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CSEET · Business Laws and Management · Elements of Company Law

Ganga Traders Ltd, authorised by its articles, passes a resolution in general meeting to alter its memorandum. It has an unissued, untaken portion of shares and cancels it, reducing its share capital by that amount. Under the Companies Act, 2013, what is the legal position?

The cancellation is valid and is not deemed a reduction of share capital. Section 61 permits a company authorised by its articles to cancel shares not taken or agreed to be taken by any person and diminish capital accordingly.

  1. AThe cancellation is not deemed a reduction of share capitalCorrect
  2. BThe cancellation is a reduction needing Tribunal confirmation
  3. CThe cancellation is invalid because shares cannot be cancelled
  4. DThe cancellation is valid only for preference shares

Explanation

Section 61(1)(e) lets an authorised company cancel shares not taken or agreed to be taken by anyone and diminish capital accordingly. Section 61(2) says this is not deemed a reduction of share capital, so Tribunal confirmation as for reduction is not the consequence.

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