The Hindu Business Line : Madras HC clears BPL Cellular's capital reduction programme

The proposal, which has already been approved by the board of directors, envisages, inter alia to reduce the paid-up value of each share from Rs 100 to Rs 85.

Chennai , Jan. 25

THE Madras High Court has confirmed the proposal of the BPL Mobile Cellular Ltd, Coimbatore, for reduction of its paid-up capital by 15 per cent.

After hearing the elaborate presentation of the company's scheme by its counsel, Mr R. Murari, Mr Justice S.R. Singaravelu ordered sanction of the programme.

The scheme has come in the wake of the out-of-court settlement in July last between the founder of the BPL Group, Mr T.P.G. Nambiar, and his son-in-law and BPL Communications CEO, Mr Rajeev Chandrasekhar, at the Company Law Board's Chennai Bench, specific action has been initiated to further strengthen the fortunes of the money-spinner BPL Cellular Ltd by reducing the company's paid-up capital from Rs 1,262 crore to Rs 1,072 crore. (BPL Cellular has since been sold to Hutchison Essar.)

The company has justified the scheme saying it has become necessary to implement the new package sanctioned by the Corporate Debt Restructuring (CDR) Cell for financial restructuring to reduce its "overall capital employed and operate with a leaner balance sheet base."

The proposal, which has already been approved by the company's board of directors, envisages, inter alia to reduce the paid-up value of each share from Rs 100 to Rs 85. The general body at its annual general meeting held on September 30, 2004, had passed a special resolution approving the proposal. It has been made clear by the company that the move does not involve either the diminution of liability in respect of unpaid share capital or the payment to any shareholder of any paid-up share capital, and, consequently, there is no cash outflow as a result of the reduction.

In its petition before the High Court, the company has explained that the reduction in the equity share capital envisaged was in pursuance of a restructuring package approved by the Empowered Group of the Corporate Debt Restructuring Cell (CDR).

The package, according to the company, has been assented to by the secured lenders who were before the CDR. The only other secured creditor of the petitioner was ABN Amro Bank in respect of whom the outstanding term loan with interest as on September 30, 2004, was Rs 45.47 crore. As the restructuring did not involve any cash outflow, the same would not affect the normal operations of the petitioner, or its ability to honour its commitments and to pay its debts, in the ordinary course of business, the petitioner contended.

The company further submitted to the Court that for all practical purposes, the capital to be reduced represented the already eroded value. It was filing the present application seeking dispensing with the settlement of the list of creditors and notice to the creditors as provided for in the Companies (Court) Rules.

The company's authorised capital as on March 31, 2004, was Rs 25,000,000,000 divided into 25,00,00,000 equity shares of Rs 100 each, and the issued, subscribed and paid-up capital was Rs 12,619,795,600 divided into 126,197,956 shares of Rs 100 each.

It has been explained by the company in its affidavit filed before the Court that implementation of the package would enable it to obtain funds for business as cellular industry was "in the high funding league" of industries, and there was a constant requirement of funds in relation to such business.

The reduction envisaged would also enhance shareholder value through improvement in future profitability and consequent increase in earnings per share and return on capital employed. The reduction would also not have any major impact on the book value of the company's shares.

According to the petitioner, the effect of reduction would be to reduce the equity share capital by an amount not exceeding Rs 1,89,29,69,340 by reducing the paid-up value of each share from Rs 100 to Rs 85 each.

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