Section 66 of the Companies Act, 2013, discussed earlier here, was notified on 7th December 2016 with effect from 15th December 2016. Central Government on 15th December 2016 notified the National Company Law Tribunal (Procedure for reduction of share capital of Company) Rules, 2016 with effect from even date. In this post we will discuss the same.
Application of Reduction of Share capital
According to Section 66, subject to confirmation by the Tribunal on an application by the company, a company limited by shares or limited by guarantee and having a share capital may, by a special resolution. According to rule 2 of these Rules, an application before the Tribunal for reduction of share capital shall be filed in Form RSC – 1.
Fee for Application
Fee for filing of application for reduction of share capital shall be Rs. 5,000/-.
According to sub – rule (2) of rule 2, Application RSC – 1 shall be accompanies by –
- List of creditors, duly verified, as on a date not earlier than fifteen days prior to filing;
- Certificate of verification of list of creditor from auditor;
- Certificate by auditor that there is no arrears in the repayment of the deposits or the interest thereon;
- Declaration by a director that there is no arrears in the repayment of the deposits or the interest thereon; and
- Certification by auditor regarding conformity with the accounting standards.
The list of creditors shall be duly verified by the Managing Director as true and correct. In absence of managing director any two directors may verify the list of creditors. The List of creditors shall not be made as on a date earlier than fifteen days prior to the date of filing of the application. The list shall show details of creditors, their class, names, address and amount owed to them.
The auditor shall verify the list of creditors from the record of the company before issuing certificate.
Directors shall give a declaration that as on the date of filing of the application, there are no arrears in the repayment of the deposits or the interest thereon. The auditor shall verify this declaration and give his certificate thereon.
Inspection of list of creditors
According to sub – rule (3) of rule 2, copies of the list of creditors shall be kept at the registered office of the company. Any person desirous of inspecting the list may inspect and take extracts from the same. Such person can inspect the list during ordinary office hours. The fee for inspection will be rupees fifty and for extracts rupees ten per page. The fees shall be paid to the company.
Issue of notice
According to sub – rule (1) of rule 3, the Tribunal shall give notice, or direct that notice be given to ─
(i) the Central Government, Registrar of Companies, in all cases, in Form No. RSC-2;
(ii) the Securities and Exchange Board of India, in the case of listed companies in Form No. RSC-2;
(iii) the creditors of the company, in all cases in Form No. RSC-3;
seeking their representations and objections, if any. The direction for the notice shall be issued within fifteen days of submission of the application under rule 2.
Notice to creditor
The notice to each creditor in form RSC – 3 shall be sent within seven days of the directions given by the Tribunal. The Notice shall be about presentation of the application, amount of the proposed reduction, and estimated value of the debt (and/or) contingent debt and the time within which the creditor may send his representation or objection. The Tribunal may more time for issue of notice to the creditors.
According to sub – rule (3) of Rule 3, the Tribunal shall also give directions for the publication of notice in English and leading vernacular language newspaper having wide circulation in the state in which registered office of company is situated. The Tribunal shall also give direction for uploading of notice on the website of the company. The notice shall be Form RSC – 4, seeking objections from the creditors and intimating about the date of hearing.
The language of newspaper advertisement shall be English.
According to sub – rule (4) of rule 3, the advertisement notice shall state the amount of the proposed reduction of share capital, and the places, where the aforesaid list of creditors may be inspected, and the time as fixed by the Tribunal within which creditors of the company may send their objections.
According to proviso to sub – rule (4) of rule 3, the objections shall be filed in the Tribunal within three months from the date of publication of the notice with a copy served on the company.
Confirmation of dispatch
According to sub – rule (5) of rule 3, the company or the person who was directed to issue notices and the publication in the newspaper under this rule shall file an affidavit in Form RSC – 5 confirming the dispatch and publication of the notice. The affidavit shall be filed not later than seven days from the date of issue of such notices.
Dispensing requirement of Notices
According to sub – rule (6) of rule 3, where the Tribunal is satisfied that the debt or claim of every creditor has been discharged or determined or has been secured or his consent is obtained, it may dispense with the requirement of giving of notice to creditors or publication of notice under this rule or both.
Representation by authorities or creditors
According to rule 4, if the authorities or the creditors of the company desire to make any representation, the same shall be sent to the Tribunal within a period of three months from the date of receipt of notice. A copy of such representation shall simultaneously be sent to the company.
In case no representation has been received within this period by the Tribunal it shall be presumed that they have no objection to the reduction.
Procedure with regard to representations
According to sub – rule (1) of Rule 5, the company shall submit to the Tribunal, within seven days of expiry of period up to which representations or objections were sought, the representations or objections so received along with the responses of the company thereto.
According to sub – rule (2) of Rule 5, the Tribunal may give such directions as it may think fit with respect to holding of any enquiry or adjudication of claims or for hearing the objection or otherwise.
According to sub – rule (3) of Rule 5, at the hearing of the application, the Tribunal may give such directions as may deem proper with reference to securing the debts or claims of creditors who do not consent to the proposed reduction. The further hearing of the petition may be adjourned to enable the company to comply with such directions.
According to sub – rule (1) of Rule 6, where the Tribunal makes an order confirming a reduction, the order confirming the reduction and approving the minute may include such directions or terms and conditions as the Tribunal deems fit.
According to sub – rule (2) of Rule 6, the order confirming the reduction of share capital and approving the minute shall be in Form RSC – 6.
Certificate of Reduction
The Certificate issued by the Registrar under sub-section (5) of section 66 shall be in Form RSC – 7.
Form RSC – 1 # Application under section 66 for confirming the reduction of share capital
Form RSC – 2 # Notice to Central Government, Registrar etc
Form RSC – 3 # Notice to Creditors
Form RSC – 4 # Publication of Notice
Form RSC – 5 # Affidavit on dispatch and publication of notice
Form RSC – 6 # Order confirming Reduction of Share Capital and Approving Minute
Form RSC – 7 # Certificate of Registration of Order and Minute