As per section 66 of Companies Act, 2013:
Subject to confirmation by the NCLT 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:
A company proposing to reduce its share capital is required to take the following procedural steps:
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 –
a. approve the scheme of reduction of share capital by a resolution;
b. 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 National Company Law 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;
c. Approve notice, agenda and explanatory statement to be annexed to the notice of the general meeting as per Section 102 of the Act; and
d. Authorize the company secretary or some other competent officer to issue notice of the general meeting as approved by the Board.
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 as per the requirement of Regulation 30 of Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015.
4. Issue notice of the general meeting to all members, directors and auditors of the company. Also 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 MGT-14 along with a certified true copy of the special resolution(s), copy of explanatory statement under Section 102 and copy of altered Memorandum of Association and Articles of Association with the ROC within thirty days of the passing of the resolutions along with the prescribed filing fee for its registration under Section 117 of the Act.
8. Apply to National Company Law Tribunal for confirmation of the capital reduction by way of a petition in Form No.RSC-1 of the NCLT (Procedure for Reduction of Share Capital of Company) Rules, 2016 (notified on 15th December, 2016).
9. A petition to confirm a reduction of share capital shall be accompanied along with following documents and a fee of Rs. 5,000:
10. National Company Law Tribunal will give notice to Central Government, Registrar of Companies and SEBI within 15 days from filing of petition.
11. The Notice to the creditors ( as per list submitted to NCLT) in the Form RSC-3 shall be sent to each creditors within the seven days from the direction of the NCLT or such other period as may be prescribed by the NCLT for their objections, if any and the creditors will send their representations and objections within the three months.
12. Publish the notice in Form RSC-4 within the seven days from the directions of NCLT. Notice shall be published in a vernacular newspaper in the principal vernacular language of the district in which the registered office of the company is situated, and in an English newspaper in English language, both having a wide circulation in that district.
13. The Company or the person who was directed to issue the notice shall file an affidavit in the Form RSC-5 confirming the despatch and publication of the Notice.
Here, it may be noted that all concerned parties will make their representations within the three months from the date of receipt of notice and where no representations has been made from the side of Central Government, Registrar of Companies, SEBI and Creditors, it shall be presumed that they have no objections for the said reduction.
14. The Company shall submit the NCLT, within the seven days of expiry of period up to which representations has been sought, the representations and objections so received and company reply on it.
15. At the hearing of petition the NCLT may, if it thinks fit gives such directions as may deem fit and issue its order.
16. File the order of the NCLT with Registrar of Companies in Form No. INC-28 within the 30 days from the date of Order.
17. Collect the existing share certificate and destroy them and issue fresh share certificates (in case of shares issued in physical form) or otherwise contact with RTA and Share Transfer Agent.
18. Take all other steps in accordance with the scheme of reduction of share capital of the company as approved by the Court, e.g. to pay-up share capital which is in excess of the wants of the company.
19. The company must send to the concerned stock exchanges in case of listed company three copies of all the notices, circulars etc. issued and/or published in newspapers by the company in connection with the reduction of the share capital of the company as per the Listing Agreements signed with the stock exchanges.