Reduction of Share Capital

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Section 66 of the Companies Act, 2013 allows a company to reduce its Authorized Share Capital. The Central Govt for this purpose constituted the National Company Law Tribunal (NCLT). It was notified of Procedure for Reduction of Share Capital of Company Rules, w.e.f. December 2016.

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Conditions Applicable:

Steps laid down under NCLT Rule 2(1)

The following measures are to be undertaken by the company:
1. Create Board Resolutions: Summon a Board Meeting to approve the Special Resolution and call for a general meeting with the shareholders.
2. To Have the Special Resolution passed in this general meeting.
3. Within 30 days, file form MGT-14 with the ROC.
4. File application with NCLT, in Form RSC-1, to confirm the reduction.
5. Submit the fee amount as applicable.
6. This Form RSC-1 must be filed with below mentioned: List of Creditors mentioning their names, addresses, and loan amount. It should not be of a date 15 days earlier than this application. It is to be certified by the Managing Director, as true & correct. Where the MD is absent or unavailable, the List has to be signed by 2 directors.
The above Creditors List has to be certified by the Auditor of the Company, for its verification and truth.
A Declaration by the MD or 2 directors, that there are no arrears to repay any deposit or interest incurred, thereon. This has to be certified by the company’s auditor too.
Declaration by the MD or 2 directors, that the Accounting Process for the reduction of the share capital, as proposed by the company, conforms to the standards as specified in section 133 or any other provisions of the Act. This has to be certified by the company’s auditor too.
7. Along with the above, copies of the list of creditors are to be kept at the registered office of the company. So, any person who wants to inspect, may inspect and take copies from the same. This can be done during business hours of the company, on payment of a minimal fee.
8. Issue & Notices to be done by NCLT:
(i) Within 15 days of the application being filed, compliant with Rule 2(1), send or direct that a notice, be sent to
(ii) (Applicable for All companies) – the Central Government, Registrar of Companies (ROC), in Form RSC-2;
(iii) (Applicable to Listed Companies) – the Securities and Exchange Board of India (SEBI). In Form RSC-2;
(iv) (Applicable for All companies) – the creditors of the company, in Form RSC-3;
(a) Within 7 days of the above directions, a notice will be sent to each creditor in the list. Informing about the amount of proposed reduction of share capital. The notice mentions the amount or estimated amount of the claim or the debt or the contingent debt or both under the creditor’s name. It also states a period within which the creditor may send his representations and objections.
(b) Direct within 7 days, to publish a notice in Form RSC-4. In the English language, in a leading English newspaper. In vernacular language, with a leading vernacular language newspaper. These both must by having wide circulation in the State where the registered office of the company is situated. Or a newspaper that may be directed by the NCLT. Simultaneously, uploading on the website of company (if any).
(c) The publication is meant for the creditors to seek their representations and objections. And mentioning the date of hearing those. The notice shall state the amount of the proposed reduction of share capital, information about the places where the list of creditors may be inspected, and the time as fixed by the NCLT by which the creditors may send their objections. This time is, generally, 3 months, from the date of the publication. The creditors are to file their objections with the NCLT, with a copy to the company too.
(d) An affidavit in Form RSC-5 is to be filed by the company, to confirm the publication, within 7 days, from the date this notice is issued.
(e) If NCLT is satisfied that every creditor has been discharged or secured or given his consent. Then, it may dispense with the requirement of giving notice to the creditors or publication.
9. Representation by SEBI, ROC, Central Government, etc. under subsection (2) of section 66: These authorities or creditors may make representation or objection under sub-section (2) of section 66. And it shall be sent to the NCLT within 3 months from the date of receipt of the notice. A copy of this representation is to be sent to the company, simultaneously. If no such indication is received by the Tribunal, within this time, then it shall be presumed that there is No to the reduction.
10. Procedure on receipt of the Representation or Objection: Any representation or objection received by the company, and its response thereof, has to be filed with NCLT. The company has to complete the process at least 7 days before the 3 months in the above point is over.
The Tribunal may hold an inquiry into the adjudication of the objection or claim or for hearing them.
NCLT, during the hearing, may give directions to securing the debts or claims of creditors, in dissent with the proposed reduction.
11. Final Orders and Approval of the minute: When NCLT has confirmed the reduction. The order may include directions, or terms and conditions, as the Tribunal may deem fit.
This order shall be in Form RSC-6. It confirms the reduced Change in Authorized Capital of the Company, and approval of the minute. And mentions the terms and conditions.
The company delivers the certified copy of the order and the approved minute, to the ROC, and file E-form INC-28. within 30 days of the receipt of the order.
The ROC issues a Certificate, in Form RSC-7, under Section 66 (5).
There’s been an increasing tendency amongst the companies that are seeking to reduce their share capital. It helps them reduce their accumulated losses. As well as create/increase distributable reserves. The original capital may become less due to heavy capital expenses, having more resources than it can employ profitably, or being of reduced or doubtful value.

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