Company Law

Reduction of share capital [S. 66]

Meaning and Purpose: Reduction of share capital means the reduction of issued, subscribed and paid-up capital of the Co. The reduction of capital is mainly done by Cos for achieving a more efficient capital structure. To reduce its share capital, the Co should have the power under its AoA to do so. If the AoA does not contain any provision for reduction of capital, then the AoA must first be altered so as to give such power and then the Spl Reso for reducing capital should be passed.

Sr. No.

Modes of reduction

Section

(A)

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

Example: Face value: ₹ 10 | Paid-up value: ₹ 7

Extinguish/reduce the liability to pay balance ₹ 3

66(1)(a)

(B)

either with or without extinguishing or reducing liability on any of its shares,—

  1. CANCEL any paid-up share capital which is lost or is unrepresented by available assets;

    Example: Paid up capital: ₹ 10 | Accumulated losses: ₹ 7

    Paid up capital to the extent of ₹ 7 be cancelled to write off Accumulated losses of ₹ 7

    or

  2. PAY OFF any paid-up share capital which is in excess of the wants of the Co, alter its memorandum by reducing the amount of its share capital and of its shares accordingly:

    Example: Paid up capital: ₹ 10 | Excess capital not required by the Company: ₹ 4

    Paid up capital to the extent of ₹ 4 be returned (paid in cash) to the shareholders

No such reduction shall be made if the Co is in arrears in the repayment of any deposits accepted by it, either before or after the commencement of Co Act 2013, or the interest payable thereon.

66(1)(b)

(C)

Application of PREMIUMS received on issue of SHARES, otherwise than in the following manner:

by prescribed class of companies whose FS comply with the AS prescribed for such class of companies u/s 133

by Other companies

(a) towards the issue of unissued shares of the Co to the members of the Co as fully paid bonus shares;

(a) in paying up unissued equity shares of the Co y to be issued to members of the Co as fully paid bonus shares; or

(b) in writing off the preliminary expenses of the Co;

—

(c) in writing off the expenses of, or the commission paid or discount allowed on, any issue of shares or debentures of the Co;

(b) in writing off the expenses of or the commission paid or discount allowed on any issue of equity shares of the Co; or

(d) in providing for the premium payable on the redemption of any redeemable preference shares or of any debentures of the Co; or

—

(e) for the purchase of its own shares or other securities u/s. 68.

(c) for the purchase of its own shares or other securities u/s. 68.

52(1)




Clause (d) of 2nd proviso to S. 55(2)

(D)

Application of CAPITAL REDEMPTION RESERVE ACCOUNT, otherwise than in paying up unissued shares of the Co to be issued to members of the Co as fully paid bonus shares

Clause (c) of 2nd proviso to S. 55(2) &
S. 55(4)

Broad procedure for Reduction
Board approval ⟶ Special resolution ⟶ Application to NCLT ⟶ * Certificate from the Auditor to be filed with NCLT ⟶ NCLT order of confirmation of the reduction of share capital ⟶ Filing of NCLT order with RoC

* the accounting treatment proposed by the Co for such reduction is in conformity with the accounting standards specified in S. 133 or any other provision of the Co Act 2013