Capital Reduction Companies Act 2013

Narendra Kumar

02 Dec, 2020

Reduction of Capital is the method of diminishing a shareholder’s equity through cancellations and repurchase of shares that are held by them. The Capital reduction of the company is carried out for several reasons, with increasing shareholder value and producing a more efficient capital structure. Once a capital reduction is made, the number of shares in the company will decrease by the reduction amount

A company recommending to reduce its share capital is required to take the following procedural steps:

• Make sure that the articles of association of company comprise a provision authorizing a reduction of share capital. In case there is no such provision then the same has to be first altered as per the provisions of the Companies Act, 2013^[1].
• Convene and hold a Board meeting to –

1. Inboard meeting approve the scheme of reduction of share capital by a resolution;
2. Their only fix time, date and venue for holding a general meeting for passing the special resolution for reduction of share capital depending on confirmation by National Company Law Tribunal as per provisions of the Act and for alteration the capital clause in the memorandum of association of the company, as a result of reduction of share capital of the company;
3. Approve notice, agenda and explanatory statement that is to be annexed to the notice of the general meeting as per Section 102 of the Act; and
4. Authorize the company secretary or any other competent officer to issue a notice of the general meeting that is approved by the Board at a board meeting.

• As soon as Board meeting is concluded, send to the recognized stock exchanges, where the securities of the company are listed, details of the proposed reduction in the share capital of the company according to Regulation 30 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.
• Then Issue notice of the general meeting to be held to all members, directors, and auditors of the company. Also, send the copies of the notice of the general meeting to the recognized stock exchanges where the securities of the company are listed.
• Hold the general meeting on the day decided. See the quorum required is present and get the special resolution(s) passed.
• Forward a copy of the proceedings of the general meeting to the recognized stock exchanges according to the Listing Agreement.
• File form MGT-14 along with a valid certified copy of the special resolution(s), a copy of explanatory statement plus a copy of altered Memorandum of Association and Articles of Association with the ROC within 30 days of the passing of the resolutions together with the recommended filing fee for its registration.
• Make an Application to National Company Law Tribunal also known as NCLT^[2] for the confirmation of the capital reduction using a petition to be filed in Form No.RSC-1 of the NCLT (Procedure for Reduction of Share Capital of Company) Rules, 2016.
• A petition to confirm a reduction of share capital shall be accompanied along with following documents and requisite fee:

1. The list of creditors certified by the managing director or in his absence by the two directors, as true and correct, which is made on a date not earlier than 15 days previous to the time of filing of an application presenting the details of the creditors of the company.
2. A certificate from the auditor of the company to the effect that the list of creditors referred in above clause is true and fair.
3. A certificate from the auditor and director of the company that the company has not defaulted in repayment of deposits and interest thereon.
4. A certificate from the Statutory Auditor to the effect that all the accounting treatment has confirmed with the Accounting Standards as prescribed under section 133 of the Companies Act.
5. A true certified copy of the memorandum and articles of association of the company.
6. A true certified copy of the notice of the general meeting together with the explanatory statement annexed to the notice, at which the special resolution had been passed.
7. A true certified copy of the special resolution authorizing the reduction of share capital.
8. A true certified copy of the latest audited balance sheet and profit and loss account of the company together with all the schedules and other papers attached/annexed to it.
9. A true certified copy of the minutes of proceedings at the general meeting at which the special resolution for reduction of the share capital was passed.
10. An affidavit verifying the petition.
11. Memorandum of Appearance with a copy of board resolution.
12. A Bank Draft is evidencing the payment of fees.
13. Other requisite attachment.

• National Company Law Tribunal will give notice to Central Government, Registrar of Companies and SEBI within 15 days from the filing of a petition.
• The Notice to the creditors ( as per list submitted to NCLT) in the Form RSC-3 shall be sent to each creditors within the seven days from the direction of the NCLT or such other period as may be prescribed by the NCLT for their objections, if any and the creditors will send their representations and objections within the three months.
• Publish the notice in Form RSC-4 within the seven days from the directions of NCLT. Notice be going to be published in newspapers in the vernacular language newspaper where the registered office of the company is situated, and in an English newspaper both having a wide circulation in that area.
• The Company or the person who was directed to issue the notice shall file an affidavit in the Form RSC-5 confirming the despatch and publication of the Notice.

Here, it may be noted that all concerned parties will make their representations within the three months from the date of receipt of notice and where no representations have been made from the side of Central Government, Registrar of Companies, SEBI, and Creditors, it shall be presumed that they have no objections to the said reduction.

• The Company shall submit the NCLT, within the seven days of the expiry of a period up to which representations have been sought, the representations and objections so received and company reply on it.
• At the hearing of the petition, the NCLT may if it thinks fit gives such directions as may deem fit and issue its order.
• File the order of the NCLT with Registrar of Companies in Form No. INC-28 within the 30 days from the date of order.
• Collect the existing share certificate and destroy them and issue new share certificates (in case of shares issued in physical form) or otherwise contact with RTA and Share Transfer Agent.
• Take all other steps in accordance with the scheme of reduction of share capital of the company as approved by the Court, e.g., to pay-up share capital which is more than the wants of the company.
• The company must send to the concerned stock exchanges in case of listed company three copies of all the notices, circulars, etc. issued and published in newspapers by the company in connection with the reduction of the share capital of the company as per the Listing Agreements signed with the stock exchanges.