THE COMPANIES ORDINANCE, 1972

Reduction of share capital

63.—(1) Subject to confirmation by the court, a company may by special resolution reduce its share capital in any way, and in particular, without prejudice to the generality of the foregoing power, may—

(a)   extinguish or reduce the liability on any of its shares in respect of share capital not paid up ; or

(b)   either with or without extinguishing or reducing liability on any of its shares, cancel any paid-up share capital which is lost or unrepresented by available assets ; or

(c)   either with or without extinguishing or reducing liability on any of its shares, pay off any paid-up share capital which is in excess of the wants of the company;

and may, in connection with the reduction, alter its memorandum by reducing the amount of its nominal capital and the nominal value of its shares.

(2)  On a reduction of share capital a company may, but shall not be required to, reduce its nominal capital.

(3)  This section shall apply to the capital reserve of a company as though it were paid up share capital.

(4)  A special resolution under this section is in this Ordinance referred to as "a resolution for reducing share capital."

64.—(1) Where a company has passed a resolution for reducing share capital, it may apply to the court for an order confirming the reduction.

(2) Where the proposed reduction of share capital involves either a diminution of liability in respect of unpaid shares capital or £he payment to any shareholder of any paid-up share capital, and in any other case if the court so directs, the following provisions shall have effect, subject nevertheless to the next following subsection—

(a) every creditor of the company who at the date fixed by the court is entitled to any debt or claim which, if that date were the commencement of the winding up of the company, would be admissible in proof against the company, shall be entitled to object to the reduction ;

(b)   the court shall settle a list of creditors so entitled to object, and for that purpose shall ascertain, as far as possible without requiring an application from any creditor, the names of those creditors and the nature and amount of their debts or claims, and may publish notices fixing a period within which creditors not entered on the list are to claim to be so entered or are to be excluded from the right of objecting to the reduction ;

(c)   where a creditor entered on the list whose debt or claim is not discharged or has not been determined, does not consent to the reduction, the court may, if it thinks fit, dispense with the consent of that creditor on the company securing payment of his debt or claim by appropriating, as the court may direct, the following amount—

(i) if the company admits the full amount of the debt or claim, or, though not admitting it, is willing to provide for it, then the full amount of the debt or claim ;

(ii) if the company does not admit and is not willing to provide for the full amount of the debt or claim, or if the amount is contingent or not ascertained, then an amount fixed by the court after the like inquiry and adjudication as if the company were being wound up by the court.

(3)  Where a proposed reduction of share capital involves either the diminution of any liability in respect of unpaid share capital, or the payment to any shareholder of any psi^up share capital, the court may, if having regard to any special circumstances of the case it thinks proper so to de>, direct that subsection (2) of this section shall not apply as regards any class or any classes of creditors.

(4)  The court shall direct that the provisions of subsection (2) shall apply if the proposed reduction of share capital is because the company has lost paid up share capital, or because paid up share capital is unrepresented by assets, and a creditor or shareholder of the company establishes a prima facie case that there has been no loss or diminution in the value of the company's assets, or that the loss or diminution is less than the reduction of capital specified in the resolution for reducing share capital,

65.—(1) The court, if satisfied with respect to every creditor of the company who under the last foregoing section is entitled to object to the reduction, that either his consent to the reduction has been obtained, or his debt or claim has been discharged or has determined, or has been secured, may make an order confirming the reduction on such terms and conditions as it thinks fit.

(2)  In deciding whether to confirm a reduction of share capital the court shall take into account : —

(a)   if the liability to pay unpaid capital in respect of a class of shares is cancelled or reduced, or if the capital in respect of a class of shares is to be repaid wholly or in part, the sufficiency of the assets of the company to provide for the repayment of the capital in respect of all classes of the company's shares which rank for repayment of capital before that class of shares ;

(b)   if liability to pay unpaid capital is cancelled or reduced as aforesaid, or if capital is to be repaid as aforesaid, in respect of a clas; of shares, the sufficiency of the profits which the company is likely to earn in the future to provide for the fixed dividends on all classes of the company's preference shares which rank for payment of a fixed dividend before that class of shares ; and

(c)   the desirability of not cancelling the whole of the nominal value of shares, except on a repayment of paid-up share capital.

