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CS Executive · Company Law and Practice · Share and Share Capital - Concepts

Meridian Textiles Ltd, a company limited by shares, has Rs 10 lakh of its authorised capital represented by shares that nobody has taken or agreed to take. Its articles authorise alteration of capital. The board proposes to cancel these untaken shares. Which statement is correct under the Companies Act, 2013?

A company authorised by its articles can cancel unsubscribed shares by altering its memorandum in general meeting. Under section 61(2) such cancellation is not a reduction of share capital, so Tribunal confirmation under section 66 is not needed.

  1. AThe cancellation needs Tribunal confirmation as it is a reduction of share capital under section 66
  2. BThe company may cancel them by altering its memorandum in general meeting, and this is not deemed a reduction of share capitalCorrect
  3. CThe cancellation is allowed only if the company has no creditors
  4. DThe cancellation is valid only if the shares were earlier issued and fully paid up

Explanation

Section 61(1)(e) allows a company, if authorised by its articles, to cancel shares not taken or agreed to be taken by anyone and diminish its capital accordingly. Section 61(2) says this is not deemed a reduction of share capital, so the Tribunal process under section 66 does not apply. The first option wrongly treats it as a reduction.

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