Reduction Of Share Capital

Capital Reduction is the process of Decreasing a Company's shareholder equity through share cancellation and share repurchase, also known as share buybacks. The Reduction od capital is done by companies for numerous reasons, including increasing shareholder value and producing a more efficient Capital structure.

The National Company Law Tribunal (NCLT) made mandatory to file the application/petition/appeal/reply etc. online through NCLT e-filing portal via notice dated 31st January 2020, w.e.f. 03rd February 2020. And has also requested to file two complete sets in hard copies before the filing counter NCLT.

Reduction of share capital means the reduction of issued, subscribed and paid-up share capital of the Company and it governed by section 66 of the Companies Act 2013.

The Company needs to make an application to the NCLT for the reduction of share capital.

There are a number of reasons why the company wants to reduce its share capital: Reduce liability, reduce heave capital expenses, to eliminate the losses, to return the surplus capital, etc.

Modes for reduction of share capital are:-

The company can reduce capital by employing one of the following methods:

• Reduce the liability of its shares in respect of the share capital not paid-up.
• Cancel any paid-up share capital which is lost or is unrepresented by available assets.
• Pay off any paid-up share capital which is in excess.

Conditions :

1. Article of Association of the Company should have power for the reduction of share capital.

2. no such reduction shall be made if the company is in arrears in the repayment of any deposits accepted by it, or the interest payable.

Process for Reduction of Share Capital:

A company who wants to reduce its share capital requires to take the following procedural steps:

• Make sure that the article of association contains a provision that should authorize the reduction of share capital. If there is no such kind of provision then the articles must be altered in accordance with the provisions of section 14 of the Companies Act 2013.
• Prepare the draft the Scheme of reduction of capital
• Convey the Board Meeting for approval the draft scheme and to approve the notice of EGM
• Hold the EGM and shareholders shall approve the draft scheme by way of a special resolution.
  File MGT-14 with ROC, within 30 days of passing SR
• Filing an online application of reduction of capital with NCLT
• The application shall be accompanied by the following documents :
  –  List of Events
  –  Petition for Reduction of Share Capital
  – Certificate of Incorporation
  – Memorandum of Association
  – Articles of Association
  –Copies of Financial Statements of the Company for the last 3 preceding financial years.
  – Scheme of Reduction
  –  Shareholding Pattern
  – Resolutions Passed
  – Certificate issued by the Auditors in respect of Creditors
  – Certificate issued by the Auditors in respect of the Accounting Treatment
  – Certificate issued by the Auditors in respect of the outstanding Deposits
  – Declaration from the Company in respect of the outstanding Deposits
  – General Affidavit
  – Memorandum of Appearance
• File two complete sets in hard copies before the filing counter NCLT
• The Tribunal shall, within fifteen days of submission of the application give notice, or direct that notice be given to –
  (i) the Central Government, Registrar of Companies, in all cases, in Form No. RSC-2;
  (ii) the Securities and Exchange Board of India, in the case of listed companies in Form No. RSC-2;
  (iii) the creditors of the company, in all cases in Form No. RSC-3;
• Notice to Creditors
• Publication of Notice
• Confirmation of Publication of Notice
• Representation by Regulatory
• Submission of Representation
• NCLT Order
• Filing Order with ROC