Deepa Devi

A comparison between the National Company Law Tribunal (Procedure for reduction of share capital of Company) Rules, 2016(herein after referred to as the ‘New Rules’), the Draft National Company Law Tribunal Rules, 2015 (herein after referred to as ‘Draft Rules’) and the Company Court Rules, 1959[1](herein after referred to as the ‘Old Rules’) is made in the table below:-

Particulars New Rules Draft Rules Old Rules
Form of application or petition for reduction of share capital Application to be made to the Tribunal in Form RSC – 1 and such fee as prescribed in the Schedule of Fee to these Rules. Application to be made to the Tribunal in Form NCT -13 accompanied by notice of admission for directors in Form No. NCT-14. A petition to confirm a reduction of the share capital of a company shall be in Form No. 18, and shall be accompanied by a summons for directions in Form No. 19. The petition to be verified by an affidavit in Form No. 3.
Observation As per the New Rules the application for reduction of capital made to the Tribunal need not be accompanied by notice of admission for the directors as required under the Draft Rules. The Old Rules required the application to be accompanied by summons for directions.
Compulsory Attachments

 

 

 

1. A 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;

2. A certificate from the auditor of the company to the effect that the list of creditors referred to in 1. above is correct as per the records of the company verified by the auditor;

3. 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; and

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 or any other provisions of Act.

1. Copies of memorandum and articles of association;

2. Copies of audited balance sheets for past 3 years;

3. Resolution approving the reduction;

4. Documents in proof of new reduced capital structure;

5. Affidavit verifying the petition.

6. Bank draft evidencing payment of application fee.

7. Memorandum of appearance with copy of the Board’s Resolution or the executed Vakalatnama, as the case may be.

8. Two extra copies of the application.

9. Any other relevant documents.

1. A certified true copy of the memorandum and articles of association of the company.

2. A certified true copy of the notice of the general meeting together with the explanatory statement annexed to the notice, at which the special resolution had been passed.

3. A certified true copy of the special resolution authorizing the reduction of share capital.

4. A certified true copy of the latest audited balance sheet and profit and loss account of the company together with all the schedules and other.

5. A certified true copy of the minutes of proceedings at the general meeting at which the special resolution for reduction of share capital was passed.

Observation The list of compulsory attachments in the New Rules includes various certificates from the auditors and declarations from the directors which were not required in the Draft Rules as attachments at the time of making the application. Also, separate requirement for filing list of creditors are specified.
Inspection of list of creditors 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 the payment of the sum of rupees fifty for inspection and for taking extracts on the payment of the sum of rupees ten per page to the company. A duly authenticated copy of such 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 ten per page to the company. Copies of such list shall be kept at the registered office of the company and at the office of the advocate for the company, and anyperson desirous of inspecting the same may, at any time during the ordinaryhours of business, inspect and take extracts from the same on payment of the sumof one rupee
Observation The requirement of making available the list of creditors for inspection is same in both the New and Draft Rules. This requirement was also stated in the Old rules. On a comparison with the Old and New rules, the fees for inspection has increased to Rs.50/- from Rs.1/- and an extra fee of Rs.10/- per page is chargeable for taking extracts.
Issue of notice and directions by the NCLT/Court The Tribunal shall, within 15 days of submission of the application, give notice, or direct that notice be given to –

1. Central Government, ROC, in all cases on Form No. RSC – 2.SEBI, in case of listed companies in Form No. RSC-2.Creditors of the company, in all cases in Form No. RSC- 3.Notice in Form No. RSC- 4 to be published in a leading English newspaper and in a leading vernacular newspaper having wide circulation.

The objections if any shall be filed with the Tribunal within 3 months from the date of publication of notice with a copy served on the company.

The company or the person who was directed to issue notices and the publication in the newspaper has to file an affidavit confirming the dispatch and publication of notice in Form No. RSC- 5 not later than 7 days from the issue of notice.

days from the date of issue or publication of notice.

The notice is to be put on the website of the company, if any, seeking objections from the creditors and intimating about the date of hearing.

However, where the Tribunal is satisfied that the debt or claim of every creditor has been discharged or their consent is obtained, it may dispense with the requirement of giving notice to the creditors or publication of notice or both.

The Tribunal shall, within 15 days of submission of the application give notice or direct that notice be given to –

1. Central Government,

2. Registrar of Companies and

3. the Securities and Exchange Board, in the case of listed companies, or

4. in the case of Non Banking Financial Companies  to the Reserve Bank of India.

5.  and the Creditors of the company.

If the Tribunal is satisfied that the proposed reduction does not involve either diminution of liability in respect of unpaid share capital or payment to any shareholder of any paid-up share capital and does not think fit to direct that the procedure prescribed in Section 66 shall apply, it shall fix a date for hearing of the application and give such directions as it may think fit as to the advertisement of the application.