(3)  If the resolution for the reduction of share capital provides for the repayment of the whole or part of the amounts paid up on a class of preference shares, or on certain -shares of a class, the court shall not confirm the reduction unless it is satisfied either : —

(a) that the amount to be paid to the shareholders will, if re-invested, yield to them not less than the average annual income they have received in respect of the shares, or in respect of that part of the amount paid up on the shares which is to be repaid (as the case may be), during the five complete financial years of the company immediately preceding the date when the resolution for reducing share capital was passed ; or

(b) that the amount to be paid to the shareholders is reasonable having regard to the circumstances in which the shares were issued, the situation of the company, the yield on the issued shares of the company which are not to be repaid (in whole or part) by the terms of the resolution for reducing share capital, and the amount which the shareholders whose shares are to be repaid (in whole or part) would receive if the company were wound up forthwith ; but in no case shall the court confirm the resolution for reduction of capital in respect of preference shares if the amount to be paid to the holders of those shares is less than the amount by which the capital paid up on the shares held by them is to be reduced.

(4) If the resolution for reducing share capital provides for the cancellation of paid up capital which is lost or unrepresented by available assets, the court shall not confirm the reduction unless the loss or deficiency is borne by the holders of shares who would bear it if the company were wound up immediately, in the same order and in the same proportions as in such a winding up.

66.—(1) The Registrar shall register a resolution for reducing share capital which has been confirmed by the court, on delivery to him of a copy of an order of the court confirming the reduction of capital together with a minute approved by the court showing with respect to the share capital of the company as altered by the order : —

(a)   the nominal capital of the company;

(b)   the issued share capital of the company ; and

(c)   the number and nominal values of shares issued or re-issued by the company and remaining outstanding, and the number and nominal values of such shares comprised in each different class of shares of the company;

(d) the amount (if any) deemed to be paid up on each such share and the amount remaining to be paid thereon ;

(e) the number of unissued, forfeited, transferred and surrendered shares which the company may issue or re-issue and the nominal values of such shares.

(2)  On the registration of the order of the court and minute, and not before, the resolution for reducing share capital as confirmed by the order shall take effect.

(3)  Notice of the registration shall be published in such manner as the court may direct

(4)  The Registrar shall certify under his hand the registration of the order and minute, and his certificate shall be conclusive evidence that all the requirements of this Ordinance with respect to reduction of share capital have been complied with, and that the share capital of the company is such as is stated in the minute.

(5)  The minute when registered shall be deemed to be substituted for the corresponding part of the memorandum, and shall be valid and alterable as if it had been orignally contained therein.

(6)  The substitution of any such minute as aforesaid for part of the memorandum of the company shall be deemed to be an alteration of the memorandum within the meaning of section 17 of this Ordinance.

(7)  The Mortgage and Registration Ordinance shall not apply to a certificate issued under subsection (4).

67. When the share capital of a company has been reduced, no share holder of the company, past or present, shall be liable to pay or contribute in respect of any shares held or formely held by him more than the difference (if any) between the nominal values of the shares shown in the minute registered under the last foregoing section, and the amount paid up on the shares, or the reduced amount (if any) which in consequence of the reduction is deemed to have been paid up on the shares :

Provided that this section shall not affect the liability of any person to pay or contribute any part remaining unpaid of the premium at which the shares were issued.

68.—(1) If any director or other officer of a company in connection with any proceedings under sections 64 and 65 : —

(a)   wilfully conceals the name of any creditor of the company ; or

(b)   knowingly misrepresents the nature or amount of the debt or claim of any such creditor ; or

(c) knowingly misrepresents the extent or value of the company's assets, or the nature or amount of its liabilities or contingent liabilities, or the profits it has earned in the past or is likely to earn in the future, or the circumstances in which any shares of the company were issued, or the present financial situation of the company ; he shall be guilty of an offence punishable by a fine not exceeding ten thousand rupees or imprisonment for not more than two years, or by both such fine and such imprisonment.