Companies Act, 2013 Procedure

Reduction of Share Capital

Napur Rathore
Nupur Rathore

Published on: Jun 7, 2020

Introduction

Subject to confirmation by the Tribunal (National Company Law 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, reduce the share capital in any manner and in, particular, may

  • extinguish or reduce the liability on any of its shares in respect of the share capital not paid-up or
  • 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

alter its Memorandum by reducing the amount of its Share Capital and of its shares accordingly. [Section 66(1)]

Mandatory Requirements for Reduction of Share Capital

  1. To hold Board meeting for Reduction of Share Capital.
  2. Reduction of the Share Capital shall not be made if the company is in arrears in the repayment of any deposits accepted by it, either before or after the commencement of Companies Act, 2013, or the interest payable thereon. [Proviso of Section 66(1)]
  3. Debt or claim of every creditor of the company has been discharged or determined or has been secured or his consent is obtained
  4. No application for reduction of share capital shall be sanctioned by the Tribunal unless the accounting treatment, proposed by the company for such reduction is in conformity with the accounting standards specified in section 133 or any other provision of this Act and a certificate to that effect by the company's auditor has been filed with the Tribunal. [Proviso of Section 66(3)]
  5. To hold the General Meeting and passing the required resolution for the Reduction of Share Capital.

The Following procedure is to be followed for Reduction of Share Capital of a Company

