Page 135 - DCOM106_COMPANY_LAW

Company Law

Notes When shares are converted into stock, the shareholders are issued stock certificates. In the
Register of members, the amount of stock is written against the name of a particular
member in place of number of shares. The stockholder is as much a member of the company
as a shareholder.
4. Diminution of Share Capital: Sometimes, it so happens that shares are issued, but are not
taken up by the members of the public and, therefore, not allotted. Section 94 provides
that a company may, if its articles authorise, by resolution in general meeting, cancel
shares which on the date of the passing of the resolution in this behalf have not been taken
or agreed to be taken by any person, and diminish the amount of the share capital by the
amount of the shares so cancelled. This constitutes diminution of capital and should be
distinguished from reduction of capital.

Authorised Share Capital stands increased under certain Circumstances

Section 94A empowers the Central Government to administratively increase the authorised
capital of a company when an order is made under s. 81(4).
Section 81(4) provides that where any debentures have been issued to, or loans have been
obtained from the government by a company, the Central Government may, if in its opinion it
is necessary in the public interest to do so, by order, direct that such debentures or loans or any
part thereof shall be converted into shares in that company. Such an order can be made even if
the terms of issue of such debentures or the terms of such loans do not include a term, providing
for an option for such conversion. Consequently, the Central Government can administratively
increase the nominal capital of the company.
Also the nominal share capital of a company shall stand increased, when any public financial
institution proposes to convert debentures or loans (having an option of conversion) issued to,
or given to the company, when an application is made by the financial institution to the Central
Government to pass orders for the increase of the authorised share capital of the company.
The consequence of the order of the Central Government will be that the conditions contained
in the memorandum of the company shall stand altered and, the nominal share capital of such
company shall stand increased by an amount equal to the amount of the value of the shares into
which such debentures or loans or part thereof has been converted.
Where the memorandum of a company becomes altered as above, the Central Government
shall send a copy of such an order to the Registrar and also to the company. On receipt of such
order, the company shall file in the prescribed form, within 30 days from the date of such receipt,
a return to the Registrar with regard to the increase of share capital and the Registrar shall on
receipt of such order and return, carry out the necessary alteration in the memorandum of the
company.

9.5 Reduction of Share Capital

Sections 100-105 provide for the reduction of share capital. A company limited by shares, if so
authorised by its articles, may, by special resolution, which is to be confirmed by the court
reduce its share capital:
1. By reducing or extinguishing the liability of members for uncalled capital, e.g., where a
share of 10 on which 5 are paid, is treated as a share of 5 fully paid-up. In this way, the
shareholder is relieved from liability on the uncalled capital;
2. By paying off or returning capital which is in excess of the wants of the company, e.g.,
where there is a share of 10 fully paid-up, reduce it to 5 and pay back 5 to the
shareholder.

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