Corporate Financial Reporting · Internal Reconstruction (Capital Reduction)

Section 66 Companies Act 2013: Reduction of Share Capital

Updated 11 October 2026 · Fact-checked

Section 66 lets a company limited by shares, or limited by guarantee with share capital, reduce its share capital by special resolution, subject to confirmation by the Tribunal (NCLT). You solve questions by checking the permitted forms, the approval steps, creditor protection, the auditor's accounting certificate and the deposit-arrears bar.

Understand Legal Provisions on Reduction of Share Capital

Share capital is a company's base of owners' money. Once a company has issued shares, it cannot return that money or wipe it off as it likes, because creditors rely on that capital. Section 66 sets the legal route for a reduction.

The section says a company may reduce its share capital in any manner, and in particular in three ways. It may extinguish or reduce the liability on shares for capital not paid up. It may cancel paid-up capital that is lost or not represented by available assets. It may pay off paid-up capital that is in excess of the wants of the company. These are examples, not a closed list.

The approval chain is: a special resolution of members, then an application to the Tribunal, which confirms the reduction. The Tribunal gives notice of the application to the Central Government, the Registrar, SEBI (for listed companies) and the creditors. Each has three months from receipt of notice to make representations. If none is received in that period, it is presumed that they have no objection.

The Tribunal may confirm the reduction if it is satisfied that the debt or claim of every creditor has been discharged, determined or secured, or the creditor has consented. It also needs the company's proposed accounting treatment to conform with the accounting standards under section 133 or any other provision of the Act, backed by an auditor's certificate filed with the Tribunal.

After confirmation, the company publishes the order as the Tribunal directs and delivers a certified copy of the order and an approved minute to the Registrar within thirty days of receiving the copy. The Registrar registers it and issues a certificate. The memorandum is altered to show the reduced capital.

Two limits matter in exams. No reduction can be made if the company is in arrears in repaying deposits it accepted, or the interest on them. And section 66 does not apply to a buy-back under section 68.

Key rules to remember

Who may reduce: Company limited by shares, or limited by guarantee and having a share capital; Reduction needs a special resolution plus Tribunal confirmation (Section 66(1)).
Permitted forms (illustrative): (a) reduce or extinguish liability on unpaid capital; (b)(i) cancel paid-up capital lost or unrepresented by assets; (b)(ii) pay off paid-up capital in excess of wants; The words 'in any manner and in particular' mean the list is not exhaustive.
Approval sequence: Special resolution → Tribunal application → notice to Central Govt, Registrar, SEBI (if listed), creditors → Tribunal order; Representations are to be made within three months of receipt of notice; silence means presumed no objection.
Creditor condition: Debt or claim of every creditor discharged, determined, secured, or consent obtained; This is the condition for the Tribunal to confirm under Section 66(3).
Accounting condition: Accounting treatment conforms to section 133 standards or other provision of the Act + auditor's certificate filed with Tribunal; Without this the Tribunal cannot sanction the application.
Post-order filing: Certified copy of order + approved minute to Registrar within 30 days of receipt of the copy; The minute shows share capital amount, number of shares, amount of each share and amount deemed paid up per share.
Prohibition: No reduction if company is in arrears in repaying deposits or interest on them; This covers deposits accepted before or after commencement of the Act.
Member liability after reduction: Liability on a share ≤ (amount of share as fixed by the order) − (amount paid or deemed paid); Section 66(7): applies to past and present members.

How to solve Legal Provisions on Reduction of Share Capital questions

Legal questions on section 66 reward a clear sequence. Answer in the order the law works and tie each point to the facts given.

1Identify the company type. Check that it is limited by shares, or limited by guarantee with share capital.
2Check the bar. Is the company in arrears on repayment of deposits or interest? If yes, reduction cannot proceed.
3Identify the form of reduction: reducing liability on unpaid capital, cancelling lost or unrepresented capital, or paying off excess capital.
4State the approvals: special resolution, then application to the Tribunal for confirmation.
5Cover notices and creditors: the Tribunal notifies the Central Government, Registrar, SEBI (listed companies) and creditors, who have three months to respond.
6Cover the Tribunal's conditions: creditors' claims discharged, determined, secured or consented, plus the auditor's accounting-treatment certificate.
7Finish with the post-order steps: publication as directed, filing with the Registrar within thirty days, registration and certificate.
8Conclude with a direct answer on the facts, such as 'the reduction is valid / not yet valid because...'.

Quickest way: Five-checkpoint scan

When to use it: Use it for MCQs and short scenario questions where you must judge whether a reduction is valid.

Company type okay?
Deposits in arrears? If yes, stop.
Special resolution passed?
Tribunal confirmed, with creditors dealt with and auditor's certificate filed?
Order filed with the Registrar within 30 days?

