Chapter IV of Companies Act – Share Capital & Debentures

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 Companies Act 2013 -> Section 66 – Reduction of share capital

Question 1 : What is the process for reduction of share capital?

Company shall
Company shall
make an Confirmation by
pass a Special
application to the tribunal
Resolution
Tribunal

(type of resolution) (authority)

A company can
reduce its share
capital in any
manner-
 Companies Act 2013 -> Section 66 – Reduction of share capital

Question 2 Manner of share capital reduction / How share capital is reduced ?

i) Extinguish or reduce
ii) Cancel any paid up iii) Pay off any paid up
the liability on any of
share capital which is share capital which is
its shares in respect of
lost or represented by in excess of the wants
share capital not paid
unavailable assets. of the company
up.

Alter its memorandum by

reducing the amount of its
share capital and of its shares.

What is the

Exception: ?
No reduction shall be made if the company is in arrears in repayment of deposits or any interest payable thereon.
 Companies Act 2013 -> Section 66 – Reduction of share capital

TERM EXPLAINER

• Extinguish or reduce the liability on any of its shares in respect of share capital not paid up

Suppose Amar Ltd has issued 1000 shares of Rs. 10 each on which Rs. 7 were called up and paid up the shareholders. The
company, for reduction of its share capital, can extinguish the 3 Rs. Liability on the shares and say that now the shares is
worth Rs.7 only.

• Cancel any paid up share capital which is lost or represented by unavailable assets.

Suppose Akbar Limited has share of face value Rs.100 each fully paid up represented by Rs.75 worth of real assets and
Rs.25 fictitious assets. In such a case, reduction of share capital may be effected by cancelling Rs.25 per share and writing
off fictitious assets.

• Pay off any paid up share capital which is in excess of the wants of the company

Suppose Anthony Limited has issued 1000 shares of Rs. 10 each on which Rs. 10 was called and paid up. Now the company
can reduce its share value to Rs. 8 and return back Rs. 2 to the shareholders if the company feels that it is not required by
the company.
Companies Act 2013 -> Section 66 – Act
Companies
The tribunal shall give
notice to which authorities?
a) Central Government
b) ROC
c) SEBI ( if company is
listed)
d) The creditors of the
company
ROC shall register the
same and issue a
certificate to that effect.
Reduction
2013 ->ofSection
share capital
66 – Reduction of share capital
What is the time period for
representation?
If no representation is The tribunal( if
CG,ROC,SEBI and
received within the satisfied) make an
creditors can make any
aforesaid period, it order confirming the
representations within
shall be deemed that reduction of share
3 months from the date
they have no objection capital on such terms
of receipt of notice.
to the reduction. as it deem fit.
What will be the concern of
creditors?
The company shall deliver a The Company shall a) Debt should be
certified copy of the order publish the order of discharged OR
of tribunal and minutes confirmation of b) Debt should be
approved by the tribunal to reduction in such secured OR
the ROC within 30 days of manner as Tribunal c) Consent of
the receipt of order. direct. creditor is
obtained
 Companies Act 2013 -> Section 66 – Reduction of share capital
What details will be contained by the minute?

Minutes shall contain the following details:-

i. The amount of share capital

ii. The no. of share into which it is to be divided

iii. The amount of each share

iv. The amount at the date of registration deemed to be paid up on each share

 Which compliance will be ensured by the Tribunal?

Tribunal shall not sanction the application for reduction unless the accounting treatment proposed by the company for
reduction is in conformity with accounting standards specified in section 133 and a certificate for that by the Company’s
Auditor has been filed with the Tribunal.
 Companies Act 2013 -> Section 66 – Reduction of share capital

WHAT ARE PENAL PROVISIONS ?

