Chapter 4: Share Capital and Debentures - Test 4: answer key

Question 1 · 2 marks · Chapter 4: Share Capital and Debentures · medium

Scenario. Eastern Manufacturing Limited is a public company engaged in manufacturing industrial equipment. Due to accumulated business losses and excess capital, its Board proposes restructuring the company's paid-up share capital of ₹80 crore. The company's latest financial statements disclose that ₹18 crore of its paid-up capital is no longer represented by available assets because of substantial losses suffered in earlier financial years. Additionally, the company has issued partly paid-up shares of ₹100 each, on which ₹70 has been paid. The Board proposes extinguishing the remaining liability of ₹30 per share. The company also has ₹12 crore of fully paid-up capital which management considers excessive in view of its reduced business operations and proposes paying back this amount to shareholders. The Board passed a resolution on 10 June 2026 recommending the proposed capital reduction and subsequently convened an extraordinary general meeting. On 5 July 2026, shareholders approved the proposal through a special resolution. The company intends to file an application before the National Company Law Tribunal seeking confirmation of the proposed reduction. During the legal review, the Company Secretary discovered that the company had accepted public deposits in an earlier financial year. All principal amounts and interest have been repaid except interest of ₹8 lakh on certain matured deposits, which remains outstanding. The CFO argues that the capital reduction should proceed because the special resolution has already been passed and the outstanding interest is relatively insignificant. The Board also proposes reducing the corresponding amount of share capital and altering the capital clause of its Memorandum of Association. The directors seek advice on the permissible forms of reduction, the necessary approvals and the effect of the outstanding deposit interest.

Which combination of the proposed transactions undertaken by Eastern Manufacturing Limited falls within the recognised modes of reduction of share capital under Section 66(1)?

1. Reducing liability on partly paid shares, cancelling lost paid-up capital and paying off excess paid-up capital. (correct answer)
2. Issuing bonus shares, consolidating fully paid shares and increasing authorised capital without altering subscribed capital.
3. Transferring partly paid shares to directors, forfeiting fully paid shares and creating additional preference capital.
4. Converting preference shares into debentures, issuing rights shares and cancelling unissued authorised shares.

Answer: A — Reducing liability on partly paid shares, cancelling lost paid-up capital and paying off excess paid-up capital.

Explanation. Section 66(1) permits reduction of share capital in various ways. These include extinguishing or reducing liability on shares in respect of unpaid capital, cancelling paid-up capital which is lost or unrepresented by available assets, and paying off paid-up capital which is in excess of the company's requirements. All three proposed transactions of Eastern Manufacturing Limited correspond to these statutory methods. The other options principally describe capital alterations or issues of securities rather than the specific reduction mechanisms contemplated by Section 66(1).

Where it goes wrong. Confusing alteration of share capital under Section 61 with reduction of share capital under Section 66.

Authority. Section 66(1)(a) of the Companies Act, 2013; Section 66(1)(b) of the Companies Act, 2013

Question 2 · 2 marks · Chapter 4: Share Capital and Debentures · hard

Shareholders have approved Eastern Manufacturing Limited's proposed reduction through a special resolution. The directors contend that this approval itself makes the reduction effective. Which statement correctly describes the additional statutory requirement?

1. The Board must obtain approval from the Registrar before implementing the special resolution.
2. The company must obtain consent from every shareholder before the capital reduction takes effect.
3. The company must apply to the Tribunal and obtain confirmation of the reduction before giving effect to it. (correct answer)
4. The company must obtain an ordinary resolution at a second general meeting after passing the special resolution.

Answer: C — The company must apply to the Tribunal and obtain confirmation of the reduction before giving effect to it.

Explanation. Section 66(1) expressly makes reduction of share capital subject to confirmation by the Tribunal on an application made by the company. Passing a special resolution is necessary but does not independently complete the reduction. Eastern Manufacturing Limited must therefore obtain the requisite Tribunal confirmation before implementing the reduction. The principal distractor incorrectly treats shareholder approval as the final statutory step, ignoring the separate supervisory role assigned to the NCLT under Section 66.