Where the proposed reduction involves either diminution of liability in respect of unpaid share capital or the payment to any shareholder of any paid-up share capital and, in any other case, the Tribunal may give such directions as it may think fit in Form No. NCT- 15 with respect to the following matters, that is to say:

(a) the proceedings to be taken for settling the list of creditors entitled to object, including the dispensing with the observance of the provisions of said section 66 as regards any class or classes of creditors;

(b) fixing the date with reference to which the list of such creditors is to be made out,

(c) the publications of notices ; and

(d) generally fixing the time for and giving directions as to all other necessary or proper steps in the matter.

The notice to the creditors in Form No. NCT-18 shall be sent within seven days after the filing of the list of creditors with the Tribunal.

Notice of the presentation of the application in Form No. NCT -19 and the list of creditors shall be advertised by the company within seven days after the filing of the said list in such manner as the Tribunal shall direct.

As soon as may be, the company shall file an affidavit proving the dispatch and publication of the notice in Form No. NCT-20.

The company shall within the time fixed by the Tribunal, file a statement in Form No. NCT-21 signed and verified by the authorised representative of the company stating the result of the notices and verifying a list containing the names and addresses of the persons, if any, who shall have sent in the particulars of their debts or claims in pursuance of such notices respectively and the amounts of such debts or claims. The statement shall be accompanied by an affidavit made by a competent officer or officers of the company.

Upon the hearing of the summons, if the Judge is satisfied that the proposed reduction does not involve either diminution of liability in respect of unpaid share capital or payment to any shareholder of any paid-up share capital and does not think fit to direct that the procedure prescribed in section 101(2) shall apply, he shall fix a date for hearing of the petition and give such directions as he may think fit as to the advertisement of the petition. The petition shall be posted for hearing on the date fixed, and upon the hearing thereof, the Judge may confirm the reduction on such terms and conditions as he may think fit.Where the proposed reduction involves either diminution of liability in respect of unpaid share capital or the payment to any shareholder of any paid-up share capital and, in any other case, if the Judge thinks fit to direct that the procedure prescribed in section 101(2) shall apply, the Judge may give such directions in Form No. 20 with respect to the following matters, that is to say

(a) the proceedings to be taken for settling the list of Creditors entitled to object, including the dispensing with the observance of the provisions of section 101(2) as regards any class or classes of creditors ;

(b) fixing the date with reference to which the list of such creditors is to be made out,

(c) the publications of notices ; and

(d) generally fixing the time for and giving directions as to all other necessary or proper steps in the matter.

The company shall, within the time allowed by the Judge, file a list in Form No. 21 along with an affidavit in Form No. 22

The company shall, within seven days after the filing of the list of creditors, send a notice of presentation of the petition to the creditors in Form No. 23

Notice of the presentation of the petition in Form No.24 and of the list of creditors shall, within seven days after the filing of the said list or such further or other times as the Judge may allow, be advertised by the company in such manner as the Judge shall direct.

As soon as may be, the company shall file an affidavit proving the dispatch and publication of the notice in Form No. 25

The company shall within the time fixed by the Judge, file a statement signed and verified by the advocate of the company stating the result of the notices in Form No. 26.

Observations The procedures that came out in the New Rules are simpler and structured with respect to timelines than in the Draft Rules. The procedures prescribed in the Draft rules and the Old Rules are similar.

The requirement of sending notice to RBI in case of Non-Banking Financial Companies is not stated in the New Rules while it was explicit in the Draft Rules. It is recommended to send notice to RBI in case of NBFC’s to be in compliance with the spirit of the Law though not stated. The New Rules do not differentiate between reduction of capital resulting in diminution of capital and not resulting in diminution of capital. Whereas this difference was there in the Old Rules as well as the Draft rules.

Representation by Central Government, Registrar, etc Any such representation can be made by sending the same to the Tribunal and at the same time to the company with in a period of 3 months from the date of receipt of notice. No separate provision. No separate provision.
Observation There were no specific provisions as to representations by the Central Government, Registrar, etc., under the Draft or Old Rule. However, now the Regulatorscan make representations or objections at the time of hearing.
Procedure with regard to representations and objections received and hearing. The company shall submit the responses to the representations or objections received along with the representations or objections to the Tribunal, within 7 days of expiry of period upto which representations or objections were sought.

The Tribunal may give directions as it may think fit for holding of enquiry or adjudication of claims or for hearing the objections.

At the hearing, the Tribunal may, give such directions to secure the debt or claims of the creditors who do not consent to the proposed reduction.