Common mistakes in Legal Provisions on Reduction of Share Capital

Saying a special resolution alone is enough.
Students remember the resolution and forget the Tribunal step.
Fix: Write 'special resolution and Tribunal confirmation' every time.
Treating the three listed forms as the only forms allowed.
The sub-clauses look like a closed list.
Fix: Quote 'in any manner and in particular' to show the list is illustrative.
Applying section 66 to a buy-back.
Both reduce capital, so they seem alike.
Fix: Remember section 66(6): nothing in the section applies to buy-back under section 68.
Forgetting the auditor's certificate.
It sits in a proviso to sub-section (3).
Fix: Link it to the Tribunal's condition: accounting treatment must conform with section 133 standards or other provisions of the Act.
Stating that creditor consent is always required.
Students over-read the creditor protection.
Fix: The Tribunal needs to be satisfied that every creditor's debt is discharged, determined, secured, or consent obtained. Any one of these suffices.
Mixing up the three-month and thirty-day periods.
Both are time limits in the same section.
Fix: Three months is for representations on the Tribunal's notice. Thirty days is for delivering the order and minute to the Registrar.

Worked examples

Example 1

Sundaram Textiles Ltd, a public company limited by shares, wants to cancel ₹40,00,000 of paid-up capital that is lost and unrepresented by assets. Its board has passed a resolution, and the company is not in arrears on any deposit. A director says the company can now reduce capital and file with the Registrar. Advise.

Show the solution

The form is cancelling paid-up capital which is lost or unrepresented by available assets. This is permitted under section 66(1)(b)(i).
The company has no arrears on deposits, so the proviso bar does not apply.
A board resolution is not enough. Members must pass a special resolution.
Then the company must apply to the Tribunal. It can reduce only after the Tribunal confirms.
The Tribunal notifies the Central Government, Registrar, creditors and SEBI if listed. It will confirm only if creditors' claims are discharged, determined, secured or consented to, and the auditor's certificate on accounting treatment is filed.
Only after the order may the company publish it as directed and deliver the certified order and minute to the Registrar within thirty days of receiving the copy.

Answer: The director is wrong. The reduction is a permitted form, but it needs a special resolution, Tribunal confirmation, creditor satisfaction and the auditor's certificate. Registrar filing follows the order.

Example 2

Which of the following is correct under section 66 of the Companies Act, 2013? (a) A company in arrears on repayment of deposits may reduce capital if the Tribunal agrees (b) If no representation is received from creditors within three months of the Tribunal's notice, it is presumed they have no objection (c) Section 66 governs buy-back of shares (d) Reduction needs only an ordinary resolution

Show the solution

Option (a): the proviso bars reduction if the company is in arrears on deposits or interest. The Tribunal's agreement does not cure this. Wrong.
Option (b): section 66(2) proviso says that where no representation is received within three months, it is presumed there is no objection. Correct.
Option (c): section 66(6) excludes buy-back under section 68. Wrong.
Option (d): a special resolution is required. Wrong.

Answer: Option (b).

Exam tips

In MCQs, watch for the traps: ordinary resolution, board approval only, deposit arrears, and buy-back.
In descriptive answers, list the steps in order and name the Tribunal, special resolution, auditor's certificate and thirty-day filing.
Mention that members' liability after reduction is capped under section 66(7) when a question asks about members' position.
Link the law to the accounting: a reduction scheme must follow section 133 standards, and the auditor certifies this.
Learn the numbers cold: three months for representations, thirty days for Registrar filing.

Practice questions from Internal Reconstruction (Capital Reduction)

Legal Provisions on Reduction of Share Capital in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

CS ExecutiveKinds of Share Capital under Section 43

Legal Provisions on Reduction of Share Capital: frequently asked questions

Is Tribunal approval always needed for reduction of share capital?

Under section 66(1), reduction is subject to confirmation by the Tribunal on the company's application. A special resolution alone does not complete it. Buy-back under section 68 is outside this section.

Which companies can reduce share capital under section 66?

A company limited by shares, or limited by guarantee and having a share capital. Even so, it cannot reduce if it is in arrears in repaying deposits or the interest on them.

What protects creditors in a capital reduction?

The Tribunal must notify creditors and consider their representations. It can confirm only if every creditor's debt or claim is discharged, determined or secured, or the creditor consents. Officers who conceal or misrepresent creditor claims are liable under section 447.

What does the company file after the Tribunal's order?

It publishes the order as the Tribunal directs. It also delivers a certified copy of the order and an approved minute to the Registrar within thirty days of receiving the copy. The Registrar registers it and issues a certificate.