Procedure for Reduction of Share Capital

Procedure-Reduction-Share-Capital



As per the provisions of Section 66(1) of the Companies Act 2013 (1) 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, reduce the share capital in any manner and in particular, may—

      (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,—
      (i)  cancel any paid-up share capital which is lost or is unrepresented by available assets; or
(ii)  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:

Provided that no such reduction shall be made if the company is in arrears in the repayment of any deposits accepted by it, either before or after the commencement of this Act, or the interest payable thereon.

Procedure for Reduction of Share Capital

1.     Ensure that its articles of association contain a provision authorizing reduction of share capital. If there is no such provision then the articles have to be first altered in accordance with the provisions of Section 14 of the Companies Act, 2013.
2.            Convene and hold a Board meeting to -
(i)    approve the scheme of reduction of share capital by a resolution;
(ii)  fix time, date and venue for holding a general meeting of the company for passing a special resolution for reduction of share capital subject to confirmation by Tribunal as per provisions of Section 66 of the Act and for altering the capital clause in the memorandum of association of the company, as a consequence of reduction of share capital of the company;
3.      Soon after the conclusion of the Board meeting, send to the stock exchanges, where the securities of the company are listed, particulars of the proposed reduction in the share capital of the company.
4.        Issue notice of the general meeting to all members, directors and auditors of the company. Also send three copies of the notice of the general meeting to the stock exchanges where the securities of the company are listed.
5.            Hold the general meeting and have the special resolution(s) passed.
6.        Forward a copy of the proceedings of the general meeting to the concerned stock exchanges as per the Listing Agreement.
7.      File e-form MGT-14 along with a certified true copy of the special resolution(s), copy of explanatory statement and copy of altered Memorandum of Association and Articles of Association with the ROC within thirty days of the passing of the resolutions.
8.            Apply to Tribunal for confirmation of the capital reduction.
9.       The Tribunal shall give notice of every application made to it under sub-section (1) 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, Provided that where no representation has been received from the Central Government, Registrar, the Securities and Exchange Board or the creditors within the said period, it shall be presumed that they have no objection to the reduction.
10.      The Tribunal may, if 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, make an order confirming the reduction of share capital on such terms and conditions as it deems fit. The order of confirmation of the reduction of share capital by the Tribunal under subsection shall be published by the company in such manner as the Tribunal may direct.
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