Failure to publish the

Penalty on company
order of reduction as
Minimum= 5 Lacs
per directions of
Maximum=25 Lacs
Tribunal
 Companies Act 2013 -> Section 66 – Reduction of share capital

❑ Maximum liability of past or present member

The member shall be liable to maximum

[Amount of share as fixed by order of reduction – Amount paid on the share]

Example :- Suppose shareholder has paid Rs. 5 on a share whose face value is Rs.10. Now the tribunal reduced the
value to Rs. 8. The maximum of liability on that share for the shareholder shall be Rs.8- Rs.5= Rs.3
 Companies Act 2013 -> Section 66 – Reduction of share capital

If the name of any creditor, After such reduction

who could object to capital + company commits a =
reduction, is not entered in default Under the
the list of creditors given to Insolvency and
tribunal Bankruptcy Code,2016

1. In case company not

wound up, Every member Shall be liable to Amount maximum to his
of the company(as on the contribute to the unpaid liability on his
date of registration of payment of that debt shares.
order of reduction)

2. If the company has Tribunal on application of Settle a list of persons so

wound up any such creditor liable and call money
from them.
 Companies Act 2013 -> Section 66 – Reduction of share capital

If any officer of the company

Knowingly misrepresents
Knowingly conceals Abets (assists) to
the nature of amount of
the name of creditor such concealment
claim of the creditor

He shall be punishable
under section 447
 Concept Check

The tribunal before sanctioning the reduction of capital shall ensure…………..

a) That accounting standards are in conformity with section 133 and certificate for that is to be
provided from the auditor

b) That the debts of creditors are discharged or secured or their consent is obtained

c) That representations of various authorities is considered.

 Practice Questions

In case of reduction of capital, when the company has wound up, the creditor shall make an application to which of the
following authorities to settle his claims?

1. Central Government
2. ROC
3. NCLT
4. SEBI

Ans: Option 3

What shall be the maximum penalty that can be imposed on a company if it fails to publish the order of tribunal in the
manner as prescribed?
1. 5 Lacs
2. 10 Lacs
3. 15 Lacs
4. 25 Lacs

Ans: Option 4
 Rule 13 of Companies (Share Capital and Debentures) Rules --> ISSUE OF SHARES ON PREFERENTIAL BASIS

For issuing shares on The allotment of

1. In case of listed
preferential basis, securities on preferential
company, follow
company has to pass basis should be made
provisions of SEBI.
SPECIAL RESOLUTION in within 12 months from
2. In case of Unlisted
general meeting and date of passing of SR. (If
company, follow the
comply with the allotment not completed
provisions of the Act and
conditions of Private within 12 months, Pass
rules.
Placement (Section 42) new SR)

Provisions of Rules
1. Authorization in Articles
2. Special Resolution to be passed
3. Certain disclosures to be made

Where convertible securities are issued, the price of resultant shares shall be determined :-
i) At the time of issue of convertible securities
OR
ii) Not earlier than 30 days before the date when the security holder is entitled to apply for shares.( The valuation report on the basis of
which price shall be determined shall be given atleast 60 days prior to the date when the holder of security becomes entitled to apply for
shares)
Rule 13 of Companies (Share Capital and Debentures) Rules --> ISSUE OF SHARES ON PREFERENTIAL BASIS

Term Explainer:-

Preferential offer means an issue of shares or other securities, by a company to any select group of persons on a
preferential basis. It does not include:-
a) Right issue
b) Public issue
c) Bonus issue
d) Issue of sweat equity shares
e) ESOP
f) Issue of Depository receipts
 Rule 13 of Companies (Share Capital and Debentures) Rules --> ISSUE OF SHARES ON PREFERENTIAL BASIS

CONCEPT CHECK

Is Preferential Issue same as Private Placement?

No, they are similar terms but not the same.

In private placement the invitation or offer of securities is made to specific investors. (including
Qualified Institutional Buyers like banks, insurance company)

Preferential allotment is the issuing of shares to group of people to raise cash.

Apart from the above difference there are other differences regarding documents to be furnished,
mode of receiving payment, valuation report etc.
 Practice Questions

Once the SR is passed, within how much time should the company do the allotment of securities under preferential
allotment?

1. 3 months
2. 6 months
3. 9 months
4. 12 months

Ans: Option 4

The valuation report shall be given atleast………. Days prior of the day on which the holder of the convertible securities in
entitled to convert them into shares.
1. 30
2. 60
3. 45
4. 90

Ans: Option 2
 Thanks

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