Tribunal Approval Procedure for Reduction of Share Capital
# Tribunal Approval for Reduction of Share Capital
A company that has resolved (by special resolution) to reduce its share capital cannot give effect to the reduction without confirmation by the National Company Law Tribunal (NCLT). Section 66 of the Companies Act, 2013 prescribes the procedure.
## Important preliminary point
No reduction is allowed if the company is in arrears in the repayment of any deposits accepted by it or in payment of interest on such deposits.
## Step-by-step procedure
### Step 1 — Application by Company
The company shall make an application to the Tribunal for an order confirming the reduction.
### Step 2 — Notice by Tribunal
The Tribunal shall give notice of every application received to:
Central Government (CG)
Registrar of Companies (ROC)
Creditors of the company
SEBI — only if the company is a listed company
These parties may make representations within 3 months of receipt of notice. If no representation is made within that period, it is presumed that they have no objection.
### Step 3 — Order Confirming Reduction
The Tribunal shall make an order confirming the reduction only when it is satisfied that:
1. Debts/claims of every creditor have been:
Discharged, OR
Determined, OR
Secured, OR
The creditor has given consent to the reduction.
2. The accounting treatment proposed by the company for the reduction is in conformity with the accounting standards specified in Section 133, and a certificate to that effect from the company's auditor has been filed with the Tribunal.
### Step 4 — Filing with ROC
A certified copy of the Tribunal's order, together with the minute approved by the Tribunal, shall be filed by the company with the ROC within 30 days of receipt of the copy of the order.
The minute approved by the Tribunal shall include:
Amount of share capital (e.g., ₹80,000)
Number of shares (e.g., 10,000)
Amount of each share (e.g., ₹8)
Amount deemed paid-up on each share (e.g., ₹8)
### Step 5 — Registration by ROC
The ROC shall, on receipt of the certified copy of the order and minute, register the same and issue a certificate to that effect. The reduction takes effect from the date of registration.
## Additional important rules
1. Section 66 does NOT apply to buy-back of securities under Section 68.
2. Reduction of Securities Premium Account / Capital Redemption Reserve Account: The provisions of Section 66 apply to reduction of SPA/CRR as if these were paid-up share capital.
Worked example
### Example 1
Example 1 — Minute Content
Delta Ltd. obtained the Tribunal's confirmation of a reduction by which the face value of each equity share was reduced from ₹10 to ₹8. After the reduction the company has 10,000 shares.
The minute filed with the ROC must state:
Amount of share capital: ₹80,000
Number of shares: 10,000
Amount of each share: ₹8
Amount deemed paid-up: ₹8
The certified copy of the order along with this minute must reach the ROC within 30 days of receipt of the order.
### Example 2
Example 2 — Effect of Deposit Arrears
ABC Ltd. wishes to reduce its share capital by cancelling unpaid capital. However, ABC has defaulted in paying interest due to its depositors on the last interest payment date and this default has not been rectified.
Answer: ABC Ltd. cannot reduce its share capital. Section 66 bars a reduction where the company is in arrears in repayment of deposits accepted or interest payable thereon. Until the default is cured, the application cannot be entertained.
### Example 3
Example 3 — Reduction of Securities Premium
XYZ Ltd. proposes to use its Securities Premium Account to write off accumulated losses. Even though this is a 'reduction' of SPA and not of paid-up capital, the procedure under Section 66 (Tribunal approval, notice to creditors, etc.) must still be followed because the section applies to SPA/CRR as if they were paid-up share capital.
⚠️ Common exam mistakes
Forgetting that a company in arrears on deposits or interest on deposits CANNOT reduce its share capital.
Confusing the timelines — the notice period for objections is 3 months from notice, while the filing of order with ROC is within 30 days of receipt of order.
Missing that SEBI is to be given notice only when the company is LISTED.
Overlooking that the auditor's certificate confirming compliance with Section 133 accounting standards is mandatory.
Believing that buy-back of shares also requires Tribunal approval under Section 66 — it does not; Section 68 governs buy-back.
Bare-Act text Section 66 · Companies Act, 2013 · click to expand
Section 66 of the Companies Act, 2013 — Reduction of Share Capital. (3) The Tribunal shall give notice of every application made to it under sub-section (1) to the Central Government, Registrar and to the Securities and Exchange Board, in the case of listed companies, and the creditors of the company and shall take into consideration the representations, if any, made to it by that Government, Registrar, the Securities and Exchange Board and the creditors within a period of three months from the date of receipt of the notice. (6) The company shall deliver a certified copy of the order of the Tribunal under sub-section (3) and of a minute approved by the Tribunal showing the amount of share capital, the number of shares into which it is to be divided, the amount of each share and the amount, if any, at the date of registration deemed to be paid-up on each share, to the Registrar within thirty days of the receipt of the copy of the order, who shall register the same and issue a certificate to that effect.