The National Company Law Tribunal (NCLT) made mandatory to file the application/petition/appeal/reply etc. online through NCLT e-filing portal via notice dated 31st January 2020, w.e.f. 03rd February 2020. And has also requested to file two complete sets in hard copies before the filing counter NCLT.

The Company need to make an application to the NCLT for reduction of share capital.

In layman language, reduction of share capital means the reduction of issued, subscribed and paid up share capital of the Company and it governed by the section 66 of the Companies Act 2013.

There are the number of reasons why the company want to reduce its share capital : Reduce liability, reduce heave capital expenses , to eliminate the losses, to return the surplus capital , etc.

Modes for reduction of share capital are :-

1. extinguish or reduce the liability on any of its shares in respect of the share capital not paid-up (Example : If the share is of face value of Rs 10 each of which Rs 8 has been paid, the company reduce them to Rs 8 fully paid up shares and thus reduce the liability of shareholders on uncalled capital of Rs 2 per share)

2. cancel any paid-up share capital which is lost or is unrepresented by available assets (Example : If the share is of face value of Rs 10 each fully paid up is represented by the Rs 8 worth of assets, then reduction of capital may be done by cancelling Rs 2 per share and writing off similar amount of assets).

3. pay off any paid-up share capital which is in excess of the wants of the company (Example: The share is of face value of Rs 10 each fully paid up can be reduced to face value of Rs 8 each by paying back Rs. 2 each per share).

Conditions :

1. Article of Association of the Company should have power for reduction of share capital.

2. no such reduction shall be made if the company is in arrears in the repayment of any deposits accepted by it, or the interest payable.

Process for Reduction of Share Capital

STEPS COMPLIANCE
Step 1 Check whether the Article of Association has a power for reduction of capital
Step 2 Prepare the draft the Scheme of reduction of capital
Step 3 Convey the Board Meeting for approval the draft scheme and to approve the notice of EGM
Step 4 Hold the EGM and shareholders shall approve the draft scheme by way of special resolution.

File MGT-14 with ROC, within 30 days of passing SR

Step 5 Filing an online application of reduction of capital with NCLT
Application / Petition shall be accompanied with following documents :

–  Synopsis of the Application / petition

–  List of Events

–  Petition for Reduction of Share Capital

– Certificate of Incorporation

– Memorandum of Association

– Articles of Association

–  Copies of Financial Statements of the Company for last 3 preceding financial years.

– Scheme of Reduction

–  Shareholding Pattern

– Resolutions Passed

–  Valuation Report

– Certificate issued by the Auditors in respect of Creditors

– Certificate issued by the Auditors in respect of the Accounting Treatment

– Certificate issued by the Auditors in respect of the outstanding Deposits

– Declaration from the Company in respect of the outstanding Deposits

– General Affidavit

– Memorandum of Appearance

Step 6 File two complete sets in hard copies before the filing counter NCLT
Step 7 The Tribunal shall, within fifteen days of submission of the application give notice, or direct that notice be given to 

(i) the Central Government, Registrar of Companies, in all cases, in Form No. RSC-2;

(ii) the Securities and Exchange Board of India, in the case of listed companies in Form No. RSC-2;

(iii) the creditors of the company, in all cases in Form No. RSC-3;

Step 8 Notice to Creditors

Once the notice has been issued to creditors than within seven days of the direction given such other period as may be directed by the Tribunal, to each creditor whose name is entered in the list of creditors submitted by the company about the presentation of the application and of the said list, stating the amount of the proposed reduction of share capital and 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, and the time within which the creditor may send his representations and objections.

Step 9 Publication of Notice

The NCLT shall give direction for the notice to be published in Form No. RSC-4 within seven days from the date on which the directions are given, in English language in a leading 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, or such newspapers as may be directed by the Tribunal and for uploading on the website of the company (if any) seeking objections from the creditors and intimating about the date of hearing.

Step 10 Confirmation of Publication of Notice

The company or the person who was directed to issue notices and the publication in the newspaper as soon as may be, but not later than seven days from the date of issue of such notices, file an affidavit in Form No. RSC- 5 confirming the dispatch and publication of the notice.

Step 11 Representation by Regulatory

Representation by the CG / Registrar , Creditors and SEBI shall be sent to tribunal within three months from the date of receipt of notice and copy of such representation shall simultaneously be sent to the company and in case no representation has been received within the said period by the Tribunal it shall be presumed that they have no objection to the reduction

Step 12 Submission of Representation

The company shall submit to the Tribunal, within seven days of expiry of period up to which representations or objections were sought, the representations or objections so received along with the responses of the company thereto.

