Section 66 of the Companies Act, 2013 ("the Act") permits a company to reduce its share capital by a special resolution, subject to the confirmation of the NCLT. The reduction can take various forms: the extinguishment of unpaid capital, the cancellation of paid-up capital that is lost or unrepresented by available assets, the payment off of surplus capital, or any other manner approved by the Tribunal. The procedure is creditor-sensitive, and the NCLT will not confirm the reduction unless the creditors' interests are protected.
The Procedure
The company must pass a special resolution and apply to the NCLT under the NCLT (Procedure for Reduction of Share Capital of Company) Rules, 2016. The application must be accompanied by the special resolution, the list of creditors, the audited financial statements, and the proposed reduction scheme. The NCLT issues notices to the creditors, the ROC, the Income Tax Department, and other statutory authorities, and it publishes the notice in the newspapers.
The Creditor Protection
Section 66(3) requires the company to discharge or determine the debt or claim of every creditor, or to secure it, or to obtain the creditor's consent. The NCLT Chennai, in the Ocean Healthcare case, held that an unsecured loan that was neither discharged nor consented to was a bar to the confirmation of the reduction. The creditor's objection must be addressed before the NCLT can confirm the reduction.
The NCLT's Approach
The NCLT has confirmed reductions where the company has no creditors or where the creditors have consented, and it has rejected reductions where the creditor protection requirements are not met. The Tribunal has also held that the Income Tax Department's objections can be examined independently under the tax law, and that the sanction of the reduction does not exempt the company from its tax obligations.
The Accounting Standards
Section 66 requires the reduction to conform to the accounting standards under Section 133. The NCLT will not confirm a reduction that is not supported by a proper accounting treatment.
Call to Action
Anuj Desai & Associates advises companies on the Section 66 capital reduction—from the special resolution and the creditor consent to the NCLT application and the confirmation order. If your company is planning a capital reduction, we can help you structure a compliant process.
📧 office@anujdesaiassociates.com
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