Capital Clause and Alteration of Share Capital (Section 61, 64)
# Capital Clause of the Memorandum
## Applicability
Only companies having share capital will have a capital clause in their memorandum.
The clause states the amount of capital with which the company is registered.
Shares must have a fixed nominal value (face value).
The capital is variously called nominal, authorised, or registered capital.
## Alteration of Capital Clause (Section 61)
> Important: All clauses of the Memorandum, except the capital clause, are altered per Section 13 procedure. The capital clause follows Section 61.
### Conditions for Alteration under Section 61
Company must be a limited company having share capital.
Authority to alter must be given by the Articles of Association.
Resolution required: Ordinary Resolution in general meeting.
File notice with ROC in Form SH-7 within 30 days.
### Permitted Modes of Alteration [Section 61(1)]
Mode
Description
(a)
Increase authorised share capital by such amount as the company requires
(b)
Consolidate existing shares into shares of larger denomination
(c)
Convert fully-paid shares into stock or vice versa
(d)
Sub-divide existing shares into shares of smaller denomination
(e)
Cancel shares not taken up or agreed to be taken up — known as diminution of share capital
### NCLT Approval Trigger
Any consolidation or division which results in a change in the voting percentage of shareholders requires approval of NCLT on application in the prescribed manner.
### Diminution vs. Reduction
Cancellation of shares not taken up (mode (e)) is diminution — it is not a reduction of share capital under Section 66.
## Notice to Registrar of Alteration (Section 64)
A company must give notice to the Registrar of alteration or increase of share capital along with the altered memorandum.
### Penalty for Non-Compliance
Defaulter
Penalty
Company
₹500 per day during which default continues, or ₹5,00,000, whichever is less
Officer in default
₹1,00,000
Worked example
### Example 1
Example 1 — Sub-Division of Shares
PQR Ltd has shares of ₹100 face value. To improve liquidity, it wants to sub-divide them into shares of ₹10 each.
Procedure:
1. Check Articles allow capital alteration.
2. Pass ordinary resolution in general meeting.
3. File Form SH-7 with ROC within 30 days.
4. As sub-division to ₹10 from ₹100 does not change voting percentage, NCLT approval is NOT required.
### Example 2
Example 2 — Consolidation Changing Voting Pattern
LMN Ltd has issued shares of ₹10 each. It wants to consolidate them into shares of ₹100 each. After rounding off fractional entitlements, certain small shareholders lose their voting rights.
Answer: Since the consolidation results in a change in voting percentage, NCLT approval is required in addition to the ordinary resolution.
### Example 3
Example 3 — Penalty Calculation under Section 64
Company A fails to file notice of alteration of capital with ROC for 800 days.
Calculation:
₹500 × 800 days = ₹4,00,000
Maximum cap = ₹5,00,000
Since ₹4,00,000 < ₹5,00,000, the company is liable to ₹4,00,000.
Officer in default: ₹1,00,000.
⚠️ Common exam mistakes
Applying Section 13 procedure to alter the capital clause — capital clause has its own procedure under Section 61.
Passing a special resolution for capital clause alteration — only an ordinary resolution is needed under Section 61.
Treating diminution (Section 61(1)(e)) as reduction of share capital under Section 66 — they are legally distinct.
Forgetting that NCLT approval is needed if consolidation/division changes voting percentage.
Missing the 'whichever is less' cap when calculating penalty under Section 64.
Bare-Act text Section 61, Section 64 · Companies Act, 2013 · click to expand
Section 61(1): A limited company having a share capital may, if so authorised by its articles, alter its memorandum in its general meeting to—
(a) increase its authorised share capital by such amount as it thinks expedient;
(b) consolidate and divide all or any of its share capital into shares of a larger amount than its existing shares:
Provided that no consolidation and division which results in changes in the voting percentage of shareholders shall take effect unless it is approved by the Tribunal on an application made in the prescribed manner;
(c) convert all or any of its fully paid-up shares into stock, and reconvert that stock into fully paid-up shares of any denomination;
(d) sub-divide its shares, or any of them, into shares of smaller amount than is fixed by the memorandum;
(e) cancel shares which, at the date of the passing of the resolution in that behalf, have not been taken or agreed to be taken by any person, and diminish the amount of its share capital by the amount of the shares so cancelled.
Section 64: Notice to be given to Registrar for alteration of share capital. Where any company fails to comply with the provisions of sub-section (1), such company and every officer who is in default shall be liable to a penalty of five hundred rupees for each day during which such default continues, subject to a maximum of five lakh rupees in case of a company and one lakh rupees in case of an officer who is in default.