Step 13 NCLT Order

The order confirming the reduction of share capital and approving the minute shall be in Form No. RSC – 6 on such terms and conditions as may be deemed fit.

 

 

Step 14

Filing Order with ROC

The company shall file a certified copy of the order of the NCLT and the minute approved by the NCLT to the ROC in e-form INC 28 within 30 days of the receipt of order.

FAQs on Reduction of Share Capital / E-filing / FAQs

Q.1 Whether Buy Back of Securities is considered as the Reduction of Share Capital ?

Ans: In Buy Back, the company purchases its own shares and it is governed by section 68 of the Companies Act 2013.

Q.2 Whether redemption of preference shares is considered as the reduction of share capital ?

Ans :  Issued preference shares are liable to be redeemed within a period not exceeding twenty years from the date of their issue subject to the conditions prescribed under the rules and it is governed under section 55 of the Companies Act 2013

Q.3 Whether Forfeiture of share for non-payment of calls is considered as reduction of share capital ?

Ans : Forfeiture of share means the cancellation of the shares for non-payment of calls due. If any shareholder is not able to pay the amount of call, the company may exercise the power to forfeit his shares on which he is unable to pay the amount of call. On forfeiture, we need to cancel the shares and to that extent, reduce the Share Capital but the amount received by the company is not refunded, hence it is not the reduction of share capital under section 66 of the Act.

Q.4 When the company cancels shares which have not been taken or agreed to be taken, is it considered as the reduction of share capital

Ans: The Companies Act 2013 allows the companies to alter and make some changes in its authorized share capital (i.e. to alter the capital clause of its Memorandum of Association) with certain specified procedures for alteration of share capital is specifically mentioned in the Section 61 of the Companies Act, 2013.

Q.5 What is procedure to file the application online on NCLT Portal ?

Ans: E-filing is quiet easy process, can check the link to know detailed procedure : https://efiling.nclt.gov.in/downloads/manual/manual.pdf

Q.6 Is it Mandatory to attach the Master Data to the application / petition filed ?

Ans: Yes, it is mandatory to attach the latest Master Data from the MCA Portal to the application / petition.

Q.7 What should be the font size and format of the application ?

Ans: Every appeal or petition or application or caveat petition or objection or counter presented to the Tribunal shall be in English and in case it is in some other Indian language, it shall be accompanied by a copy translated in English and shall be fairly and legibly type written, lithographed or printed in double spacing on one side of standard petition paper with an inner margin of about four centimetre width on top and with a right margin of 2.5. cm, and left margin of 5 cm, duly paginated, indexed and stitched together in paper book form;  and  The cause title shall state “Before the National Company Law Tribunal” and shall specify the Bench to which it is presented and also set out the proceedings or order of the authority against which it is preferred. (For the minute details , kindly check the Part III of the National Company Law Tribunal Rules, 2016).

Q.8 Is it necessary that every annexures to the application / petition should be printed in green legal paper.

Ans: Yes, the entire petition / application along with the annexures should be printed in the green legal paper.

Q.9 Once the petition / application has been mentioned in the NCLT – Bench , can we make an application to the NCLT to expedite the process or hearing in case of urgency of the matter.

Ans: Yes, the expeditious application can be made to the NCLT along with the affidavit and covering letter.

Q.10 Are the day to day vendors / suppliers to be considered as the creditors ?

Ans: The day to day suppliers or vendors need not be considered as creditors. Because they provide the material / services etc to the Company on regular basis and they are the part of Business Cycle.

Q.11 Who will issue the Valuation Certification ?

Ans: Under section 247 of the Companies Act 2013 , Where a valuation is required to be made in respect of any property, stocks, shares, debentures, securities or goodwill or any other assets (herein referred to as the assets) or net worth of a company or its liabilities under the provision of this Act, it shall be valued by a person having such qualifications and experience and registered as a valuer and appointed by the audit committee or in its absence by the Board of Directors of that company.

Disclaimer : The views presented are in personal & in generic form and not as a legal advice, further it has nothing to do with where I am rendering my professional services. Users of this information are expected to refer to the relevant existing provisions of the applicable laws.

(Author:  CS Kavita Shah, is Practicing Company Secretary from Mumbai and can be contacted at : [email protected])

Author Bio

Qualification: CS
Company: Practicing Company Secretary
Location: MUMBAI, Maharashtra, IN
Member Since: 29 Sep 2018 | Total Posts: 13
CS Kavita Shah, is Practicing Company Secretary based in Mumbai. She is experienced in handling the secretarial and corporate compliance for the Private and Public Limited Companies. She has even render her professional services to some top Nifty Fifty Companies. She purely believes that "Every Prob View Full Profile

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