Walmart India Private Limited has moved the National Company Law Tribunal (NCLT) Delhi under sections 66 and 52 of the Companies Act, 2013, for the reduction of share capital.
Walmart India is the parent organisation of e-commerce giant Flipkart.
Reduction of share capital is a process that a company undertakes to eliminate or adjust accumulated losses, return capital to shareholders, or adjust the capital structure of the company. Accumulated losses are losses that have been carried forward from previous years. Walmart has moved the NCLT to eliminate accumulated losses against the share premium that it has received from its existing shareholders.
The case came up for hearing on August 8 and the tribunal decided to adjourn the proceedings to the upcoming week. The company's attorney was directed by the tribunal to provide supporting judgments from higher courts and the supreme court to reinforce their arguments.
What are sections 52 and 66 of the Companies Act?
Section 52 of the Act states that when a company issues shares at a premium, it is empowered to transfer a sum equal to the premium it has received to “securities premium account” to provision for the reduction of share capital at a future date.
Section 66 of the Companies Act permits a company to reduce its share capital, with the consent of NCLT. The tribunal will have to issue notice to the Registrar of Companies (RoC), central government and SEBI (in case it is listed company).
Flipkart's response:
Responding to Moneycontrol's query on the move, Flipkart said "In compliance with the Companies Act, 2013 and with the consent of the Company’s Board and shareholders, Walmart India has proposed to undertake the Reduction of Share Capital. The reduction of share capital essentially entails the set-off of our accumulated losses with securities premium and does not have any impact on creditors and shareholders of the company, nor does it impact the value of the shares."
Flipkart reiterated that the capital reduction is subject to the approval of NCLT.
"The company is confident of honoring its commitments and meeting its liabilities, and both present and future fund requirements," Flipkart said.
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