Do you wish to reduce the share capital of your company?
Convene a board meeting after issuing not less than seven days notice to every director of the company at his address registered with the company as per section 173(3) of the 2013 act and approve the scheme of reduction, and fix up the date, time, place and agenda for the general meeting to pass a special resolution for effecting reduction and consequently to change the memorandum of association (MOA) subject to confirmation of the tribunal such notice shall be sent by hand delivery or by post or by electronic means.
Beware that every officer of the company whose duty is to give notice of the board meeting as aforesaid and who fails to do so will be punishable with a fine of twenty-five thousand rupees. (Section 173(4) of the 2013 act).
The reduction may be effected in any way as specified in section 66 of the companies act, 2013 and they are:
- By extinguishing or reducing the liability on any of its shares in respect of share capital not paid-up;
- Either with or without extinguishing or reducing liability on any of its shares by canceling any paid-up share capital which is lost, or is unrepresented by available assets;
- With or without reducing or extinguishing the liability on any of its shares by pay off the paid-up share capital that may be in excess of the wants of the company.
A company which did not repay the deposits accepted by it, either before or after the commencement of the companies act, 2013 or the interest payable thereon would not be eligible to make a reduction in capital.
Issue notices in writing or through electronic mode in the manner prescribed under rule 18(1) and 18(2) of the companies (management and administration rules, 2014 not less than twenty one clear days before the date of the meeting (section 101(1) of the 2013 act) for the general meeting with suitable explanatory statement (Section 102(1) of the 2013 act). If your company is listed or is a company having not less than 1000 shareholders, your company shall also provide its members, the facility to exercise their right to vote at general meetings by electronic means. (Section 108 read with rule 20 of the companies (management and administration ) rules, 2014 and clause 35-B of the standard listing agreement.
- Hold the general meeting and pass the special resolution by a three-fourths majority:
- If the shares of your company are listed with any of the recognized stock exchange, then forward to the stock exchange concerned:
- Three copies of all notices, circulars, etc., issued or advertised in the press by your company, which includes circulars, notices, etc. will be issued or advertised in the press with regard to the meetings of debenture holders or shareholders or creditors or any class of them and copies of the proceedings at all such meetings (clause 31(e) of the standard listing agreement).
- Copies of all notices sent to your shareholders with respect to amendments to be made in the memorandum and articles along with six copies of the amendments, one of which shall be certified, as soon as they are adopted by your company in a general meeting. (Clause 33 of the standard listing agreement).
- File with the stock exchange for approval proposed petition to be filed with the court;
- Ensure that reduction of capital does not in any way violate, override or circumscribe the provisions of securities laws or the stock exchange requirements;
- See that the explanatory statement forwarded to the shareholders accompanying the proposed special resolution disclose the pre and post capital structure and shareholding pattern. (Clause 24(f), (g) and (h) of the standard listing agreement).
- File the special resolution with the explanatory statement with the concerned ROC in Form.No.MGT-14 within thirty days. (Section 192 of the 2013 act) after paying the requisite fees prescribed under rule 12 of the companies (registration offices and fees) rules, 2014 read with the table annexed to these rules or with such additional fees as specified and within the time specified under section 403.
- Ensure that the said form is filed electronically and the copy of the special resolution and the explanatory statement are filed with the said e-form as attachments.
- Ensure also that the said form is digitally signed by the managing director or director or manager or secretary of the company duly authorized by the board of directors.
- Further, ensure that the said form is certified by a chartered accountant or a cost accountant or a company secretary in whole time practice by digitally signing the said e-form.
- Remember that if default is made in complying with the aforesaid requirement of filing the special resolution before the expiry of the period specified under section 403 with additional fee, the company shall be punishable with a fine which shall not be less than Rs.5, 00,000 but which may extend to Rs.25,00,000 and every officer who is in default, shall be punishable with fine which shall not be less than Rs.1,00,000 but which may extend to Rs.5,00,000 (Section 117(2) of the 2013 act).
- Apply to the tribunal for confirmation of the reduction by way of an application.
The application should be accompanied by the following documents:
- A certified true copy of the memorandum and articles of association of your company.
- A certified true copy of the notice calling the meeting.
- A certified true copy of the special resolution with explanatory statement authorizing the reducing of capital;
- A certified true copy of the latest balance sheet and profit and loss account.
- A certified true copy of the minutes of the meeting at which the special resolution was passed. The original minute book of the company, if required to be produced should also be produced along with the certified true copy which will be returned by the court after the copy has been checked with the original.
- A certificate from the company’s auditor that the accounting treatment proposed by the company for reduction is in conformity with the accounting standards specified in section 133 of the 2013 act.
When the tribunal 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 (Section 66(3) of the 2013 act). The application shall be sanctioned only if the tribunal is satisfied that the accounting treatment proposed by the company for such reduction is in conformity with the accounting standards specified in section 133 or any provision of the act and a certificate to that effect has been filed by the company’s auditor with the tribunal.
- The tribunal is satisfied in all respects will pass an order confirming the reduction and may direct the company to publish the order in such manner as directed comply with these requirements of the said court accordingly.
- See that the certified copy of the order of the tribunal 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 each share and the amount if any, at the date of registration deemed to be paid upon each share is delivered to the ROC within thirty days of the receipt of the copy of the order. The ROC shall register the same and issue a certificate to that effect.
- Alter accordingly the memorandum and articles of association and other papers and documents.
- Note that if at any time the company issues any copies of the memorandum and articles of association without making the alteration therein, the company and every officer of the company who is in default will be punishable with fine up to Rs.1000 for each copy so issued (section 15(1) of the 2013 act).
- Note also that offenses mentioned in Item Nos.2, 12 and 19 above are compoundable by the central government under section 441(1)(b) (which is yet to be notified) of the 2013 act corresponding to section 621 A of the 1956 act.
- Take other steps such as making an endorsement on the share certificates or refunding of the capital or any other thing as per the scheme of reduction.
- Send to the stock exchange with which the shares of your company are listed, three copies of all notices, circulars etc., issued or advertised by the company in connection with the reduction (clause 31 (e) of the standard listing agreement).
- Note that under explanation to section 47(2) any resolution of your company for reduction of its share capital should be deemed directly to affect the rights attached to the preference shares if you have any and in such a case preference shareholders will have a right to vote on such a resolution under section 47(2) of the 2013 act.
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