Reduction of share capital not a buyback

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Ruling in the matter of M/s Reckitt Benckiser (India) Ltd, Delhi High Court recently held that under the Companies Act, 1956, a scheme for reduction of share capital is distinct from that for buyback of share capital. The conditions in the act for reduction of share capital – in sections 100 to 104 – “cannot be imported into or made applicable to a buyback” provided for in section 77A and vice versa, as they “operate in independent fields”.

The court was considering a petition filed under sections 100 to 105 of the Companies Act, read with rule 46 of the Companies (Court) Rules, 1959, to confirm the reduction of share capital of Reckitt Benckiser, which was being objected to by a lone shareholder.

The shareholder argued that the company was proposing a “forcible acquisition” of shares of public shareholders, which was in fact a buyback of shares. He also said that the government policy of removing caps on foreign investment in personal care and the health sector was illegal and that the scheme of reduction was a product of these wrong economic policies.

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The update of court judgments is compiled by Bhasin & Co, Advocates, a corporate law firm based in New Delhi. The authors can be contacted at lbhasin@bhasinco.in or lbhasin@gmail.com. Readers should not act on the basis of this information without seeking professional legal advice.

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