Where it goes wrong. Assuming that a special resolution alone is sufficient to make a reduction of share capital effective.

Authority. Section 66(1) of the Companies Act, 2013

Question 3 · 2 marks · Chapter 4: Share Capital and Debentures · medium

The company has an outstanding interest liability of ₹8 lakh relating to matured public deposits. The directors contend that the Tribunal may still confirm the reduction because all principal deposit amounts have already been repaid. Which conclusion is correct?

1. The reduction is permissible because only unpaid principal deposits are relevant under Section 66.
2. The reduction cannot be made while interest payable on accepted deposits remains in arrears. (correct answer)
3. The reduction is permissible if shareholders approve the outstanding interest through a special resolution.
4. The reduction is permissible if the company provides additional security to its shareholders.

Answer: B — The reduction cannot be made while interest payable on accepted deposits remains in arrears.

Explanation. The proviso to Section 66(1) prohibits reduction of share capital where the company is in arrears in repayment of deposits accepted either before or after commencement of the Act, or interest payable on those deposits. Consequently, repayment of principal alone is insufficient where deposit interest remains outstanding. Eastern Manufacturing Limited must clear the ₹8 lakh interest arrears before proceeding. The amount being relatively small does not create any statutory exception to this prohibition.

Where it goes wrong. Checking only repayment of deposit principal and overlooking outstanding interest payable on matured deposits.

Authority. Section 66(1), proviso, of the Companies Act, 2013

Question 4 · 2 marks · Chapter 4: Share Capital and Debentures · hard

Eastern Manufacturing Limited proposes extinguishing the unpaid liability of ₹30 per partly paid share and reducing the corresponding amount of its share capital. What is the appropriate legal treatment of this transaction?

1. It is merely a waiver of calls under Section 50 and never amounts to reduction of share capital.
2. It is a buy-back because the company is removing the unpaid portion of issued shares.
3. It is an alteration under Section 61, which does not require Tribunal confirmation.
4. It is a recognised reduction method under Section 66(1)(a), subject to a special resolution and Tribunal confirmation. (correct answer)

Answer: D — It is a recognised reduction method under Section 66(1)(a), subject to a special resolution and Tribunal confirmation.

Explanation. Section 66(1)(a) specifically permits a company to extinguish or reduce liability on shares in respect of share capital that has not been paid-up. Therefore, reducing the unpaid liability of ₹30 per share as part of the proposed capital reduction falls within this provision. It must be undertaken through a special resolution and confirmed by the Tribunal. Section 50 concerns acceptance of unpaid share capital, subject to Articles authorisation, and is not a substitute for a Section 66 capital reduction.

Where it goes wrong. Mistaking extinguishment of unpaid share capital under Section 66 for an ordinary waiver of calls under Section 50.

Authority. Section 66(1)(a) of the Companies Act, 2013

Question 5 · 2 marks · Chapter 4: Share Capital and Debentures · medium

Scenario. Meridian Pharmaceuticals Limited is a listed public company proposing to reduce its paid-up equity share capital by ₹25 crore through cancellation of capital that is lost and unrepresented by available assets. The shareholders have passed a special resolution approving the proposal, and the company has submitted an application for confirmation before the National Company Law Tribunal on 1 August 2026. On 8 August 2026, the Tribunal issued notices to the concerned authorities and creditors. The notices were received on the following dates: Recipient | Date of receipt Central Government (Regional Director) | 12 August 2026 Registrar of Companies | 10 August 2026 Securities and Exchange Board of India | 14 August 2026 Major secured creditors | 16 August 2026 Unsecured trade creditors | 18 August 2026 One secured creditor has objected, claiming that the proposed reduction may adversely affect its recovery prospects. Another creditor has not responded to the notice. SEBI has informed the Tribunal that it requires additional time to examine the company's proposed accounting treatment. The Regional Director has also sought clarification regarding the impact of the reduction on the company's outstanding liabilities. The company's finance director argues that the representation period should be calculated uniformly from the date of the application, namely 1 August 2026. The legal adviser disagrees and states that the statutory period is connected with receipt of the notice. The directors also want clarification on whether the Tribunal must accept every objection received or merely consider the representations before deciding the application. The Board seeks advice on the recipients of statutory notices, the applicable period and the effect of non-receipt of representations.

