Summary: Reducing share capital for a company involves a structured process requiring National Company Law Tribunal (NCLT) approval. The reduction can occur by extinguishing unpaid shares, canceling lost paid-up capital, or repaying excess capital. Initial steps include passing a resolution at a board meeting and obtaining special resolution approval from the general meeting, followed by filing e-form MGT-14 with the Registrar of Companies (ROC). The company must then apply to the NCLT using Form RSC-1, providing necessary documents such as creditor lists and auditor certificates. NCLT will issue notices to creditors and other stakeholders, seeking objections. If there are no objections, NCLT approves the reduction in Form RSC-6. The company must then file NCLT’s order with the ROC within 30 days, and comply with subsequent requirements like altering the Memorandum of Association (MoA) and Articles of Association (AoA). Certain reductions, such as share forfeitures or buy-backs, do not require NCLT approval. Companies and their officers must avoid misrepresentations and ensure compliance, or face penalties under section 447 of the Companies Act, 2013.
The company, limited by shares, with the prior approval of National Company Law Tribunal (NCLT), can reduce its share capital and in a manner by way of-
1. Extinguish or reduce the liability on the shares that are not fully paid-up, or
2. Cancel any paid up share capital which is lost or pay off any excess paid up share capital apart from extinguishing it.
As per considered the provision specified under section 66 of the companies act, 2013 read with the applicable provisions specified in Rules and Regulations as per the sector and status of the company.
Before going to the process of the reduction of share capital, there are certain prohibitions covered below for reducing the unnecessary delays and penalties. These are:
1. When the company is in arrears of the repayment of any deposits accepted by it,
2. When the company is in arrears in payment of interest on deposits accepted by it.
Now, the process for reduction of Share capital as specified below:
1. Convene a meeting of Board of Director: The first process of the reduction of share capital is passing a resolution in the board meeting, held through sending a notice of board meeting of at least 7 days before of meeting annexed with the explanatory statement and agenda for covering the points discuss in the meeting. Also if the company is a listed entity, so the prior intimation specified under Regulation 29 of SEBI (LODR), Regulation, 2015, is required to be sent to the stock exchanges.
2. Convene general meeting: Now, hold the general meeting and pass Special Resolution approving reduction of share capital by the members of the company and file e-form MGT-14 with ROC within 30 days of passing the Special Resolution annexed with the board resolution, minutes of board meeting and general meeting and proposal for reduction of share capital.
3. Application to NCLT for Reduction of Share Capital: An application for the reduction of share capital needed to submit to the NCLT for seeking the approval for the process. The application is in the format as specified by the NCLT in Form RSC-1 and fees, as prescribed in the Schedule of fees annexed with the following attachment like- List of creditors certified by the MD, or by two directors in the absence of MD, not older than 15 days of filling the application, certificate from auditor and declaration by directors regarding the repayment of dues and interests unpaid till the date of filling.
4. Notice or any direction received from Tribunal: The tribunal within 15 days of filling the application, give notice or any direction or representation, if any from central government, creditors of the company, SEBI (in case of listed entity) etc.. The details about the representation seeking and directions are published in the newspaper along with the affidavit in the form RSC-5 confirming the dispatch of notice and its publication.
5. Representation sent to creditors, ROC, RD/OL: The NCLT also send notice to creditors in seven days for their representation and any objections regarding the process of reduction of share capital
6. NCLT order after filling the representation, objections: Registrar, SEBI and creditors within the period of 3 months from the notice sent, fill such representation or objection if any have and no reply presumed to be no objection. So, the NCLT, after considering the application and seeking the representation and considering the facts of the case, convinced about the fair continuation of process of the reduction of share capital, approved the process in the form RSC-6.
7. Filling the order of NCLT with ROC: The Company shall deliver a certified copy of the Tribunal’s order along with the minutes within the period of 30 days to the Registrar defining the amount of share capital reduced, number of shares, amount of each share etc. The ROC shall register the same and issue a certificate to that effect in form RSC-7.
8. Other Requirements: The Company shall need to comply with the provisions after approval of process like alteration in Moa and Aoa, implementation of scheme to the SEBI (if listed entity) etc.
Apart from the above specified process of the reduction of share capital, there are certain modes of the Reduction of share capital where the approval of NCLT is not required. These are:
1. Where the shares are forfeited for non-payment of call money,
2. Where the company buy-back of its own securities by a company under Section 68 of the Companies Act, 2013,
3. Where redeemable preference shares are redeemed in accordance with the provisions of Section 55 of the Companies act, 2013.
Offences and Compoundability-
The company and officer in default would liable to the misstatements and non-compliances of the provisions as specified below:
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, shall be liable under section 447 of the Companies Act, 2013.
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