IN RE Vs. ROYALSOFT SERVICES LTD

JUDGEMENT

(1.) Under consideration is a company petition filed under section 391(2) read with sections 100 to 104 of the Companies Act, 1956, which has been transferred from the hon'ble High Court of Madras to this Tribunal and renumbered as T.P. (HC) No. 30/CAA/2017. By this company petition, M/s. Royalsoft Services Ltd. (hereinafter referred to as the "petitioner-company") seeks the sanction to the scheme of arrangement (in short, "scheme") between the petitioner-company and their shareholders under section 391 whereby it is proposed to reduce the issued, subscribed and paid-up capital of the petitioner-company by paying off part of the paid-up capital of the company subject to the election option to be exercised by the shareholders of the company. The share capital of the petitioner-company as on March 31, 2016 is as under:

(2.) At the outset, it is necessary to know the details of the scheme which needs determination. The petitioner-company is a public unlisted company having its registered No. 12, South Mada Street, Srinagar Colony, Saidapet, Chennai-600 015 and the board of directors vide its resolution dated April 1, 2016 approved the said scheme of arrangement. The petitioner-company is engaged in the software business and main objects of the company are to carry on the business to manufacture, develop and deal in computer software and hardware of all kinds including application software and development of specific packages and to establish and run training centres, factories and showrooms for computer, software, hardware and other electronic products. The hon'ble Madras High Court vide its order dated March 30, 2016 in C.A. No. 491 of 2016 directed to convene a meeting of the equity shareholders of the company which was complied with by the petitioner-company. The total number of equity shareholders in the petitioner-company is 3,985. There are seven unsecured creditors including M/s. D. Muthunarayanan and Co. and XS Real Properties P. Ltd., is the only secured creditor who has given NOC dated April 1, 2016 in relation to the said scheme.

(3.) Shri Arvind Pandian, learned senior counsel appearing for the petitioner-company submitted that the rational, reasons and circumstances that have necessitated the proposed scheme are that the software business performed by the petitioner-company has been subject to severe competition in software industry. The performance of the company has been dwindling and the software business has incurred significant losses over the years resulting in no dividend being declared by the company and the business operations of the company are extremely unviable. Due to the significant losses suffered and the failure of software business, net worth of the company have completely eroded, resulting at the present book value of an equity share standing at a value of Rs. 11 (negative eleven rupees) per share. Due to the severe losses suffered by the petitioner-company and there being no return on the investment made by the shareholders, the board of directors under the proposed restructuring exercise have provided a liquidity option to the shareholders by structuring an exit option for all the equity shareholders at a value of rupee one for every four equity shares held in the petitioner-company. Further, the said scheme provides an exit route to the shareholders who were vested with the option of either holding their investments or exercise the option of exiting the petitioner-company at the price of rupee one for every four equity shares of Rs. 10 each held in the petitioner-company as per clause 3.1 of the said scheme. Learned counsel further submits that no investigation proceedings are pending against the petitioner-companies under sections 235 to 251 or any other provisions of the Companies Act, 1956 or corresponding provisions of the Companies Act, 2013.