ROLE OF JUDICIARY IN MONITORING REDUCTION IN SHARE CAPITAL
Downloads
Abstract
Share Capital Reduction is the process where the shareholder’s equity is decreased by the way of share cancellations and share repurchase. Capital Reduction is also knowns as share buybacks. This reduction is done for various reason such as producing an efficient capital structure and increasing the shareholder value. After this reduction the number of shares will decrease in proportion to the reduced amount. This reduction is also done in response to a decline in the operating profits or in case of a revenue loss that cannot be recovered from the expected upcoming profits as well.
Generally, the need for capital reduction arises due to numerous reasons such as to distribute assets to the shareholders, reduce the basis for taxes, to compensate for deficit, to make up for heavy capital expenses etc. Moreover, sometimes the company has more capital and reserves than what they can profitably use, which is why they adjust the relation between capital and assets by this reduction of capital. However, the most common reason for reduction of share capital are, to increase the distributable reserves in order to enable future dividends to be paid to the shareholders, to return the excess capital to shareholders or to enable a share buyback or share redemption or as a part of scheme.
Share capital reduction is done under section 66. Initially civil courts looked after these reductions, however post amendment that is, Companies Act 2013 the National Companies Law Tribunal looks after the reduction of capital. This ensures that such reduction is done in consonance with law and that such reduction does not prejudicially affect any party. Under section 66 a sanction of tribunal is mandatory. However, there are other ways of reduction such as buy back, redemption of shares etc. where the assent of the tribunal is not required.
This paper aims to understand he types of share capital reduction, the judicial precedents regarding the same and also tries to understand the role of the judiciary in ensuring that the schemes laid out by the companies for the reduction does not adversely affect any party.
External References to this Article
Loading reference data...
License Terms
Ownership and Licensing:
Authors of research papers submitted to any journal published by The Law Brigade Publishers retain the copyright of their work while granting the journal specific rights. Authors maintain ownership of the copyright and grant the journal the right of first publication. Simultaneously, authors agree to license their research papers under the Creative Commons Attribution-ShareAlike 4.0 International (CC BY-SA 4.0) License.
License Permissions:
Under the CC BY-SA 4.0 License, others are permitted to share and adapt the work, even for commercial purposes, provided that appropriate attribution is given to the authors, and acknowledgment is made of the initial publication by The Law Brigade Publishers. This license encourages the broad dissemination and reuse of research papers while ensuring that the original work is properly credited.
Additional Distribution Arrangements:
Authors are free to enter into separate, non-exclusive contractual arrangements for distributing the published version of the work (e.g., posting it to institutional repositories or publishing it in books), provided that the original publication by The Law Brigade Publishers is acknowledged.
Online Posting:
Authors are encouraged to share their work online (e.g., in institutional repositories or on personal websites) both prior to submission and after publication. This practice can facilitate productive exchanges and increase the visibility and citation of the work.
Responsibility and Liability:
Authors are responsible for ensuring that their submitted research papers do not infringe on the copyright, privacy, or other rights of third parties. The Law Brigade Publishers disclaims any liability for any copyright infringement or violation of third-party rights within the submitted research papers.
Published
Issue
Section
License
This work is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License.
Copyright © 2026 by Srishti Sneha
The copyright and license terms mentioned on this page take precedence over any other license terms mentioned on the article full text PDF or any other material associated with the article.
