Reduction of Share Capital under Companies Act
The provisions relating to the reduction of share capital under the Companies Act are covered under section 66 of the Companies Act, 2013 read with the National Company Law Tribunal (Procedure for reduction of the share capital of Company) Rules, 2016.
The present article briefly explains the provisions concerning the reduction of share capital.
Manner of reduction of share capital-
The company can opt for reduction of share capital in any of the following manner-
1. Extinguishing/ reducing the liability on any of its shares not paid; or
2. With/ without extinguishing/ reducing the liability on any of its shares-
a. Cancelling any paid-up share capital which is lost/ unrepresented by available assets; or
b. Paying off any paid-up share capital which is in excess of the requirements of the company.
Filing of an application to the Tribunal-
As per rule 2 of the National Company Law Tribunal (Procedure for reduction of the share capital of Company) Rules, 2016, the company willing to apply for reduction of share capital should follow the below steps-
1. File an application to the Tribunal in Form No. RSC-1 along with the fees of INR 5,000.
2. Following documents are to be filed along with the application-
a. The list of creditors (duly certified by the Managing Director/ two directors). The list should contain a name, address and amounts owed by the creditors. Notably, such a list of the creditors should have been prepared not earlier than 15 days from the date of filing of an application.
b. A certificate from the auditor certifying the correctness of the list of creditors.
c. A certificate from the auditor and declaration from the director stating that the company is not in arrears in the repayment of the deposits/ interest; and
d. A certificate from the auditor certifying that the accounting treatment as proposed by the company, for reduction of the share capital, is in conformity with the accounting standards as specified in section 133.
An action of the Tribunal post receipt of an application for reduction of share capital-
On receiving the application in Form No. RSC-1 from the company for reduction of share capital, the tribunal will take the following actions-
1. Issuance of notice-
As and when the Tribunal receives the application for reduction of share capital, firstly it will give notice to the following persons/ authorities for seeking their representation/ objections-
Representation can be done by any of the above within a period of three months from the date of receipt of the notice from the Tribunal.
2. Publication of the notice in the newspaper-
The tribunal shall give the direction for publication of the notice in Form No. RSC-4, for seeking objections from the creditors as well as intimating the date of hearing, in the following manner-
3. Order confirming the reduction of share capital–
The Tribunal may pass the order confirming the reduction of share capital only after satisfying the following-
An action of the company on receipt of the order confirming the reduction of share capital-
Once the company receives the order confirming the reduction of share capital from the Tribunal, the company is required to take the following steps-
Notably, the registrar, post receipt of the above document, will issue a certificate in Form No. RSC-7.
(Republished with Amendments)