Reliance Retail Share Capital Reduction Upheld as Non-Promoters Received Fair Value

The National Company Law Appellate Tribunal (NCLAT) has dismissed a petition challenging Reliance Retail’s 2023 share capital reduction, as per the news reports. The tribunal affirmed that non-promoter shareholders were offered a fair value for their shares, concluding that due process was followed and the majority shareholder's decision must stand.

Reliance Retail: Fair Value Offered in Selective Share Cancellation

In July 2023, Reliance Retail’s board approved a resolution to reduce its equity share capital by cancelling 78,65,423 shares held by non-promoter shareholders. These shares represented only 0.09% of the company's total shareholding. The company offered ₹1,380 per share, which is 56% above the independently assessed fair value. This buyback was approved by 99.99% of voting shareholders.

NCLAT Dismisses Minority Shareholder’s Objection

A shareholder owning 129 shares, equating to 0.0000014% of Reliance Retail’s paid-up capital, challenged the resolution, claiming a forced exit. The Mumbai bench of NCLT had earlier dismissed his petition, and upon appeal, NCLAT reaffirmed that the process complied with Section 66 of the Companies Act, 2013. The tribunal stated that selective reduction is permissible if a fair value is paid to objecting shareholders.

Read More: Reliance Consumer Products to Invest ₹768 Crore in Kurnool Food Park!

Legal Backing and Regulatory Endorsement

The tribunal pointed out that the Articles of Association provide Reliance Retail authority for such capital reduction. It also noted that regulatory bodies like the Registrar of Companies and the Regional Director did not object to the transaction. Although the Regional Director termed it a selective reduction, no legal violation was observed.

Majority Consent Reinforces Validity

The overwhelming shareholder approval and payment above fair value supported the tribunal’s view that the decision was in line with corporate governance standards. With no other objections raised by shareholders, the tribunal treated this as a matter of corporate autonomy.

Conclusion

NCLAT's verdict has reaffirmed the legality of Reliance Retail’s share capital reduction, where non-promoter shareholders were adequately compensated. The ruling underscores the importance of majority shareholder approval and fair valuation in capital restructuring.

Disclaimer: This blog has been written exclusively for educational purposes. The securities or companies mentioned are only examples and not recommendations. This does not constitute a personal recommendation or investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions.

Investments in securities are subject to market risks. Read all related documents carefully before investing.