1989 PLP 3075 (MLD)

Therefore, under the provisions of Section 97 of the Companies Ordinance, 1984 and in .pursuance of the powers in that behalf contained in the Articles` of Association, the company by a special resolution of its shareholder duly passed at a meeting duly convened for that purpose on 15th December, 198 that the share capital be reduced as said above. The reduction of the capita according to the petitioner, will not involve either a diminution of liability respect of unpaid share capital or the payment to any shareholder of any paid-it, share capital and in consequence creditors of the company are not entitled to object to the reduction under the provisions of Section 99(1) of the Ordinance The petitioner therefore prays that it may be declared that the creditors are not entitled to object to the above reduction of the capital and the reduction of the capital affected by the special resolution be confirmed and that the period for which the words "and reduced" shall be added to the company's name be limited to one year from the date of the order of this Court. Notice had been duly published in Gazette of Pakistan, dated 15th June, 1988, Daily Morning News dated 4th August, 1988 and Daily Hurriyat Dated 22nd June, 1988 and also served on the Registrar, Joint Stock Companies, Karachi and no objection is forthcoming. The provisions under the Companies Ordinance, 1984 relating to reduction of the share capital are found in Sections 97 to

107. Sections 97 to 107 are based on Sections 55 to 66 of Companies Act, 1913. Section 97 corresponds to Section

55. The word `capital' involved in reduction of capital includes nominal share capital, whether issued or unissued and if issued, whether fully paid or not, and share' includes stock', so that a company may reduce its stock. Every reduction of capital must reduce the nominal capital, and a reduction of unissued capital and a reduction of issued capital, reduced whether fully paid or not: Re Anglo French Exploration Company (1902)

2. Ch. 845 at

852. The need for reduction of capital may arise in various ways, for example trading losses, heavy capital expenses (e.g. preliminary expenses) and assets reduced or doubtful value. As a result, the original capital may either have become lost or a company may find that it has more resources than it can profitably employ. In either, the need may arise to adjust the relation between capital and assets. Unlike an individual, a company has no power to write off losses of this nature or to return capital except m the manner provided by the Ordinance. (See Robert Alan Hill v. Permanent Trustee Company of New South Wales Ltd. (1930 A.C. 720: A 1930 P.C. 302) and this can be done as indicated in Section

100. The Court has power to sanction any reduction which is fair and equitable (British and Smerical Trustee and Finance Corporation v. Couper, 1894 AC 399), but subject to -the Court's description as above any loss it to borne among the members in such manner as a loss in respect of capital is to be borne under the constitution of the Company, and if money is to be returned, it is to be returned in the same way as capital is returnable (Re Chafferley Whitefield Collusics Ltd., 1948-2 AER 593). The question of reduction of capital has been treated as a matter of domestic concern, one for the decision of the majority of the shareholders of the company. Subject to the necessity of obtaining the confirmation of the Court, the Company is left to choose the mode of the reduction and all other questions concerning the reduction including the application of the moneys which may be set free as the result of the reduction (See 1894 A.C. 399). I find no impediment to exercise my discretion in declaring that the reduction of the capital effected by the special resolution set out above be confirmed. I am of the view that by the provisions of Section 98, every company is under an obligation on and from the passing of the resolution to reduce the share capital and in cases where the reduction does not involve either diminution of liability in respect of unpaid share capital or the payment to any shareholder of any paid-up share capital from the date of the passing of the order to add temporarily the name of the company, until the Court dispenses with the same, the words "and not reduced". The Court has jurisdiction to dispense with the words only in cases where the reduction does not involve either the diminution of any liability in respect of unpaid capital or the payment to any shareholder of any paid-up capital. The object of using the words "and reduced" is to give public notice that the company had once a larger capital and has reduced it. The reasons which provided the legislature to produce this was thus explained by Jessel M.R. in re Ebbw Vale Steel, Iron, and Coal Company, (1877) 4CH. Division 827 at 832) as under:-- "Now what is the meaning of that It means that the company is to give notice to the world that it is a company which previously offered to the public the security of a larger amount of nominal capital, that is, of a larger amount of liability on the part of the shareholders, than it offers now I direct that the words "and reduced" be added for a period of one year from this date. I have therefore no objection to this reduction and also sanction the proposal. As a result, the petition succeeds. No objections have been offered, there shall be no order as to costs. H.B.T./B-121/K Petition accepted.