Companies Act Section 66 — Reduction of share capital
CHAPTER IV SHARE CAPITAL AND DEBENTURES
Commercial / Corporate
Summary
Sub-section (1) allows a company that is limited by shares, or limited by guarantee and having a share capital, to reduce its share capital in any way, provided the Tribunal confirms it on the company's application and the company passes a special resolution. The reduction may specifically involve extinguishing or reducing the liability on shares for unpaid share capital, cancelling paid-up share capital that is lost or not represented by available assets, or paying off paid-up share capital that exceeds the company's needs, and altering the memorandum to reduce the amount of share capital and shares accordingly. However, no such reduction can be made if the company is in arrears in repaying any deposits it accepted, or the interest on those deposits, whether the deposits were accepted before or after the commencement of this Act.
Under clause (a) of sub-section (1), the company may extinguish or reduce the liability on any of its shares in respect of share capital that has not been paid up.
Under clause (b) of sub-section (1), the company may, with or without extinguishing or reducing liability on its shares, either cancel any paid-up share capital that is lost or not represented by available assets, or pay off any paid-up share capital that is in excess of the company's wants, and alter its memorandum by reducing the amount of its share capital and of its shares accordingly.
Sub-section (2) requires the Tribunal to give notice of every application for reduction to the Central Government, the Registrar, and, in the case of listed companies, the Securities and Exchange Board, as well as to the company's creditors. The Tribunal must consider any representations made by these parties within three months from the date of receipt of the notice. If no representation is received from the Central Government, Registrar, Securities and Exchange Board, or creditors within that period, it is presumed that they have no objection to the reduction.
Sub-section (3) states that the Tribunal may make an order confirming the reduction of share capital on such terms and conditions as it deems fit, if it is satisfied that the debt or claim of every creditor of the company has been discharged, determined, secured, or that the creditor's consent has been obtained. However, no application for reduction shall be sanctioned by the Tribunal unless the accounting treatment proposed by the company for the reduction conforms to 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.
Sub-section (4) requires the company to publish the order of confirmation of the reduction of share capital by the Tribunal in such manner as the Tribunal may direct.
Sub-section (5) requires the company to deliver a certified copy of the Tribunal's order and a minute approved by the Tribunal to the Registrar within thirty days of receiving the copy of the order. The minute must show 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, deemed to be paid-up on each share at the date of registration. The Registrar shall register the same and issue a certificate to that effect.
Sub-section (6) states that nothing in this section applies to the buy-back of its own securities by a company under section 68.
Sub-section (7) provides that a member of the company, whether past or present, shall not be liable to any call or contribution in respect of any share held by him exceeding the amount of difference between the amount paid on the share, or the reduced amount deemed to have been paid thereon, and the amount of the share as fixed by the order of reduction.
Sub-section (8) deals with a situation where a creditor entitled to object to the reduction is not entered on the list of creditors because of ignorance of the proceedings or their nature and effect, and after the reduction, the company commits a default within the meaning of section 6 of the Insolvency and Bankruptcy Code, 2016, in respect of the amount of his debt or claim. Under clause (a), every person who was a member of the company on the date of registration of the order for reduction by the Registrar shall be liable to contribute to the payment of that debt or claim, up to an amount not exceeding what he would have been liable to contribute if the company had commenced winding up on the day immediately before that date. Under clause (b), if the company is wound up, the Tribunal may, on the application of such a creditor and proof of his ignorance, if it thinks fit, settle a list of persons so liable to contribute, and make and enforce calls and orders on the contributories settled on the list, as if they were ordinary contributories in a winding up.
Sub-section (9) states that nothing in sub-section (8) affects the rights of the contributories among themselves.
Sub-section (10) provides that if any officer of the company knowingly conceals the name of any creditor entitled to object to the reduction, knowingly misrepresents the nature or amount of the debt or claim of any creditor, or abets or is privy to any such concealment or misrepresentation, he shall be liable under section 447.
Official Text
(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, either before or after the commencement of this Act, or the interest payable thereon.
(2) 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:
Provided that where no representation has been received from the Central Government, Registrar, the Securities and Exchange Board or the creditors within the said period, it shall be presumed that they have no objection to the reduction.
(3) The Tribunal may, if it is satisfied that the debt or claim of every creditor of the company has been discharged or determined or has been secured or his consent is obtained, make an order confirming the reduction of share capital on such terms and conditions as it deems fit:
Provided 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.
(4) The order of confirmation of the reduction of share capital by the Tribunal under sub-section (3) shall be published by the company in such manner as the Tribunal may direct.
(5) 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—
(a) the amount of share capital;
(b) the number of shares into which it is to be divided;
(c) the amount of each share; and
(d) 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.
(6) Nothing in this section shall apply to buy-back of its own securities by a company under section 68.
(7) A member of the company, past or present, shall not be liable to any call or contribution in respect of any share held by him exceeding the amount of difference, if any, between the amount paid on the share, or reduced amount, if any, which is to be deemed to have been paid thereon, as the case may be, and the amount of the share as fixed by the order of reduction.
(8) Where the name of any creditor entitled to object to the reduction of share capital under this section is, by reason of his ignorance of the proceedings for reduction or of their nature and effect with respect to his debt or claim, not entered on the list of creditors, and after such reduction, the company 1[commits a default, within the meaning of section 6 of the Insolvency and Bankruptcy Code, 2016 (31 of 2016), in respect of the amount of his debt or claim],—
(a) every person, who was a member of the company on the date of the registration of the order for reduction by the Registrar, shall be liable to contribute to the payment of that debt or claim, an amount not exceeding the amount which he would have been liable to contribute if the company had commenced winding up on the day immediately before the said date; and
(b) if the company is wound up, the Tribunal may, on the application of any such creditor and proof of his ignorance as aforesaid, if it thinks fit, settle a list of persons so liable to contribute, and make and enforce calls and orders on the contributories settled on the list, as if they were ordinary contributories in a winding up.
(9) Nothing in sub-section (8) shall affect the rights of the contributories among themselves.
(10) If any officer of the company—
(a) knowingly conceals the name of any creditor entitled to object to the reduction;
(b) knowingly misrepresents the nature or amount of the debt or claim of any creditor; or
(c) abets or is privy to any such concealment or misrepresentation as aforesaid, he shall be liable under section 447. 1* * * * *.