Meridian Pharmaceuticals Limited is listed on a recognised stock exchange. Which combination of authorities and stakeholders must receive statutory notice of the application for reduction of share capital under Section 66(2)?

1. Only the Central Government and the Registrar of Companies, because creditor objections are considered separately.
2. The Central Government, Registrar of Companies, SEBI and creditors of the company. (correct answer)
3. Only SEBI and the company's secured creditors, because the company is listed.
4. The Registrar of Companies, stock exchange and shareholders holding at least 10% of equity capital.

Answer: B — The Central Government, Registrar of Companies, SEBI and creditors of the company.

Explanation. Section 66(2) requires the Tribunal to give notice of every reduction application to the Central Government, the Registrar and the creditors of the company. In the case of a listed company, SEBI must also receive notice. Meridian Pharmaceuticals Limited is listed; therefore, all four categories must be notified. The primary distractor incorrectly omits SEBI or creditors, whereas the provision expressly includes both in the applicable circumstances.

Where it goes wrong. Forgetting that SEBI receives notice in the case of listed companies and that creditors must also be notified.

Authority. Section 66(2) of the Companies Act, 2013

Question 6 · 2 marks · Chapter 4: Share Capital and Debentures · hard

Suppose Meridian Pharmaceuticals Limited had been an unlisted public company instead of a listed company. Which statement would correctly describe the notice requirement under Section 66(2)?

1. The Tribunal would notify only the Registrar because unlisted companies have no SEBI-related obligations.
2. The Tribunal would notify the Central Government, SEBI and creditors, but not the Registrar.
3. The Tribunal would notify only the Central Government and creditors, excluding both regulators.
4. The Tribunal would notify the Central Government, Registrar and creditors; the specific SEBI notice requirement applies to listed companies. (correct answer)

Answer: D — The Tribunal would notify the Central Government, Registrar and creditors; the specific SEBI notice requirement applies to listed companies.

Explanation. Section 66(2) requires notice to the Central Government, the Registrar and creditors of the company. The additional notice to SEBI is expressly required in the case of listed companies. Accordingly, if Meridian Pharmaceuticals Limited were unlisted, the Tribunal would still notify the Central Government, Registrar and creditors, but the specific SEBI-notice requirement would not arise under this subsection. The primary trap is assuming that SEBI must receive notice in every reduction application.

Where it goes wrong. Treating the SEBI-notice requirement applicable to listed companies as a universal requirement for every company.

Authority. Section 66(2) of the Companies Act, 2013

Question 7 · 2 marks · Chapter 4: Share Capital and Debentures · hard

The Regional Director received the Tribunal's notice on 12 August 2026, while the company's creditors received their respective notices on 16 and 18 August 2026. By which date must representations from the creditors be made to fall within the ordinary statutory three-month period?

1. Within three months from the respective dates on which the creditors received the notice. (correct answer)
2. Within three months from 1 August 2026, being the date the company filed its application.
3. Within three months from 8 August 2026, being the date on which the Tribunal issued its notices.
4. Within three months from the date of the final hearing before the Tribunal.

Answer: A — Within three months from the respective dates on which the creditors received the notice.

Explanation. Section 66(2) provides that the Tribunal must consider representations made within three months from the date of receipt of the notice by the concerned recipient. Therefore, each creditor's period is calculated from its own date of receipt. The statutory period does not commence uniformly from the company's application date or the Tribunal's date of issuing notices. Consequently, the two groups of creditors have different corresponding deadlines based on 16 and 18 August 2026.

Where it goes wrong. Calculating the representation period from the application or notice-issue date instead of the recipient's actual date of receipt.

Authority. Section 66(2) of the Companies Act, 2013

Question 8 · 2 marks · Chapter 4: Share Capital and Debentures · medium

One unsecured creditor does not send any representation to the Tribunal within three months from receipt of the notice. The directors claim that the creditor's silence should automatically invalidate the proposed reduction. Which statement is correct?

