NCLT Rules - Reduction of Share Capital

The Government of India (GoI) introduced the

National Company Law Tribunal (NCLT) Rules regarding the reduction of share capital. The need for the reduction of the share capital arises when there is a loss in the company, and the reduction of share capital removes the loss. This article deals with The National Company Law Tribunal (Procedure for reduction of share capital of Company) Rules, 2016 in detail.

Form of Application or Petition

Form-RSC-1 is an application to the Tribunal regarding the confirmation of reduction in the company's share capital. There is a specific amount of fees for the application. This application should accompany the following:

The list of the creditors which the Managing Director must certify. In the absence of the managing director, two directors can certify it. The submission of the list should be 15 days before filing the application. The list should contain their names and address and also the amount the company owes to them. Moreover, the list of the creditors should be in class wise
A certificate from the company's auditor. The certificate is a verification whether the list of the creditors is as per the records of the company. It should also verify that the company does not have any arrears in the repayment of the deposits or interest. The auditor also has the responsibility to verify that the company's proposed accounting treatment conforms to the accounting standards of the Companies Act, 2013
A declaration of the director of the company. Such a declaration is a verification that the company does not have any arrears in the repayment of the deposits or interest

The companies should have copies of the list of the creditors in its registered office. Any person can inspect the company at business hours and extract payment of Rs.50 for the inspection to the company. They can also extract payment of Rs.10 per page to the company.

Issue of Notice

The Tribunal will give notice within 15 days of receiving the application or direct someone to give notice to the following:

The Central Government and the Registrar of Companies in Form-RSC-2 for all cases
The Securities and Exchange Board of India in Form-RSC-2 in the cases of the listed companies
The creditors of the company in Form-RSC-3 for all cases

The Tribunal mainly issues the notice for seeking representation and objection. If the Tribunal directs someone to send the notice to all the creditors, then such a person should send it within 7 days of receiving the directions. The notice should contain the presentation of the application. It should also state the proposed amount for the reduction of share capital and the estimated value or amount of the debt, contingent debt or claim. The notice will also contain the time within which the creditors can send their objections and representation.

Publication of Notice

The Tribunal can give directions to publish the notice in Form-RSC-4. The notice should be published within 7 days of receiving the notice. The person receiving the direction should publish the notice in English and in a vernacular newspaper. However, both the newspapers should have a wide circulation in the State where the registered company is present. They can also upload on the company's website. But this will be for seeking the creditor's objection and also intimating the creditors regarding the date of hearing. This notice should contain the proposed amount for the reduction of the share capital. It may also contain the place where the inspection of the creditors and also the time period within which the company can send their objections. However, the company can file the objections within 3 months of the publication of the notice

Filing of Affidavit

The person directed by the Tribunal or the company which issues and publishes it should file an

affidavit within 7 days from the date of issuing the notice. They should file the affidavit in Form-RSC-5. This is regarding confirmation of the dispatch and publication of the notice.

Representation by Central Government and Registrar

If the authorities and the creditors want to make a representation, then they have to send it to the Tribunal within 3 months from the date of receipt of the notice. The company will also receive a copy of the representation. If the Tribunal does not receive any representation, then it is considered that there is no objection regarding the reduction.

Procedure Regarding the Received Representation and Objection

The company should submit the response for the representation and objection to the Tribunal within 7 days from the date of receiving the representation and objection. The Tribunal can give directions to hold meetings, adjudication of claims, or hearing the objection. During the hearing of the application, the Tribunal can give directions in regarding the securing of debts or claims of the creditors who have no consent to the proposed reduction. Further hearing of the petition will suspend so that the company can comply with the directions of the Tribunal.

Order on Application and Minutes

The order of the Tribunal confirming the reduction of the share capital and approving the minute shall include the direction, terms and conditions which the Tribunal considers fit. Form-RSC-6 contains the order that confirms the reduction of share capital and approving of the minute. Form-RSC-7 is the certificate which the

Registrar issues.

Applicable Fees

The application for the reduction of share capital requires the fees of Rs.5,000. The Forms RSC-1, RSC-2, RSC-3, RSC-4, RSC-5, RSC-6 and RSC-7 are below for reference:

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Frequently Asked Questions

Common questions about NCLT Rules 2016: Reduction of Share Capital Procedure.

The NCLT Rules provide a framework for companies to reduce their share capital when there is a loss or deficit in the company's accounts. This process helps eliminate the loss by reducing the company's share capital.

Form-RSC-1 is the application form to be submitted to the Tribunal for confirming the reduction of a company's share capital. It should be accompanied by a list of creditors certified by the Managing Director or two directors, a certificate from the company's auditor, and a declaration from a director regarding any arrears in repayment of deposits or interest.

The Tribunal plays a crucial role in the reduction process. It issues notices to various stakeholders, including the Central Government, SEBI (for listed companies), and creditors, seeking their representations or objections. It also provides directions for publishing notices, holding meetings, adjudicating claims, and securing creditors' debts or claims.

Creditors are informed through notices issued by the Tribunal or a person directed by the Tribunal. The notice is sent in Form-RSC-3 and published in newspapers and on the company's website, seeking creditors' objections and intimating them about the hearing date.

The company must submit its response to any representations or objections received within 7 days. The Tribunal can then give directions for holding meetings, adjudicating claims, or hearing the objections. The further hearing of the petition is suspended until the company complies with the Tribunal's directions.

The Tribunal's order confirming the reduction of share capital (Form-RSC-6) includes the directions, terms, and conditions that the Tribunal deems fit. The Registrar also issues a certificate (Form-RSC-7) regarding the reduction.

The application for the reduction of share capital requires a fee of Rs. 5,000 to be paid to the Tribunal.

Yes, the company must maintain copies of the creditors' list at its registered office. Any person can inspect the list during business hours by paying a fee of Rs. 50 to the company and can obtain extracts by paying an additional fee of Rs. 10 per page.

The company's auditor has to provide a certificate verifying that the list of creditors is as per the company's records and that the company does not have any arrears in the repayment of deposits or interest. The auditor also needs to confirm that the proposed accounting treatment conforms to the accounting standards under the Companies Act, 2013.

The Central Government, Registrar of Companies, SEBI (for listed companies), and creditors have a period of 3 months from the date of receipt of the notice to submit their representations or objections to the Tribunal regarding the reduction of share capital.