CS Rahul Harsh

CS Rahul HarshMCA In exercise of the powers conferred by sub-section (1) and (2) of section 469 read with section 66 of the Companies Act, 2013 on 15th of December, 2016 notified the National Company Law Tribunal (Procedure for reduction of share capital of Company) Rules, 2016 which reads with Section 66 of the Act, 2013 lays down the procedure to be followed for Reduction of Share Capital of a Company.

This Article deals with the Detailed Procedure for Reduction of Share Capital under Companies Act, 2013 and Rules made there under.

WHAT IS SHARE CAPITAL?

Section 2 (84) Defines the term as “share” means a share in the share capital of a company and includes stock.

Section 2 (64) Defines “paid-up share capital” or “share capital paid-up” means such aggregate amount of money credited as paid-up as is equivalent to the amount received as paidup in respect of shares issued and also includes any amount credited as paid-up in respect of shares of the company, but does not include any other amount received in respect of such shares, by whatever name called.

WHAT IS CAPITAL REDUCTION?

Capital reduction is the process of decreasing the company’s equity through cancellation or re-purchase of equity shares to achieve capital re-structuring due to over-valuation of assets or over-capitalization. This is achieved by writing off that portion of the capital which is lost to make the balance sheet healthy.

SECTION 66 OF COMPANIES ACT, 2013 – REDUCTION OF SHARE CAPITAL

A company desiring for Reduction of Share Capital needs to pass a special resolution and then has apply to the NCLT for making a petition.

The Company May:

a) Extinguish or reduce the liabilityon 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:

EXCEPTION CLAUSE: NO SUCH REDUCTION IN SHARE CAPITAL 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.

APPLICATION TO NCLT FOR REDUCTION OF SHARE CAPITAL:

  • Company shall make an Application to NCLT in Form RSC-1(Format provided in the Rules) with a fees of Rs. 5,000/-.

ATTACHMENTS TO THE APPLICATION:

The following needs to be attached along with the Application to the NCLT:

1. List of Creditors with details viz.: Names, Address and Amount owed to them, as on a date NOT EARLIER THAN FIFTEEN DAYS PRIOR TO THE DATE OF FILING of an application duly CERTIFIED BY THE MANAGING DIRECTOR, OR IN HIS ABSENCE, BY TWO DIRECTORS, AS TRUE AND CORRECT.

2. A CERTIFICATE FROM THE AUDITORof the company certifying that the List of Creditors of the Company are TRUE & CORRECT.

3. A CERTIFICATE BY THE AUDITOR AND DECLARATION BY A DIRECTOR OF THE COMPANYthat 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.

4. 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.

INSPECTION OF LIST OF CREDITORS:

The 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 do so during ordinary business hours and also take extract of the same on payment of the sum of rupees ten per page to the company.

NOTICE TO STAKE HOLDERS SEEKING THEIR REPRESENTATIONS AND OBJECTIONS:

After an application for Reduction of Share Capital is made the NCLT within 3 months of the receipt of the application shall give a NOTICE TO THE STAKEHOLDERS viz.:

1. Central Government in FORM No. RSC-2

2. Registrar in FORM No. RSC-2

3. Securities and Exchange Board of India (In case it’s a Listed Company) in FORM No. RSC-2

4. Creditors FORM No. RSC-3.

CONTENTS OF THE NOTICE:

The Notice Sent to the Creditors shall state:

  • The amount of the proposed reduction of share capital,
  • 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,
  • The time within which the creditor may send his representations and objections.

PUBLISHING OF NOTICE:

  • NCLT shall give directions to publish the Notice in Form No. RSC-4
  • It shall be published within seven days from the date on which the directions are given.
  • Newspaper:English newspaper AND in a leading vernacular language newspaper, both having wide circulation in the State in which the registered office of the company is situated.
  • Notice shall also be uploaded on the website of the company (if any)seeking objections from the creditors and intimating about the date of hearing.

AFFIDAVIT FOR CONFIRMING DISPATCH & PUBLICATION OF NOTICE.

The Company has to file an affidavit in Form No. RSC- 5 confirming the dispatch and publication of the notice as soon as may be but NOT LATER THAN SEVEN DAYS from the date of issuance of such notice.

REPRESENTATION MADE ON THE NOTICE DISPATCHED:

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 NCLT will then take into Consideration the Various Representations made by the Stakeholders.
  • Incase No Representation is made by the Stakeholders, It shall be PRESUMED that there are NO OBJECTION to the Proposed Reduction of Share Capital.

SATISFACTION OF NCLT TO PROCEED FOR REDUCTION OF SHARE CAPITAL:

The NCLT will allow the Reduction process 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.

The Application may be rejected if: The accounting treatment, proposed by the company for such reduction is NOT in conformity with the Accounting Standards specified in section 133 and a certificate to that effect by the company’s auditor has been filed with the Tribunal.

ORDER FOR REDUCTION OF SHARE CAPITAL

> The Tribunal after satisfaction may make an order confirming a reduction and the order may include such directions or terms and conditions as the Tribunal deems fit.

> The order confirming the reduction of share capital shall be in Form No. RSC – 6.

> The Certificate issued by the Registrar under sub-section (5) of section 66 shall be in Form No. RSC -7.

> The order of confirmation of the reduction of share capital by the Tribunal under sub-section (3) shall be published by the company in such manner as the Tribunal may direct.

PENALTY / PROSECUTION:

OFFICER

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,

he shall be liable under section 447.

COMPANY:

If a company fails to comply with the provisions it shall be punishable with fine which SHALL NOT BE LESS THAN FIVE LAKH RUPEES BUT WHICH MAY EXTEND TO TWENTY-FIVE LAKH RUPEES.

HERE THE TERM OFFICER MEANS:

Section 2 (59) “officer” includes ANY DIRECTOR, MANAGER OR KEY MANAGERIAL PERSONNEL OR ANY PERSON in accordance with whose directions or instructions the Board of Directors or any one or more of the directors is or are accustomed to act.

Author: CS Rahul Harsh, is a company secretary in Employment and can be contacted at: csrahulharsh@gmail.com

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Category : Company Law (3489)
Type : Articles (14984)
Tags : Companies Act (1960) Companies Act 2013 (1732)

One response to “Reduction of Share Capital under Companies Act, 2013 – A Complete Analysis of Section & Rules.”

  1. Malhar Deshpande says:

    What is the tax implication on amount received after capital reduction in hands of share holder

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