If the company contends that a person is not entitled to be entered in the list of creditors in respect of any debts or claim, whether admitted or not, or if any debt or claim, the particulars of which are so sent in, shall not be admitted by the company at its full amount, then, and in every such case, sent to the creditor a notice in Form No. NCT.22 that he is required to come in and establish his title to be entered on the list, or as the case may be, to come in and prove such debts or claim or such part thereof as is not admitted by the company on the day fixed by the Tribunal, not less than four clear days before the date fixed by the Tribunal.

A proof of debt by a creditor shall be in Form No. NCT. 23.

The result of the settlement of the list of creditors shall be stated in a certificate which shall be prepared by the authorised representative of the company and signed by the Tribunal

After the expiry of not less than fourteen days from the filing of the certificate, the application shall be set down for hearing. Notice of the date fixed for the hearing of the application shall be advertised within such time and in such newspaper or newspapers as the Tribunal may direct and shall be in Form No. NCT. 24.

-If the company contends that a person is not entitled to be entered in the list of creditors in respect of any debts or claim, whether admitted or not, or if any debt or claim, the particulars of which are so sent in, shall not be admitted by the company at its full amount, then, and in every such case, unless the company is willing to set apart and appropriate in such manner as the Judge shall direct, the full amount of such debt or claim, the company shall, if the Judge thinks fit so to direct, sent to the creditor a notice in Form No. 27, that he is required to come in and establish his title to be entered on the list, or as the case may be, to come in and prove such debts or claim or such part thereof as is not admitted by the company on the day fixed by the Judge. Such notice shall be served not less than four clear days before the date fixed by the Judge.

An affidavit by a creditor in proof of his debt shall be in Form No. 28.

The result of the settlement of the list of creditors shall be stated in a certificate which shall be prepared by the authorised representative of the company and signed by the Tribunal

After the expiry of not less than fourteen days from the filing of the certificate mentioned in the preceding rule, the petition shall be set down for hearing. Notice of the date fixed for the hearing of the petition shall be advertised within such time and in such newspaper or newspapers as the Judge may direct and shall be in Form No. 29.

Observation There were specific procedures if the company contents the ineligibility of the creditor to the debt/claims. All such specific provisions are done away with in the new rules even though the same was in the draft rules.
Order on application and minute thereof The Tribunal makes order confirming the reduction of share capital in Form No. RSC – 6 and a certificate is issued by the ROC inFormNo. RSC–7. An order shall be passed by the Tribunal in the prescribed manner.

Unless the form of the minute has been approved by the Tribunal at the time of making the order confirming the reduction, the company shall, within seven days from the date of the said order, file for the approval of the Tribunal a draft of the minute containing the particulars required by section 66, and shall take an appointment for approval of the same. The authorised representative for the company shall attend when the minutes comes up before the Tribunal for approval.

The order confirming the reduction of capital and approving the minute shall be in Form No. NCT. 25 with such variations as may be necessary.

The Minute may be in Form No. NCT.26 and the Notice of Registration of the order and the minute shall be in Form No. NCT. 27.

An order shall be passed by the Court in the prescribed manner.

Unless the form of the minute has been approved by the Judge at the time of making the order confirming the reduction, the company shall, within seven days from the date of the said order, file for the approval of the Judge a draft of the minute containing the particulars required by section 103(1)(b), and shall take an appointment for approval of the same. The advocate for the company shall attend when the minute comes up before the Judge for approval.

The order confirming the reduction of capital and approving the minute shall be in Form No. 30 with such variations as may be necessary.

The minute may be in Form No. 31, and the notice of registration of the order and the minute shall be in Form No. 32.

Observations The hassle of getting the minute approved does not arise any more. The new rules make the procedure simpler.
Advertisement of Reasons for Reduction of Share Capital No such provision Where the Tribunal makes an order directing the company to publish the reasons for the reduction or such other information in regard thereto as the Tribunal may direct, unless the form of the statement to be published has been approved by the Tribunal at the time of making the order, the company shall, within seven days of the order, file, for the approval of Tribunal, a draft of the statement and statement as approved shall be published in the same newspapers in which notice of the registration of the order and the minute has been directed to be published. Where the Judge makes an order under section 102(2)(b) directing the company to publish the reasons for the reduction or such other information in regard thereto as the Court may direct, unless the form of the statement to be published has been approved by the Judge at the time of making the order, the company shall, within seven days of the order, file, for the approval of Judge, a draft of the statement and statement as approved shall be published in the same newspapers in which notice of the registration of the order and the minute has been directed to be published.
Observation The provision with respect to advertising the reasons for reduction of share capital are done away with.

Conclusion:

The Draft Rules were on the same lines as the Old Rules however, the Final Rules that came out have drastic changes from the Draft Rules. On comparison with the draft rules and also the old rules, the New Rules are simpler and have done away with a lot of procedural requirements.

[1]http://www.mca.gov.in/Ministry/actsbills/rules/CCR1959.pdf

(Author is associated as an Executive with Vinod Kothari & Company)

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