# Reduction of Share Capital — Section 66

## Three Permitted Modes of Reduction

Mode	Description
1	Extinguish or reduce the liability on any of its 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 for Reduction

### Step 1 — Special Resolution

Pass a special resolution in the general meeting of the company.

### Step 2 — NCLT Approval

Obtain approval of the National Company Law Tribunal (NCLT).

### Step 3 — Notice by Tribunal

The Tribunal shall give notice of every application to:

The Central Government (power delegated to Regional Director)
The Registrar of Companies (ROC)
SEBI (in case of listed companies)
The creditors of the company

Time for representation: 3 months from receipt of notice. If no representation received within this period — presumed they have no objection.

### Step 4 — Tribunal's Order

If satisfied that every creditor's debt has been discharged, determined, secured, or consent obtained, the Tribunal may make an order confirming reduction on such terms and conditions as it deems fit.

### Step 5 — Publication

The company shall publish the order in the manner directed by the Tribunal.

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

The company shall deliver to ROC:

1. A certified copy of the Tribunal's order

2. A minute approved by the Tribunal showing:

(a) The amount of share capital
(b) Number of shares into which it is divided
(c) Amount of each share
(d) Amount, if any, at the date of registration deemed to be paid-up on each share

### Step 7 — ROC Action

ROC shall register the same and issue a certificate to that effect.

## Bars on Reduction

No reduction if the company is in arrears in repayment of deposits (accepted before/after commencement of the Act) or interest thereon.
No reduction unless the accounting treatment is in conformity with Section 133 (Accounting Standards) — certified by the company's auditor and filed with the Tribunal.

## Effects of Reduction

1. Past or present member liability: A member shall not be liable to any call or contribution exceeding the difference between amount paid on share and reduced amount.

2. Protection for unaware creditors: If a creditor entitled to object — being ignorant of the proceedings — is not on the list, and after reduction the company cannot pay him, then every person who was a member on the date of registration of the reduction order shall be personally liable to contribute.

3. Balance Sheet: The Balance Sheet after reduction must end with the words "And reduced".

## Diminution vs. Reduction — Key Comparison

Aspect	Diminution (Sec 61)	Reduction (Sec 66)
Affects	Authorised share capital	Paid-up share capital
Resolution	Ordinary Resolution	Special Resolution
NCLT Approval	Not required	Required
Balance Sheet	Not affected	Affected
Interest of creditors	Not affected	Affected
"And reduced" wording	Not to be used	To be used

Worked example

### Example 1

Example 1 — Reducing Unpaid Liability

KLM Ltd has issued shares of ₹100 each, ₹60 paid-up. Owing to over-capitalisation, it wishes to reduce the unpaid portion of ₹40 to ₹20 (so members are liable only to pay another ₹20 if called).

Mode: This is reduction by extinguishing/reducing the liability on shares in respect of capital not paid-up (Mode 1).

Procedure: Special resolution → NCLT application → Notice to CG (RD), ROC, SEBI (if listed), creditors → 3-month waiting period → Tribunal order → Publish → File order + minutes with ROC within 30 days → ROC certificate.

### Example 2

Example 2 — Cancellation of Lost Capital

DEF Ltd has paid-up capital of ₹10 crore, but accumulated losses of ₹4 crore make the capital unrepresented by available assets to that extent.

Mode: Reduction by cancelling paid-up capital lost or unrepresented by available assets (Mode 2). The capital can be reduced to ₹6 crore.

Note: The Balance Sheet after reduction must end with "And reduced".

### Example 3

Example 3 — Distinguishing Diminution from Reduction

ABC Ltd has authorised capital of ₹100 crore, of which ₹40 crore worth of shares have not been taken up by anyone. Board wants to cancel them.

Answer: This is diminution under Section 61(1)(e), NOT reduction under Section 66. Only an ordinary resolution is needed; no NCLT approval; creditors' interest is not affected; the Balance Sheet does not need to carry 'And reduced'.

⚠️ Common exam mistakes

Confusing diminution (Section 61) with reduction (Section 66) — diminution is of authorised capital and needs only an ordinary resolution.
Forgetting that NCLT must give notice to CG (via RD), ROC, SEBI (listed companies), and creditors — and wait for the 3-month representation window.
Omitting to mention that 'And reduced' must follow the Balance Sheet after a Section 66 reduction.
Overlooking the bar on reduction when the company is in arrears in repayment of deposits or interest.
Forgetting the auditor's certificate confirming compliance with Section 133 accounting standards must accompany the application.
Missing the special liability that attaches to members on the date of registration when an unaware creditor surfaces post-reduction.

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, and 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, either before or after the commencement of this Act, or the interest payable thereon.

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Reduction of Share Capital (Section 66) and Difference from Diminution

Worked example

⚠️ Common exam mistakes