Company law
This query is : Resolved
08 July 2013
What are different methods of Reduction Of Share Capital? Please reply with Procedure or you may mail me Reply at:- abhishek@welleducateindia.com
08 July 2013
Hi
Reduction of paid up share capital by the sanction of the High Court/Tribunal:
Section 100 stipulates that a limited company having share capital or a company limited by guarantee and having share capital may if so authorised by its Articles of Association, reduce its paid up share capital by passing special resolution in general meeting subject to obtaining consent of the High Court [Powers being given to the Tribunal as per the Companies (Second Amendment) Act, 2002]. The Articles must provide the powers for reduction of share capital of the company otherwise these will have to be altered so as to vest power to the company. The resolution passed by a company to reduce its paid up share capital shall be subject to the confirmation of the High Court/Tribunal. (Appendix 4)
A company may reduce its share capital in the following circumstances:—
(a) Capital is in excess of its needs:—
(i) by reduction of liability of its members in respect of uncalled or unpaid share capital;
(ii) by extinguishments of liability of members in respect of uncalled or unpaid amount of share capital;
(iii) by paying back or reducing the paid up share capital;
(iv) by payment of part of the paid up share capital on the conditions that it may be called again.
(b) Suffering of loss of capital by company.
Surrender of shares amounts to reduction of capital; it is open neither to shareholder to surrender shares, nor to company to accept such surrender. [Collector of Moradabad v Equity Insurance Co. Ltd. (1948) 18 Comp Cas 309 (Oudh)].
Reduction of paid up share capital by the sanction of the High Court/Tribunal:
Section 100 stipulates that a limited company having share capital or a company limited by guarantee and having share capital may if so authorised by its Articles of Association, reduce its paid up share capital by passing special resolution in general meeting subject to obtaining consent of the High Court [Powers being given to the Tribunal as per the Companies (Second Amendment) Act, 2002]. The Articles must provide the powers for reduction of share capital of the company otherwise these will have to be altered so as to vest power to the company. The resolution passed by a company to reduce its paid up share capital shall be subject to the confirmation of the High Court/Tribunal. (Appendix 4)
A company may reduce its share capital in the following circumstances:—
(a) Capital is in excess of its needs:—
(i) by reduction of liability of its members in respect of uncalled or unpaid share capital;
(ii) by extinguishments of liability of members in respect of uncalled or unpaid amount of share capital;
(iii) by paying back or reducing the paid up share capital;
(iv) by payment of part of the paid up share capital on the conditions that it may be called again.
(b) Suffering of loss of capital by company.
Surrender of shares amounts to reduction of capital; it is open neither to shareholder to surrender shares, nor to company to accept such surrender. [Collector of Moradabad v Equity Insurance Co. Ltd. (1948) 18 Comp Cas 309 (Oudh)].
08 July 2013
Reduction of paid up share capital without sanction of the High Court/Tribunal:
All types of reduction of paid up share capital are not within the purview of the provisions of section 100 of the Companies Act, 1956. The following categories of reduction of paid up share capital are out of the ambit of the provisions of section 100 and need not follow the procedure therein and reduction may take place in such cases without obtaining sanction of the High Court/Tribunal:—
(a) Forfeiture of partly paid-up shares;
(b) Redemption of redeemable preference shares;
(c) Cancellation of shares neither issued nor committed;
(d) Purchase of shares by a company on order of the High Court/Tribunal;
(e) Buy back of Securities from its members. [Section 77A]
If a company in voluntary liquidation, after repaying its preference and ordinary share capital is revived with fresh share capital, which is less than earlier capital, it does not amount to reduction of capital. [Mcleod & Co. v S.K. Ganguly (1975) 45 Comp Cas 563 (Cal)].
When the capital is reduced by canceling any paid-up share capital, which is lost or is otherwise unrepresented by available assets, it is not mandatory to follow the procedure prescribed in sub-section (2) of section 101 unless the Court so directs. [Maneckchowk & Ahmedabad Mfg. Co. Ltd., In re (1970) 40 Comp Cas 819 (Guj)].
If an amount received by a company was not towards share capital, but was wrongly shown as such in balance sheet, provisions of sections 100 to 103 are not attracted when that amount is repaid. [Rupak Ltd. v Registrar of Companies (1984) 56 Comp Cas 206 (Pat)].
Reduction of paid up share capital without sanction of the High Court/Tribunal:
All types of reduction of paid up share capital are not within the purview of the provisions of section 100 of the Companies Act, 1956. The following categories of reduction of paid up share capital are out of the ambit of the provisions of section 100 and need not follow the procedure therein and reduction may take place in such cases without obtaining sanction of the High Court/Tribunal:—
(a) Forfeiture of partly paid-up shares;
(b) Redemption of redeemable preference shares;
(c) Cancellation of shares neither issued nor committed;
(d) Purchase of shares by a company on order of the High Court/Tribunal;
(e) Buy back of Securities from its members. [Section 77A]
If a company in voluntary liquidation, after repaying its preference and ordinary share capital is revived with fresh share capital, which is less than earlier capital, it does not amount to reduction of capital. [Mcleod & Co. v S.K. Ganguly (1975) 45 Comp Cas 563 (Cal)].