  1. Convene a Meeting of Board of Directors
    • Issue Notice of Board Meeting to all the Directors of Company at their addresses registered with the Company, at least 7 days before the date of Board Meeting. A shorter notice can be issued in case of urgent business.
    • Attach Agenda, Notes to Agenda and Draft Resolution with the Notice.
    • Hold a meeting of Board of Directors of the Company to consider the proposal for Reduction of Share Capital of the Company.
    • Pass the necessary Board Resolution for Reduction of Share Capital subject to member’s approval in general meeting.
    • To fix the day, date, time and venue of the General Meeting and to approve the draft notice convening the General Meeting along with explanatory statement annexed to the notice as per requirement of the Section 102 of the Companies Act, 2013 and authorize the Director or Company Secretary to sign and issue notice of General Meeting.
    • Authorize Company Secretary or any Director to sign and file the relevant form with Registrar of Companies and to do such acts, deeds and things as may be necessary to give effect to the Board’s decision.
    • Prepare and Circulate Draft Minutes within 15 days from the conclusion of the Board Meeting, by Hand/Speed Post/Registered Post/Courier/E-mail to all the Directors for their comments. [Refer the Procedure for Preparation, Signing and Compilation of Minutes]
  2. Making the disclosure of the Board meeting [Regulation 30 and 46(3) of the SEBI (LODR) Regulations, 2015]
    In case of listed company, shall first disclose to stock exchange(s) (where shares are listed) about the Board meeting as soon as reasonably possible and not later than twenty four hours from the end of the Board Meeting and update the same on the website of the company within 2 working days.
  3. Convene General Meeting
    • Notice of General Meeting shallbe given at least clear 21 days before the actual date of a General Meeting in writing, by hand or by ordinary post or by speed post or by registered post or by courier or by facsimile or by e-mail or by any other electronic means or a Shorter Notice can be issued with the consent of at least majority in number and ninety five percent of such part of the paid up share capital of the company giving a right to vote at such a meeting in accordance with Section 101.
    • Notice will be sent to all the Directors, Members, Auditors of Company, Secretarial Auditor, Debenture Trustees and to others who are entitled to receive the notice of the General Meeting.
    • Notice shall specify the day, date, time and full address of the venue of the Meeting and contain a statement on the business to be transacted at the Meeting.
    • Hold the General Meeting on the fixed day and pass the Special Resolution for altering the Memorandum of Association by reducing the Share Capital of the Company.
    • Check the Quorum and check whether auditor is present, if not. Then Leave of absence is Granted or Not.
    • Prepare the minutes of General Meeting, get them signed and compile accordingly (Refer the procedure for preparation, signing and compilation of minutes of General Meeting). [Section 96, 100 and Secretarial Standard-2 (SS-2)]
  4. Filing of forms with ROC [Section 117]
    File Form MGT-14 along with the Registrar of Companies within 30 days of passing the Special resolution in the General Meeting, along with following documents as an attachment
    • Certified True Copies of the Special Resolutions along with explanatory statement.
    • Copy of the Notice of meeting sent to members and to all stakeholders along with all the annexures.
    • A printed copy of the Amended Memorandum of Association and Article of Association.
    • Copy of Attendance Sheet of General Meeting.
    • Shorter Notice Consent, if any.
  5. Application to NCLT for Reduction of Share Capital [Rule 2 of NCLT (Procedure for Reduction of Share Capital of the Company) Rules, 2016]
    An application to the Tribunal to confirm a reduction of share capital of a company shall be in Form RSC-1 and fee shall be, as prescribed in the Schedule of fee to these rules along with the following documents
    • the list of creditors duly certified by the Managing Director, or in his absence, by two directors, as true and correct, which is made as on a date not earlier than fifteen days prior to the date of filing of an application showing the details of the creditors of the company, class-wise, indicating their names, addresses and amounts owed to them
    • a certificate from the auditor of the company to the effect that the list of creditors referred above point (a) is correct as per the records of the company verified by the auditor
    • a certificate by the auditor and declaration by a director of the company that the company is not, as on the date of filing of the application, in arrears in the repayment of the deposits or the interest thereon
    • a certificate by the company’s auditor to the effect that the accounting treatment proposed by the company for the reduction of share capital is in conformity with the accounting standards specified in section 133 or any other provisions of Act.
    Copies of the list of creditors shall be kept at the registered office of the company and any person desirous of inspecting the same may, at any time during the ordinary hours of business, inspect and take extracts from the same on payment of the sum of rupees fifty for inspection and for taking extracts on payment of the sum of rupees ten per page to the company.
  6. Issue of notice and directions by the National Company Law Tribunal [Rule 3 of NCLT (Procedure for Reduction of Share Capital of the Company) Rules, 2016]
    • The Tribunal shall, within fifteen days of submission of the application, give notice, or direct that notice be given for seeking representations and objections, if any from
      • the Central Government, Registrar of Companies, in all cases, in Form RSC-2
      • the Securities and Exchange Board of India, in the case of listed companies in Form RSC-2
      • the creditors of the company, in all cases in Form RSC-3.
    • The notice shall be sent within 7 days of the directions given by the NCLT, to each creditor whose name is entered in the list of creditors submitted by the company about the presentation of the application and of the said list, stating the amount of the proposed reduction of share capital and the amount or estimated value of the debt or the contingent debt or claim or both for which such creditor's name is entered in the said list, and the time within which the creditor may send his representations and objections.
    • The NCLT shall also give directions for the notice to be published in Form RSC-4 within seven days of such direction in a leading English and vernacular language newspaper, both having wide circulation in the State in which the registered office of the company is situated, or such newspapers as may be directed by the Tribunal and for uploading on the website of the company for seeking objections from the creditors and intimating about the date of hearing.
    • The company or the person who was directed to issue notices and the publication in the newspaper under this rule shall, as soon as may be, but not later than seven days from the date of issue of such notices, file an affidavit in Form RSC- 5 confirming the dispatch and publication of the notice.
    • The NCLT may dispense with the requirement of giving notice to the creditors or publication of notice, if every creditor has been discharged or secured or given his consent.
  7. Representation by Central Government, Registrar etc. under sub-section (2) of section 66 [Rule 4 of NCLT (Procedure for Reduction of Share Capital of the Company) Rules, 2016]
    Registrar, SEBI and creditors shall send representation to NCLT within 3 months of receipt of notice and copy of such representation which shall also be sent to the company. If no such representation has been received by NCLT within the said period, it shall be presumed that they have no objection.
  8. Procedure with regard to representations and objections received [Rule 5 of NCLT (Procedure for Reduction of Share Capital of the Company) Rules, 2016]
    • The company shall submit to the Tribunal, within seven days of expiry of period upto which representations or objections were sought, the representations or objections so received along with the responses of the company thereto.
    • 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.
    • At the hearing of the application, the Tribunal may, if it thinks fit, 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, and the further hearing of the petition may be adjourned to enable the company to comply with such directions.
  9. Order on application and Minute thereof [Rule 6 of NCLT (Procedure for Reduction of Share Capital of the Company) Rules, 2016]
    • 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.
    • The order confirming the reduction of share capital and approving the minute shall be in Form RSC - 6 on such terms and conditions as may be deemed fit.
    • The ROC shall issue a certificate to that effect in Form RSC-7. [Rule 6 of NCLT (Procedure for Reduction of Share Capital of the Company) Rules, 2016]
  10. The application fees for reduction of share capital is Rs. 5,000/- (Schedule of Fees)
  11. Alteration in Every Copy of MOA and AOA [Section 15(1)]
    Every Alteration made in the memorandum or articles of the company shall be noted in every copy of the memorandum or articles as the case may be.
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