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Unit 10: Share Capital

Procedure for reduction of capital. After passing the special resolution for the reduction of capital, Notes

the company has to apply to the Court by way of petition to confirm the resolution under s.101.
The creditors are entitled to object where the proposed reduction of share capital involves either:
(1) the diminution of liability in respect of unpaid capital; or (2) the payment to any shareholder
of any paid-up share capital, or in any other case, if the Tribunal so directs.
To enable the creditors to object, the Court settles a list of such people. If any creditor objects,
either his consent to the proposed reduction should be obtained or he should be paid off or
his payment secured. However, the Court may dispense with the consent of a creditor on the
company securing payment of the debt or claim by appropriating the full amount or that fi xed
by the Court.

Section 102 states that if the Court is satisfied that either the creditors entitled to object have
consented to the reduction, or that their debts have been paid or secured, it may confi rm the
reduction. It may also direct that, the words “and reduced” be added to the company’s name
for a specified period and that the company must publish the reasons for the reduction and the

causes which led to it.
Section 103 provides for registration of the Court’s order with the Registrar. The company has
also to send the minutes giving details of the share capital as altered. The reduction of share
capital takes effect only on registration of the Tribunal’s order with the Registrar and not before.

The Registrar will issue a certificate of registration which will be a conclusive evidence that both
the requirements of the Act have been complied with and that the share capital is now as set
out in the minutes. The registered minutes are deemed to be substituted for the corresponding
capital clause in the memorandum, thereby altering the memorandum within the meaning of
s. 40. The copies of the memorandum which will be issued subsequently must, therefore, be in
accordance with the articles.
Section 104 provides that after the reduction of capital, the members cease to be liable for calls as
regards the amount by which the nominal amount of their shares has been reduced. If, however,
any creditor entitled to object to the reduction of share capital is not entered on the list of creditors,
then every member at the time of the registration of the Tribunal order and minutes is liable to
contribute for the payment of that debt.
Section 105 provides for punishment with imprisonment extending to one year or with fi ne 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.

10.1.3 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:
(i) Forfeiture of shares. A company may, in pursuance of its articles, forfeit shares for non-
payment of calls.
(ii) Surrender of shares. It is a shortcut 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.
(iii) Diminution of capital. This has already been explained. Section 94 clearly states that
diminution of capital does not amount to reduction of capital.
(iv) Redemption of redeemable preference shares. This has already been explained as provided
by s.80.

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