1. The Tribunal must reject the application because every creditor must provide an express written consent.
2. The Tribunal must treat the creditor's silence as an objection to the proposed reduction.
3. It shall be presumed that the creditor has no objection to the reduction under Section 66(2). (correct answer)
4. The company must obtain a fresh confirmation from the Registrar before proceeding.

Answer: C — It shall be presumed that the creditor has no objection to the reduction under Section 66(2).

Explanation. The proviso to Section 66(2) expressly states that where no representation is received from the Central Government, Registrar, SEBI or creditors within the prescribed three-month period, it shall be presumed that they have no objection to the reduction. Therefore, the creditor's silence does not constitute an automatic objection or invalidate the proceedings. This presumption concerns absence of objection; it does not dispense with the other statutory requirements for Tribunal confirmation.

Where it goes wrong. Treating the absence of a representation as an automatic objection or assuming that every creditor must expressly consent.

Authority. Section 66(2), proviso, of the Companies Act, 2013

Question 9 · 2 marks · Chapter 4: Share Capital and Debentures · medium

Scenario. Sapphire Infrastructure Limited has obtained approval from its shareholders through a special resolution for reducing its paid-up equity share capital by ₹40 crore. The company submitted the necessary application before the National Company Law Tribunal, along with the proposed scheme of reduction and an auditor's certificate concerning the accounting treatment. The company has several creditors, including a secured banking consortium, an equipment supplier and a group of unsecured service providers. During the proceedings, the secured banking consortium agreed to the proposed reduction after the company provided additional security. The equipment supplier's outstanding claim was fully discharged before the final hearing. A third creditor's claim was formally determined through an agreed settlement. Certain other creditors provided written consent to the proposed reduction. The Tribunal examined the accounting treatment proposed by the company and asked the statutory auditor to confirm whether the treatment complied with the applicable accounting standards under Section 133. After examining the auditor's certificate and the position of creditors, the Tribunal passed an order confirming the reduction on 15 September 2026, subject to specified conditions. The order also directed the company to publish the confirmation in a prescribed manner. The company received the certified copy of the Tribunal's order on 22 September 2026. The CFO proposes filing only the Tribunal order with the Registrar and retaining the approved minute internally. The Company Secretary insists that the minute approved by the Tribunal must also be delivered and that the prescribed e-form must be filed within the statutory period. The Board seeks clarification regarding the conditions for confirmation, publication and subsequent registration of the reduction.

Before confirming Sapphire Infrastructure Limited's proposed reduction, the Tribunal examines the company's outstanding creditor claims. Which of the following combinations correctly satisfies the creditor-protection requirement under Section 66(3)?

1. Only claims of secured creditors need to be discharged because unsecured creditors cannot object to capital reduction.
2. Every creditor must receive immediate cash repayment even if the creditor has consented or the claim is secured.
3. Only creditors representing a majority in value must be paid, irrespective of the position of the remaining creditors.
4. Every creditor's debt or claim must be discharged, determined, secured or consented to before confirmation. (correct answer)

Answer: D — Every creditor's debt or claim must be discharged, determined, secured or consented to before confirmation.

Explanation. Under Section 66(3), the Tribunal may confirm reduction only when it is satisfied that the debt or claim of every creditor has been discharged, determined, secured or the creditor's consent has been obtained. These are alternative methods of satisfying the creditor-protection requirement. Therefore, Sapphire Infrastructure Limited need not necessarily repay every creditor immediately in cash, provided the statutory position of each creditor is appropriately addressed. The main trap is treating cash repayment as the only permissible solution.

Where it goes wrong. Assuming that creditor protection always requires immediate repayment instead of recognising the alternative statutory safeguards.

Authority. Section 66(3) of the Companies Act, 2013

Question 10 · 2 marks · Chapter 4: Share Capital and Debentures · hard

The Tribunal asks Sapphire Infrastructure Limited to establish that its proposed accounting treatment for the reduction complies with applicable accounting standards under Section 133. Which document is specifically required under Section 66(3)?

