The National Company Law Tribunal (‘the NCLT’), Mumbai, had passed an order approving the reduction of share capital of Reliance Retail Ltd[1] (‘the Respondent’) under Section 66 of the Companies Act, 2013.
The Board of Directors of Reliance Retail Ltd (‘the Company’) approved the reduction and cancellation of 78,65,423 equity shares held by non-promoter shareholders, which represented only about 0.09% of the total shareholding. The reduction was carried out via a special resolution that received 99.99% approval, with 84.65% of the identified shareholders voting in favor.
Each share was to be bought back at ₹1380 per share, a premium of 56% over its fair value as determined by two independent valuers.
Regulatory authorities (Regional Director and ROC) did not object to the reduction, noting only that it was a selective reduction.
However, the appellant, Naman Gurumurthi Joshi (‘the Appellant’), being a shareholder holding 129 shares (0.0000014%) in Reliance Retail Limited, objected to the order passed by the NCLT, Mumbai bench. The contentions filed by the Appellant is as under:
- The Appellant objected to the reduction of share capital, alleging that it violated minority shareholder rights and that Section 66 of the Companies Act, 2013 did not permit such “selective capital reduction”, especially where the company had not proved the paid-up capital was in excess of its requirement.
- He argued the scheme amounted to forceful removal of minority shareholders and was intended to increase promoter holding unfairly.
- The Appellant claimed Section 66 only permitted capital reduction in circumstances specifically stated (such as capital in excess of want or unrepresented by assets), and the present situation did not fit those predicates.
- He did not challenge the price offered, admitting the premium was fair, but contested the legality and scope of the reduction mechanism.
In response to the contentions of the Appellant, the Company contested as under:
- The Company argued the reduction adhered to Article 56 of its Articles of Association and the statutory provisions under Section 66 of the Companies Act, 2013, specifically sub-section 1, which allows companies to “reduce their share capital in any manner” by special resolution and Tribunal confirmation.
- The Company emphasized:
- The shares were not listed and did not have a recognized market, leading to random private transactions without fair price discovery.
- The Company did not plan to list its shares, decreasing future marketability and liquidity for small shareholders.
- The capital reduction would allow Reliance Retail to structure itself as a 100% subsidiary of Reliance Retail Ventures Ltd, comply with the Act, and facilitate efficient investor exit.
- The paid consideration per share was significantly above fair value (₹1380, a 56% premium), and most shareholders supported the move.
Tribunal’s Findings and Case Laws
The Tribunal dismissed the appeal, stating that the law and precedents permitted such selective reductions when minority interests are protected and the process is fair. The summary of such fundings is as under:
- The Appellate Tribunal and NCLT clarified Section 66(1) of the Companies Act, 2013 is permissive, not restrictive: “a company… may, by a special resolution, reduce the share capital in any manner…”; clauses (a) and (b) cited are merely illustrative and do not limit the scope.
- Case law relied on by the Tribunal for supporting selective reduction includes:
- Reckitt Benckiser India Ltd[2]:
- This case established that as long as objecting shareholders are paid a fair value for their shares during capital reduction, the selective reduction route is permissible.
- The court emphasized that the fairness of compensation and the majority’s approval are key parameters; provided these are met, a company’s autonomy in restructuring its share capital is respected.
- Brillio Technologies P Ltd[3]:
- The NCLAT held that Section 66 of the Companies Act, 2013 allows a company to reduce its share capital in any manner, including through selective reduction of minority shareholdings, so long as it is in compliance with the law and fairness principles.
- This case reiterated that selective reduction isn’t prohibited, and Tribunals should ensure that the process and value offered to minority shareholders are reasonable.
- Elpro International Ltd[4]:
- The Bombay High Court held that decisions regarding reduction of capital are matters of domestic corporate concern, meaning the majority’s decision prevails when fairness is ensured.
- The court further stressed the Tribunal’s role as limited to confirming that the transaction is fair, reasonable, and not prejudicial to minority interests, rather than interfering in commercial decisions of the company.
- The Tribunal noted that reduction of share capital is a “domestic concern” best left to the majority, provided fairness and reasonable compensation are assured to objecting shareholders.
- The Tribunal held no reduction could be challenged merely for being selective if the process is fair, reasonable, and non-promoter shareholders are adequately compensated.
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[1] Naman Gurumurthi Joshi vs. Reliance Retail Ltd [LSI-1416-NCLAT-2025-(NDEL)] dated, September 29, 2025
[2] Reckitt Benckiser India Ltd (2005 122 DLT 612)
[3] Brillio Technologies P Ltd v. Registrar of Companies and Anr (2021 SCC OnLine NCLAT 508)
[4] Elpro International Ltd. In Re (2007 SCC OnLine Bom 1268)