# Reduction of Share Capital — Section 66

A company limited by shares (or limited by guarantee with share capital) may reduce its share capital in any of the following manners (subject to confirmation by NCLT):

## Modes of Reduction

1. Extinguish or reduce liability on shares in respect of share capital not paid up;

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

3. Pay off any paid-up share capital which is in excess of the wants of the company.

## Procedure (7 Steps)

### Step 1 — Special Resolution

Pass a Special Resolution in general meeting.

### Step 2 — Application to NCLT

Obtain NCLT (Tribunal) approval.

### Step 3 — Notice by Tribunal

NCLT shall give notice of every application to:

Central Government (power delegated to Regional Director),
Registrar of Companies,
SEBI (in case of listed companies),
Creditors of the company.

They have 3 months from receipt of notice to make representations. No representation = deemed no objection.

### Step 4 — Tribunal Order

If satisfied that debt/claim of every creditor is discharged, determined, secured, or consent obtained, NCLT may pass an order confirming reduction on such terms as deemed fit.

### Step 5 — Publication

Company shall publish the order of confirmation as Tribunal may direct.

### Step 6 — Filing with ROC (within 30 days)

File with Registrar:

1. Certified copy of NCLT order, AND

2. Minute approved by Tribunal, showing —

(a) Amount of share capital;
(b) Number of shares into which divided;
(c) Amount of each share;
(d) Amount, if any, deemed paid-up on each share at date of registration.

### Step 7 — Registration & Certificate

ROC registers and issues a certificate to that effect.

## Restrictions

No reduction if company is in arrears in repayment of deposits (or interest thereon).
Accounting treatment must conform to accounting standards (Sec 133) — certified by company's auditor and filed with NCLT.

## Effects of Reduction

1. A member (past or present) is NOT liable to any call/contribution exceeding the difference between the amount paid and the reduced amount of his share.

2. A creditor entitled to object but not entered on list of creditors due to ignorance — if company later cannot pay him, every person who was a member on the date of registration is personally liable to contribute to that debt.

3. Balance Sheet of the company after reduction must end with the words "And reduced".

## Diminution vs Reduction — Comparison Table

Aspect	Diminution (Sec 61)	Reduction (Sec 66)
Affects	Authorised share capital	Paid-up share capital
Resolution	Ordinary	Special
NCLT Approval	Not required	Required
Balance Sheet	Not affected	Affected
Creditors' interest	Not affected	Affected
"And reduced"	Not used	Must be used

Worked example

### Example 1

Q: ABC Ltd has paid-up capital of ₹50 lakh divided into 5,00,000 shares of ₹10 each (fully paid). Due to heavy accumulated losses, the directors propose to write off ₹4 per share (i.e. unrepresented by available assets). What is the procedure?

A: This is a reduction under Sec 66 — cancelling paid-up capital lost or unrepresented by assets. Steps: (i) Special Resolution in general meeting; (ii) Application to NCLT; (iii) NCLT gives notice to CG/RD, ROC, SEBI (if listed), creditors — 3 months for representations; (iv) NCLT confirms only if all creditors' claims discharged/secured/consented and accounting treatment certified by auditor; (v) Company files certified copy of order and minute with ROC within 30 days; (vi) ROC registers and issues certificate; (vii) Balance Sheet thereafter must end with 'And reduced'.

### Example 2

Q: A company has 1,00,000 unissued shares of ₹100 each in its authorised capital. It cancels them. Is this a 'reduction of share capital' under Sec 66?

A: No. This is diminution of share capital under Sec 61(1)(e), not reduction under Sec 66. It does NOT require Special Resolution, NCLT approval, or notice to creditors — Ordinary Resolution under Sec 61 suffices. Balance sheet need not end with 'And reduced'.

⚠️ Common exam mistakes

Confusing 'diminution' (Sec 61) with 'reduction' (Sec 66) — diminution affects unissued/un-taken authorised capital; reduction affects paid-up capital.
Forgetting that NCLT cannot confirm reduction unless all creditors are discharged/secured/consented OR have not objected within 3 months.
Missing the prohibition: NO reduction is permitted if the company is in arrears in repayment of deposits/interest.
Forgetting that the Balance Sheet AFTER reduction must end with the words 'And reduced'.
Not appreciating that the auditor's certificate on accounting treatment conforming to Sec 133 must be filed with NCLT — failure to do so prevents sanction.

Bare-Act text Section 66 · Companies Act, 2013 · click to expand

Section 66(1): Subject to confirmation by the Tribunal on an application by the company, a company limited by shares or limited by guarantee and having a share capital may, by a special resolution, reduce the share capital in any manner and in particular, may — (a) extinguish or reduce the liability on any of its shares in respect of the share capital not paid up; or (b) either with or without extinguishing or reducing liability on any of its shares — (i) cancel any paid-up share capital which is lost or is unrepresented by available assets; or (ii) pay off any paid-up share capital which is in excess of the wants of the company, alter its memorandum by reducing the amount of its share capital and of its shares accordingly: Provided that no such reduction shall be made if the company is in arrears in the repayment of any deposits accepted by it... Provided further that no application for reduction of share capital shall be sanctioned by the Tribunal unless 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.

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Reduction of Share Capital (Section 66)

Worked example

⚠️ Common exam mistakes