Reduction of capital is a sensitive issue; managerially, financially, economically, and legally. Hence, reduction of capital by a company is always subject to confirmation by the Tribunal on an application made by the company. Company applying for reduction may either be a company limited by share or a company limited by guarantee but having a share capital. Reduction of capital must be approved by special resolution passed by the company. a company may reduce share capital in following manner –
(a) extinguish or reduce the liability on any of its shares in respect of the share capital not paid – up; or
(b) either with or without extinguishing or reducing liability on any of its shares –
- cancel any paid – up share capital which is lost or is unrepresented by available assets; or
- pay off any paid – up share capital which is in excess of the wants of the company.
Reduction of capital of a company results in alteration of its memorandum by reducing the amount o fits share capital and of its shares accordingly.
No reduction of capital shall be made if the company is in arrears in the repayment of any deposits accepted by it or the interest payable thereon.
The Tribunal shall give notice of every application made to for reduction of capital to the Central Government, Registrar and to the Securities and Exchange Board, in the case of listed companies, and the creditors of the company and shall take into consideration the representations, if any, made to it by that Government, Registrar, the Securities and Exchange Board and the creditors within a period of three months from the date of receipt of the notice.
Where no representation has been received from the Central Government, Registrar, the Securities and Exchange Board or the creditors within the period of these three months, it shall be presumed that they have no objection to the reduction.
In respect of any debt of claim of every creditor should have been discharged or determined or secured by the company. Otherwise, the company should obtained consent of creditors for reduction of capital. The tribunal may make an order confirming the reduction of share capital only after it is satisfied that the debt or claim of every creditor of the company has been discharged or determined or has been secured or his consent is obtained. The order of the tribunal may contain such terms and conditions as it may deem fit.
Accounting treatment for reduction of share capital should be in conformity with the accounting standards specified in section 133 or any other provision of Companies Act 2013. The company shall obtain a certificate to this effect from auditors of the company and file it before the Tribunal. The tribunal shall not sanction this reduction unless this certificate has been filed.
The order of confirmation of the reduction of share capital by the Tribunal shall be published by the company in the manner directed by the Tribunal.
The company shall delivered a certified copy of the order of the Tribunal before the Registrar within thirty days of receipt of the copy of the order along with a minute approved by the Tribunal showing –
(a) the amount of share capital;
(b) the number of shares into which it is to be divided;
(c) the amount of each share; and
(d) the amount at the date of registration deemed to be paid – up on each share.
The registrar shall register the same and issue a certificate to that effect.
This Section 66 does not apply to buy – back of its own securities by a company under Section 68.
A member of company, past or present, shall not be liable to any call or contribution exceeding the amount of difference, if any, between the amount paid on the share or reduced amount, if any which is to be deemed to have been paid thereon and amount of shares as fixed by an order of reduction.
Where the name of any creditor not entered on the list of creditors and after such reduction the company is unable to pay the amount of his debt or claim –
(a) every person, who was a member of the company on the date of the registration of order for reduction by the Registrar, shall be liable to contribute to the payment of that debt or claim; and
(b) if the company is wound up, the Tribunal may, on application of any such creditor and proof of his ignorance, settle a list of persons so liable to contribute and make and enforce calls and orders on the contributories settled on the list.
The amount for contribution shall not exceed the amount which contributor would have been liable to contribute if the company had commenced winding up on the day immediately before the date of filing of order before the Registrar.
This provision shall not affect the rights of the contributors among themselves.
If any officer of the company—
(a) knowingly conceals the name of any creditor entitled to object to the reduction;
(b) knowingly misrepresents the nature or amount of the debt or claim of any creditor; or
(c) abets or is privy to any such concealment or misrepresentation as aforesaid,
he shall be liable under section 447.
If a company fails to comply with the provisions relating to publication of order, it shall be punishable with fine which shall not be less than five lakh rupees but which may extend to twenty-five lakh rupees.
Please note: I welcome your comments and feedback. This blog post is not a professional advice. Readers may share this post on social media by using buttons given here.
- ALTERATION OF SHARE CAPITAL (Companies Act 2013) (aishmghrana.me)
- SHARE CAPITAL (Companies Act, 2013) (aishmghrana.me)
- FINANCIAL TREATMENT RELATED TO SHARE CAPITAL (Companies Act, 2013) (aishmghrana.me)
- VARIANTS OF PROSPECTUS (Companies Act, 2013) (aishmghrana.me)
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I think that what you posted was very reasonable. However, consider
this, what if you added a little information? I am not saying your information is not good., however
what if you added a title to possibly grab a person’s
attention? I mean REDUCTION OF SHARE CAPITAL (Companies Act 2013) | AishMGhrana is
a little boring. You could look at Yahoo’s home page and watch
how they create news titles to grab people interested.
You might try adding a video or a picture or two to get readers interested about everything’ve got to say.
In my opinion, it would make your website a little bit more interesting.
LikeLiked by 1 person
I am thankful for careful study and valuable feedback.
I will definitely improve things which i also think are monotonous presently.
Thank you very much Estella.
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Say you have 10 shares of Altd and so do I.. If I buy those 10 shares form you.. Will that amount to Reduction of Capital?
Mr. A purchasing 10 share of Ms. B, making his total holding of 20 shares.
Company is not in picture except entering this transaction in its register.
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I realise this comment is a little too late from when you made the post, I can only hope that you are still active.
I had a question regarding Reduction of Capital.
I own shares in a public listed company, namely : Trigyn Technologies Limited. This company has announced a day back that they are going to be undertaking Reduction of Capital.
I have read through your entire article, and it is very thorough. The only problem is, theres too much jargon for me to understand it comprehensively.
If its not too much trouble for you, could you please summaries in lay mans language how this will affect me and what the potential repercussions are for the company.
Will it affect the face value of the stock, and if so what effect will that have on the investment I have made?
Thank you for your time in advance.
The post you reading, is for informed user. I understand need for investor education point and layman language.
I will do a series on such angle in near future.
Investor may have different effect depend upon method selected by company.
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