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Dinesh Narayanan

Mumbai , Oct. 25

THE Bombay High Court has refused the Pune-based Sandvik Asia Ltd permission to reduce its equity share capital disregarding the opposition of small investors, saying that the proposal is not fair and equitable.

Advocate Mr Ashok Purohit, who appeared for the minority shareholders, said that Sandvik Asia's petition has been dismissed with costs.

Sandvik Asia had proposed to extinguish the non-promoter ownership (about 5 per cent) of its share capital under Section 100, of the Companies Act, 1956, that allows companies to reduce their equity capital "in any way" if authorised by the articles of association.

Outside of the promoters' (Sandvik AB and Sandvik Finance B.V.) holding, there are 61,071 shares spread among 2,787 investors.

When contacted, Mr N.P. Achuthan, Company Secretary, Sandvik Asia, said the company was yet to receive the written order and would decide the course ahead after studying it.

Some large multinational corporations that have increased holding in their Indian subsidiaries through equity buy-backs and de-listed the shares from Indian stock exchanges are also understood to be contemplating using Section 100 to assume full control of subsidiaries.

At the hearing on October 16, Mr Janak Mathuradas, a shareholder who owns 304 shares in Sandvik Asia, told the High Court in a written affidavit that the reduction in the share capital was discriminatory and unfair to small investors. It selectively applied to only small investors and not equally to all shareholders of a particular class of the company.

He went on to add that he has been a shareholder of the company for 35 years and does not want to relinquish his rights in it. He also contended that the proposal is in effect a buyback and the provisions of Section 77A or, alternatively, Section 391 of the Companies Act should be followed.

He alleged that the plan in the current form amounts "to forcible acquisition or surrender of shares by small investors against their wishes."

Over the past five years, Sandvik Asia bought back most of its non-promoter equity capital, raising the foreign promoters' holding to nearly 95 per cent. In January 1998, it made the first open offer to buy back shares at Rs 1,800 each from the public. It made a second offer in May 2001 at Rs 850 a share and another in January 2003 at the same price.

The company called an extraordinary general meeting in June last to seek shareholders' approval to extinguish the non-promoter equity through a special resolution. It offered an exit route at Rs 850 per share, which, several minority shareholders declined to accept.

The resolution, which failed to get two-thirds majority in show of hands (21 in favour, 13 against), was carried on polling, the vote heavily tilted in favour of the promoters, who held 95.54 per cent of the voting rights.

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