NCLT Kochi Greenlights Cochin Aircraft’s Capital Reduction as a Commercially Sound and Fair Decision

NCLT Kochi Greenlights Cochin Aircraft’s Capital Reduction as a Commercially Sound and Fair Decision

Introduction

The National Company Law Tribunal (NCLT), Kochi Bench comprising Smt. Madhu Sinha (Member Technical) and Shri Vinay Goel (Member Judicial), approved a petition filed under Section 66 of the Companies Act, 2013, by M/s. Cochin Aircraft Maintenance Company Limited seeking reduction of its paid-up share capital. The Tribunal held that the proposal was a commercially sound decision and did not adversely affect any creditors, employees, or other stakeholders.

Factual Background

M/s. Cochin Aircraft Maintenance Company Limited was engaged in aircraft maintenance and training activities. Due to increasing competition from Cochin International Aviation Services Limited, a subsidiary of CIAL, the company decided to discontinue its aviation-related operations. The shareholders resolved to shift focus toward general engineering consultancy, which required lesser capital.

The company proposed to reduce its paid-up share capital from ₹1,13,58,450 to ₹25,83,450 by returning ₹87,75,000 to shareholders. The special resolution approving the reduction was unanimously passed at an Extraordinary General Meeting (EGM) held on 5 April 2025. The petitioner certified that there were no secured or unsecured creditors and no employees at the time of filing.

Procedural Background

The petition was filed under Section 66 of the Companies Act, 2013, which permits companies to reduce their share capital subject to Tribunal approval. The statutory auditor confirmed that the company had no outstanding debts or employee liabilities. Notices were issued to relevant authorities, including the Registrar of Companies (ROC), Income Tax Department, Enforcement Directorate, and Directorate General of Civil Aviation. None of the authorities raised any objections.

Issues

1. Whether the proposed reduction of share capital complied with Section 66 of the Companies Act, 2013.

2. Whether the reduction would adversely affect the interests of creditors, employees, or other stakeholders.

3. Whether the proposal was a bona fide commercial decision consistent with the company’s restructured operations.

Contentions of Parties

Petitioner’s Submissions: The petitioner argued that the reduction was necessary to return idle capital following the discontinuation of aviation operations. It was emphasized that the company had no creditors or employees, as certified by the auditor, and the decision was unanimously approved by shareholders. The petitioner further asserted that the move was lawful, proportionate, and commercially justified.

Respondent’s Submissions: The ROC and other statutory authorities did not oppose the petition. The Income Tax Department and Enforcement Directorate confirmed they had no objections to the capital reduction.

Reasoning and Analysis

The Tribunal noted that the reduction of paid-up capital had been duly approved by the shareholders in accordance with statutory requirements. Since the company had no creditors or employees, there were no concerns of prejudice to any stakeholders. The Bench emphasized that capital reduction is a commercial decision within the purview of company management, provided it complies with law and does not adversely impact creditors or public interest. The NCLT also observed that the petitioner had complied with accounting standards under Section 133 of the Companies Act and that no statutory objections were received. The Tribunal reiterated that the reduction was proportionate, lawful, and reflective of the company’s scaled-down operations. It held that the proposal was justified on commercial grounds and consistent with Section 66 of the Act. However, the Bench clarified that its sanction did not absolve the company of any pending or future statutory liabilities.

Implications

This decision reinforces the principle that reduction of share capital is a commercial prerogative, subject to statutory safeguards. It underscores that when no creditors or employees are affected and proper shareholder approval is obtained, the Tribunal will generally endorse such restructuring proposals. The ruling also highlights that NCLT’s sanction does not immunize a company from compliance with other regulatory obligations.

In this case the appellant was represented by Mr. Nebil Nizar, Advocate. Meanwhile the respondent was represented by an Authorized representative of ROC.