REDUCTION OF SHARE CAPITAL- Section 66

Which company can reduce share capital (authorised)?

1. Company limited by share capital
2. Company limited by guarantee and having share capital
Requirements:
1. Special Resolution to be passed
2. Confirmation by the Tribunal
Manner of Reduction:
1. Unpaid share capital- extinguished or reduced
2. Without extinguishing or reducing unpaid capital:
i. Cancel the paid up capital not represented by available assets or is lost
ii. Pay off any paid up share capital which is in excess of wants of the company
and file a copy of altered memorandum to the Registrar (since it has the effect of
change in the authorised capital mentioned in the MOA)
Example of extinguish and reduce
1. extinguish
Nominal value paid up liability
10 6 2
6 6 0

2. reduce
nominal value paid up liability
10 6 4
8 6 2
Prohibition on Reduction
No reduction allowed if the company has not repaid the deposits
accepted by it or the interest payable on it
Task of the Tribunal before confirming the
reduction
1. Notice of application of reduction made to it by the
company to be sent to:
I. Central Government
II. Registrar
III. Securities and Exchange Board of India (if the company is listed)
IV. Creditors
To make representation within 3 months if they have any objection
If no representation received within this period- presumed that they
have no objection
Second task of tribunal
2. Satisfaction of the tribunal that:
I. Debt or claim of every creditor of the company has been discharged or
determined or has been secured or his consent is obtained
II. The accounting treatment, proposed by the company for such reduction is
in conformity with the accounting standards specified in section 133 or any
other provision of this Act and a certificate to that effect by the company's
auditor has been filed with the Tribunal
Passing of order by the Tribunal
After considering the representations, if any, made before it and
satisfying itself regarding the claim of creditors and accounting
treatment:
1. Order confirming reduction shall be passed
2. The order shall be published as directed tribunal (penalty of 5 lakhs
to 25 lakhs in case of default)
3. Certified copy of order and minute approved by the Tribunal shall
be submitted to the Registrar within 30 days of the receipt of copy
of order
Contents of the Minute
Minute to be submitted to the Registrar shall contain the following:
(a) the amount of share capital;
(b) the number of shares into which it is to be divided;
(c) the amount of each share; and
(d) the amount, if any, at the date of registration deemed to be paid-up
on each share,
New liability of the member of the company
No liability exceeding:
a. the amount paid on the share, or reduced amount, if any, which is
to be deemed to have been paid thereon
AND
b. the amount of the share as fixed by the order of reduction.
Name of any creditor excluded from the list
• Excluded by reason of his ignorance
• After reduction, company commits any default in payment of his debt or claim,
then:
1. every person, who was a member of the company on the date of the
registration of the order for reduction by the Registrar, shall be liable to
contribute to the payment of that debt or claim, an amount not exceeding the
amount which he would have been liable to contribute if the company had
commenced winding up on the day immediately before the said date
2. if the company is wound up, the Tribunal may, on the application of any such
creditor and proof of his ignorance as aforesaid, if it thinks fit, settle a list of
persons so liable to contribute, and make and enforce calls and orders on the
contributories settled on the list, as if they were ordinary contributories in a
winding up.
Fraud by officers
• If any officer of the company
1. knowingly conceals the name of any creditor entitled to object to
the reduction;
2. knowingly misrepresents the nature or amount of the debt or claim
of any creditor; or
3. abets or is privy to any such concealment or misrepresentation as
aforesaid,
Liability under Section 447- punishment for fraud