1. A certificate issued by the Regional Director approving the accounting entries.
2. A certificate from the company's auditor confirming that the proposed accounting treatment conforms to applicable accounting standards. (correct answer)
3. A declaration signed by every shareholder accepting the proposed accounting treatment.
4. A certificate from the Registrar confirming that the company's capital structure is commercially justified.

Answer: B — A certificate from the company's auditor confirming that the proposed accounting treatment conforms to applicable accounting standards.

Explanation. Section 66(3), proviso, requires the proposed accounting treatment to conform with the accounting standards specified under Section 133 or other applicable provisions of the Act. A certificate to that effect issued by the company's auditor must be filed with the Tribunal. Therefore, Sapphire Infrastructure Limited must provide the auditor's certificate. A declaration by shareholders or approval from the Registrar does not substitute for this specific statutory certification.

Where it goes wrong. Confusing the auditor's mandatory accounting-treatment certificate with shareholder approval or regulatory consent.

Authority. Section 66(3), proviso, of the Companies Act, 2013; Section 133 of the Companies Act, 2013

Question 11 · 2 marks · Chapter 4: Share Capital and Debentures · medium

The Tribunal confirms the proposed reduction on 15 September 2026 and directs Sapphire Infrastructure Limited to publish the confirmation order. Which statement correctly describes the company's obligation under Section 66(4)?

1. The company must publish the order in the manner directed by the Tribunal. (correct answer)
2. The company must publish the order only in the next annual financial statements.
3. The company may decide whether publication is necessary after consulting its auditors.
4. The company must send the order exclusively to shareholders holding at least 10% of its capital.

Answer: A — The company must publish the order in the manner directed by the Tribunal.

Explanation. Section 66(4) specifically provides that the order of confirmation of reduction by the Tribunal shall be published by the company in such manner as the Tribunal may direct. Therefore, Sapphire Infrastructure Limited must comply with the Tribunal's publication directions. Publication is not optional and cannot be postponed merely until the annual financial statements are prepared. The primary distractor incorrectly treats publication as a discretionary investor disclosure rather than a statutory consequence of confirmation.

Where it goes wrong. Confusing publication of the Tribunal's confirmation order with ordinary financial-statement or shareholder disclosures.

Authority. Section 66(4) of the Companies Act, 2013

Question 12 · 2 marks · Chapter 4: Share Capital and Debentures · hard

Sapphire Infrastructure Limited received the certified copy of the Tribunal's confirmation order on 22 September 2026. The CFO proposes filing only the order with the Registrar. Which procedure correctly complies with Section 66(5)?

1. File only the certified order within sixty days, without submitting any Tribunal-approved minute.
2. File the special resolution and auditor's certificate within fifteen days through Form MGT-14 alone.
3. Deliver the certified order and the Tribunal-approved minute to the Registrar within thirty days of receipt, using the applicable Form INC-28 filing process. (correct answer)
4. File the certified order and approved minute within ninety days after allotting the reduced shares to members.

Answer: C — Deliver the certified order and the Tribunal-approved minute to the Registrar within thirty days of receipt, using the applicable Form INC-28 filing process.

Explanation. Section 66(5) requires the company to deliver a certified copy of the Tribunal's confirmation order together with the minute approved by the Tribunal to the Registrar within thirty days of receiving the order copy. The minute must contain the particulars specified in the provision, including the reduced share capital and number and nominal value of shares. The applicable MCA filing mechanism is e-Form INC-28. Filing only the order or relying exclusively on MGT-14 would be insufficient.

Where it goes wrong. Remembering the thirty-day filing period but overlooking the mandatory Tribunal-approved minute and the applicable order-filing form.