When the capital is reduced by canceling any paid-up share capital, which is lost or is otherwise unrepresented by available assets, it is not mandatory to follow the procedure prescribed in sub-section (2) of section 101 unless the Court so directs. [Maneckchowk & Ahmedabad Mfg. Co. Ltd., In re (1970) 40 Comp Cas 819 (Guj)].
If an amount received by a company was not towards share capital, but was wrongly shown as such in balance sheet, provisions of sections 100 to 103 are not attracted when that amount is repaid. [Rupak Ltd. v Registrar of Companies (1984) 56 Comp Cas 206 (Pat)].
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08 July 2013
Buy back the minority non-promoters' shares in a scheme of capital reduction without giving option to reject the offer?:
In the case of Mihir H Mafatlal v Mafatlal Industries Ltd. (1996), the High Court held that where there are two distinct groups in the sense belonging one belonging to the promoters and other of non-promoters group, the meeting ought to have been convened separately for the non-promoters group otherwise the meeting would be rather absurd and would result in injustice. It was further held that the minority non-promoters shareholders should be given the option for acceptance or rejection of proposal otherwise the proposal was highly inequitable, unjust, unfair, in the sense that the minority shareholders will have to leave the company.
In Sandvik Asia Ltd., In re (2004) 121 Comp Cas 58 (Bom), it was held that the general rule is that the prescribed majority of shareholders are entitled to decide whether there should be a reduction of capital, and if so, in what manner and to what extent it should be carried into effect. The powers of shareholders must be exercised so as to safeguard the rights of creditors, the just and equitable treatment of shareholders and the interest of investing public.
Buy back the minority non-promoters' shares in a scheme of capital reduction without giving option to reject the offer?:
In the case of Mihir H Mafatlal v Mafatlal Industries Ltd. (1996), the High Court held that where there are two distinct groups in the sense belonging one belonging to the promoters and other of non-promoters group, the meeting ought to have been convened separately for the non-promoters group otherwise the meeting would be rather absurd and would result in injustice. It was further held that the minority non-promoters shareholders should be given the option for acceptance or rejection of proposal otherwise the proposal was highly inequitable, unjust, unfair, in the sense that the minority shareholders will have to leave the company.
In Sandvik Asia Ltd., In re (2004) 121 Comp Cas 58 (Bom), it was held that the general rule is that the prescribed majority of shareholders are entitled to decide whether there should be a reduction of capital, and if so, in what manner and to what extent it should be carried into effect. The powers of shareholders must be exercised so as to safeguard the rights of creditors, the just and equitable treatment of shareholders and the interest of investing public.
08 July 2013
Specimen of resolutions for Reduction of share capital
RESOLVED THAT subject to the confirmation of the High Court/Tribunal, consent of the Company be and is hereby given to the reduction of share capital of the company from Rs 20,00,000 divided into 2,00,000 shares of Rs 10 each to Rs 15,00,000 divided into 2,00,000 shares of Rs 7.50 each and the said reduction be effected by extinguishing the liability on these Equity shares in respect of share capital not called up and paid up.
RESOLVED FURTHER THAT the corresponding amendments are made in Clause V of the Memorandum of Association and Article 6 of the Articles of Association of the Company.
RESOLVED FURTHER THAT the Board of directors of the Company be and is hereby authorised to take steps for obtaining the High Court/Tribunal's Order, delegate powers to Managing Director, finalise the scheme of reduction, effecting modifications as per the order of Court/Tribunal, finalise the terms and conditions of debenture issue and to do all such acts, deeds and things necessary for the purpose of giving effect to this resolution.
Explanatory statement
The Companies Act, 1956 provides for reduction of share capital under section 100-104. The companies activities have been reduced due to take over of import trade by the Governmental Agency. So
the need of capital as felt before is not at present there. It would not be advisable to make further calls, as no dividend has been paid by the Company for the last few years. Since the Company has no outside creditors, it may receive the Court/Tribunal sanction. None of the directors is interested in the resolution.
Specimen of resolutions for Reduction of share capital
RESOLVED THAT subject to the confirmation of the High Court/Tribunal, consent of the Company be and is hereby given to the reduction of share capital of the company from Rs 20,00,000 divided into 2,00,000 shares of Rs 10 each to Rs 15,00,000 divided into 2,00,000 shares of Rs 7.50 each and the said reduction be effected by extinguishing the liability on these Equity shares in respect of share capital not called up and paid up.
