Reduction of Share Capital (Section 66)

# Reduction of Share Capital (Section 66)

## 1. Modes of Reduction

A company limited by shares or limited by guarantee with share capital may reduce its share capital by Special Resolution in the following ways:

### (a) Extinguishing/Reducing Liability on Unpaid Capital

• Reduce the liability on shares not fully paid-up.

### (b) Cancellation of Paid-Up Capital

Cancel paid-up capital that is:

• Lost or unrepresented by available assets, OR
• Excess capital - the company may pay it off and amend its memorandum.

## 2. NCLT Approval Required

After the Special Resolution, an application must be made to the Tribunal.

### Exceptions (No NCLT Approval Needed):

• Buy-back of shares (Section 68)
• Redemption of preference shares (Section 55)

Both are considered capital reduction in substance but governed by their own sections.

## 3. Alteration of Memorandum

• Company must update MOA to reflect the reduced share capital.
• Diminution (reducing unsubscribed authorized capital under Section 61) is DIFFERENT from capital reduction.

## 4. Prohibition on Capital Reduction

• A company cannot reduce capital if it has defaults in deposits or interest.

## 5. Tribunal Notice & Consideration of Representations

### Parties Notified by Tribunal:

• Central Government (RD)
• ROC
• SEBI (for listed companies)
• Company's creditors

### Objection Window:

• If objections raised within 3 months, Tribunal will consider them.
• If no objections within 3 months → deemed no objection.

## 6. Order of Tribunal on Capital Reduction

### Conditions for Approval:

• Tribunal must be satisfied that all creditors' claims are discharged, settled, secured, or their consent is obtained.
• Approval is subject to conditions deemed fit by Tribunal.

### Auditor's Certificate Required:

• Capital reduction will be sanctioned ONLY if accounting treatment complies with Accounting Standards (Section 133).
• Auditor's certificate of compliance must be filed with Tribunal.

### Publication of Order:

• Company must publish the Tribunal's order in newspapers, website, etc. as directed.
• Allows representations/objections from affected parties (creditors).

## 7. Filing with ROC

• Certified copy of Tribunal order + approved minute to be filed with ROC within 30 days.
• Minute must specify:
• Total share capital after reduction.
• Number of shares and their division.
• Value of each share.
• Paid-up amount per share (if any).
• ROC registers the reduction and issues a certificate.

## 8. No Additional Liability on Members

• Past and present members are NOT liable for additional payments on their shares.
• Liable only for difference between amount paid and reduced amount per Tribunal order.

## 9. Creditor's Right to Object - Failure to Object

If a creditor (entitled to object) failed to object due to ignorance OR was omitted from creditors' list, AND the company defaults under Section 6 of IBC, 2016:

### If Company Still Exists:

• Every member at the time of Tribunal's order is liable to contribute toward that debt.
• Contribution NOT exceeding amount payable on winding-up immediately before order date.

### If Company is Wound Up:

• Creditor (unaware of reduction) can apply to Tribunal to be included in contributories.
• Tribunal may settle the list, issue calls, and enforce payments.

## 10. Liability of Officers

An officer of the company is liable under Section 447 (fraud) if they:

• Knowingly conceal a creditor's name entitled to object.
• Misrepresent the nature or amount of a creditor's debt.
• Are aware of and abet such concealment or misrepresentation.

## 11. Overriding Provision

• Section 68 (Buyback) overrides Section 66 (Reduction of Capital).

## Section 61 vs Section 66 - Critical Distinction