. The interests of the dissenting minority of the shareholders (if there be such) are properly safeguarded by this, that the decision of the majority can only prevail if it be confirmed by the court.
11. The record of this case shows that the advertisement of main petition in terms of Rules 19 and 76 of the Companies (Court) Rules 1997 was published in the newspapers daily "fang" and The News" and also Gazetted on 5-6-2013. Notice was also issued to S.E.C.P and they filed comments. No objection certificate 'issued by the State Bank of Pakistan Banking, Surveillance Department is also attached with the petition as annexure "D" and on the date of hearing Mr. M. Ramzan, Deputy Director of State Bank was also present, who recognized and confirmed the no objection attached with the petition. The S.E.C.P in their revised comments dated 11-6-2013 admitted the factual position and endorsed their no objection if the petition is allowed. In the no objection of State Bank of Pakistan, they have principally agreed that the share capital may be reduced subject to compliance of relevant rules and regulations and they have no objection if the words "and reduced" is dispensed with from the name of Bank/petitioner if its capital is reduced.
12. Under the memorandum and articles of the association, the company may by special resolution reduce the share capital subject to sections 95-A, 96 and 97 of the Companies Ordinance. Copy of special resolution dated 17-1-2013 is available on record. The extract of shareholders attendance register attached with the petition shows that 52 shareholders attended the meeting. The item No,2 of the special business was to consider and approve capital restructuring through reduction of share capital of the Bank and issuance of right shares and the reduction of that share capital to the extent of PKR 6,252,347,656 which was approved subject to the provision under section 96 of Companies Ordinance. In approval of this resolution, the percentage of votes in favour was 99.99% of the total nominal value of shares held by member present and voted in person or by proxy. The next item pertains to the issuance of shares by way of right issue which was also approved by same percentage of members. The items Nos.3 and 4 are relating to the filing of petition in this court which were also approved by the same majority and or percentage of members. The rationale and or motivation behind the scheme of reduction is to embolden and enable the petitioner to comply with minimum capital requirement prescribed by the State Bank of Pakistan and in addition thereto, few more benefits will also be achieved, including the writing of the amount of accumulated losses and to re-profile its balance sheet for reflecting actual business condition to the stake holders and after capital reduction, number of shares will be decreased or in other words the number of shares will be reduced in such proportion so as to offset the impact of accumulated losses.
13. After considering the pros and cons, I have reached to an irresistible conclusion that the petitioner has complied with all requisite formalities. There is no impediment to grant this petition. I am also convinced that the proposed reduction is just and fair and not likely to affect the interest of the shareholders who have themselves resolved and approved the scheme. Nobody has objected the scheme of reduction or the special resolution passed by the company. S.E.C.P. And State Bank, both have also given their consent to the reduction. The learned counsel for the petitioner categorically and unequivocally stated that the reduction of capital does not involve any diminution of any liability in respect of unpaid share capital or payment to any shareholder of any paid-up share capital.
14. For the foregoing reasons the minutes passed in EGM on 17-1-2013 for capital restructuring through reduction of share capital are approved and the petition is allowed. However, the condition of the words "and reduced" required to be added with the name of company is dispensed with keeping in view the facts and circumstances of the case. Let all the formalities concerning to the registration of order and minute of reduction be complied with in terms of section 102 of the Companies Ordinance 1984.