RESOLVED FURTHER THAT the corresponding amendments are made in Clause V of the Memorandum of Association and Article 6 of the Articles of Association of the Company.
RESOLVED FURTHER THAT the Board of directors of the Company be and is hereby authorised to take steps for obtaining the High Court/Tribunal's Order, delegate powers to Managing Director, finalise the scheme of reduction, effecting modifications as per the order of Court/Tribunal, finalise the terms and conditions of debenture issue and to do all such acts, deeds and things necessary for the purpose of giving effect to this resolution.
Explanatory statement
The Companies Act, 1956 provides for reduction of share capital under section 100-104. The companies activities have been reduced due to take over of import trade by the Governmental Agency. So
the need of capital as felt before is not at present there. It would not be advisable to make further calls, as no dividend has been paid by the Company for the last few years. Since the Company has no outside creditors, it may receive the Court/Tribunal sanction. None of the directors is interested in the resolution.
08 July 2013
Alternate Resolution:
RESOLVED THAT subject to confirmation by the Hon'ble High Court at Calcutta, the paid-up capital of the company be reduced from Rs. 40,00,000 divided into 4,00,000 Equity Shares of Rs. 10 each to Rs. 11,04,160 divided into 3,31,248 Equity Shares of 31/3rd of a Rupee each by canceling 68,752 Equity Shares of Rs. 10 each fully-paid-up held by the ........................ Ltd., in the company in terms of the proposed Scheme of Amalgamation of .................. Ltd. with the company and by further canceling a sum of 62/3rd of a Rupee per share on 3,31,248 equity shares of Rs. 10 each, which capital has been lost and is unrepresented by the available assets.”
RESOLVED FURTHER THAT on such reduction the said 3,31,248 equity shares of 31/3rd of a rupee each be consolidated and divided into 11,042 equity shares of Rs. 100 each fully paid-up by consolidating thirty equity shares of 31/3rd of a rupee each into one equity share of Rs. 100 each fully paid-up and by issuing and allotting 4 equity shares of Rs. 10 each to the shareholders as may be required to enable consolidation of their holdings into shares of Rs. 100 each for cash at par and that the Board may be authorised to sell the shareholdings of any shareholders not having the reduced shares in lots of thirty shares each on such consolidation and allotment of further shares and to pay the net sale proceeds to the shareholder concerned.
RESOLVED FURTHER THAT consequential amendments be made in the capital clause of the Memorandum of Association of the Company after such reduction and consolidation becomes operative and effective.
RESOLVED FURTHER THAT on such further reduction and consolidation becoming operative and effective, every member of the company do surrender to the company his old share certificate(s) in respect of the share(s) held by him and thereupon the company shall issue fresh share certificate(s) to the said shareholder and/or pay the net sale proceeds to which he may be entitled to as aforesaid.
Alternate Resolution:
RESOLVED THAT subject to confirmation by the Hon'ble High Court at Calcutta, the paid-up capital of the company be reduced from Rs. 40,00,000 divided into 4,00,000 Equity Shares of Rs. 10 each to Rs. 11,04,160 divided into 3,31,248 Equity Shares of 31/3rd of a Rupee each by canceling 68,752 Equity Shares of Rs. 10 each fully-paid-up held by the ........................ Ltd., in the company in terms of the proposed Scheme of Amalgamation of .................. Ltd. with the company and by further canceling a sum of 62/3rd of a Rupee per share on 3,31,248 equity shares of Rs. 10 each, which capital has been lost and is unrepresented by the available assets.”
RESOLVED FURTHER THAT on such reduction the said 3,31,248 equity shares of 31/3rd of a rupee each be consolidated and divided into 11,042 equity shares of Rs. 100 each fully paid-up by consolidating thirty equity shares of 31/3rd of a rupee each into one equity share of Rs. 100 each fully paid-up and by issuing and allotting 4 equity shares of Rs. 10 each to the shareholders as may be required to enable consolidation of their holdings into shares of Rs. 100 each for cash at par and that the Board may be authorised to sell the shareholdings of any shareholders not having the reduced shares in lots of thirty shares each on such consolidation and allotment of further shares and to pay the net sale proceeds to the shareholder concerned.
RESOLVED FURTHER THAT consequential amendments be made in the capital clause of the Memorandum of Association of the Company after such reduction and consolidation becomes operative and effective.
RESOLVED FURTHER THAT on such further reduction and consolidation becoming operative and effective, every member of the company do surrender to the company his old share certificate(s) in respect of the share(s) held by him and thereupon the company shall issue fresh share certificate(s) to the said shareholder and/or pay the net sale proceeds to which he may be entitled to as aforesaid.
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08 July 2013
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