Page 137 - DCOM106_COMPANY_LAW

Company Law

Notes Section 105 provides for punishment with imprisonment extending to one year or with fine or
both, if any officer of the company knowingly conceals the name of any creditor entitled to
object to the reduction or misrepresents the nature or amount of claim or debt or abets such
concealment or misrepresentation.

9.5.2 Reduction of Share Capital without the Sanction of the Court

There are some cases in which there is reduction of share capital and no confirmation by the
court is necessary. These are:
1. Forfeiture of Shares: A company may, in pursuance of its articles, forfeit shares for
non-payment of calls.
2. Surrender of Shares: It is a short-cut to forfeiture. It may be accepted by the company under
circumstances where its forfeiture is justified. It has the effect of releasing the shareholder
whose surrender is accepted from liability on shares.
3. Diminution of Capital: This has already been explained in Para 8.6. Section 94 clearly
states that diminution of capital does not amount to reduction of capital.

4. Redemption of Redeemable Preference Shares: This has already been explained in Para
8.2.4 as provided by s.80.
5. Purchase of Shares of a Member by the Company under s.402: The court may order the
purchase of shares of any member of the company by the company, under certain
circumstances.
9.5.3 Reduction of Capital vs. Diminution of Capital

Reduction of capital involves, working off past losses against capital, cancellation of the uncalled
capital or repayment of surplus capital. It may involve reduction of issued capital, subscribed or
paid up share capital. Diminution of capital denotes cancellation of the authorised or issued
capital (but not subscribed). Diminution of capital does not constitute a reduction of capital
within the meaning of the Companies Act. The distinction between reduction and diminution of
capital is as follows:

1. Diminution of capital is the reduction of the issued capital. Reduction of capital involves
reduction of subscribed or paid-up capital; there is no reduction of issued capital.
2. Both require authorisation by articles but whereas ‘diminution’ can be effected by an
ordinary resolution (if so authorised by articles), reduction of capital cannot be effected
without passing a special resolution.
3. ‘Reduction’ requires confirmation by court (s.100) but ‘diminution’ needs no confirmation
by the court (s.94).
4. In case of ‘reduction’, court may order the company to add the words ‘and reduced’ after its
name [s.102 (3) but no such order can be passed in case of ‘diminution’ s.94].
5. In case of ‘diminution’, notice is to be given to Registrar within 30 days from the date of
cancellation whereupon, the Registrar shall record the notice and make the necessary
alteration in the memorandum and articles. In case of ‘reduction’, a more detailed procedure
has been prescribed though there is no time limit as in case of ‘diminution’.

132 LOVELY PROFESSIONAL UNIVERSITY