Authority. Section 66(5) of the Companies Act, 2013; Instruction Kit for eForm INC-28, Ministry of Corporate Affairs

Question 13 · 2 marks · Chapter 4: Share Capital and Debentures · hard

Scenario. Trident Electronics Limited obtained confirmation from the National Company Law Tribunal for reducing its share capital by ₹30 crore. The company had several outstanding creditors when the application was filed. However, the finance department deliberately excluded the name of Zenith Components Private Limited, an unsecured creditor having a valid claim of ₹45 lakh, from the list of creditors submitted during the reduction proceedings. The company's CFO knew about the outstanding liability but instructed the accounts team not to disclose it because he believed the creditor might oppose the reduction. The Tribunal subsequently confirmed the reduction, and the Registrar registered the order on 30 September 2026. Six months later, Trident Electronics Limited failed to pay Zenith Components Private Limited's outstanding amount and committed a default in respect of the debt. The creditor then discovered that its name had been omitted from the proceedings without its knowledge. Separately, the company's Board is examining other ways of eliminating certain shares. Some shareholders have failed to pay calls on their partly paid-up shares, and the Articles authorise forfeiture after compliance with the prescribed procedure. Another shareholder has voluntarily offered to surrender fully paid-up shares because he no longer wishes to remain invested. The company is also considering purchasing its own shares from willing investors through a buy-back. The CFO suggests that all three transactions may be treated as ordinary capital reductions without separate legal procedures. The Company Secretary disagrees and highlights the distinction between reduction under Section 66, forfeiture, surrender and buy-back. The Board seeks advice regarding creditor remedies, member liability and the consequences of knowingly concealing creditor information.

Zenith Components Private Limited was omitted from the list of creditors because of its ignorance of the capital reduction proceedings. After registration of the reduction order, Trident Electronics Limited committed a default in respect of the creditor's outstanding claim. Which statement correctly describes the creditor's statutory remedy under Section 66(8)?

1. The creditor automatically loses its claim because the Tribunal has already confirmed the reduction.
2. Members on the date of registration of the reduction order may be liable to contribute towards the creditor's claim within the statutory limit. (correct answer)
3. Only directors appointed after registration of the reduction order become personally liable for the creditor's debt.
4. The creditor can recover the amount exclusively from SEBI because the company was required to notify the regulator.

Answer: B — Members on the date of registration of the reduction order may be liable to contribute towards the creditor's claim within the statutory limit.

Explanation. Section 66(8) addresses the situation where a creditor entitled to object was omitted from the creditor list because of ignorance of the proceedings or their nature and effect on the debt or claim. If the company subsequently commits a default within the meaning of Section 6 of the Insolvency and Bankruptcy Code, members existing on the date of registration of the reduction order may become liable to contribute towards the debt. Their liability cannot exceed what they would have contributed if winding up had commenced immediately before registration.

Where it goes wrong. Assuming that Tribunal confirmation extinguishes the rights of a creditor who was improperly omitted from the reduction proceedings.

Authority. Section 66(8) of the Companies Act, 2013; Section 6 of the Insolvency and Bankruptcy Code, 2016

Question 14 · 2 marks · Chapter 4: Share Capital and Debentures · hard

The CFO deliberately instructed the accounts department to conceal Zenith Components Private Limited's name and outstanding debt from the creditor list. Which statutory consequence follows from such conduct?

1. Only a civil penalty under Section 64 applies because the omission relates to share capital.
2. The company is automatically dissolved, and the CFO cannot face separate legal consequences.
3. The conduct merely invalidates the special resolution without attracting any personal liability.
4. The officer is liable under Section 447 for knowingly concealing a creditor's name entitled to object. (correct answer)

Answer: D — The officer is liable under Section 447 for knowingly concealing a creditor's name entitled to object.

Explanation. Section 66(10) provides that an officer who knowingly conceals the name of a creditor entitled to object, knowingly misrepresents the nature or amount of a creditor's claim, or abets or is privy to such conduct, shall be liable under Section 447. The CFO's deliberate instruction to conceal Zenith Components Private Limited's claim falls directly within this provision. The primary distractor incorrectly treats the matter as an ordinary filing default, overlooking the specific statutory fraud consequence.

Where it goes wrong. Treating deliberate concealment of a creditor as an ordinary procedural default instead of fraud-related misconduct under Section 447.

Authority. Section 66(10) of the Companies Act, 2013; Section 447 of the Companies Act, 2013

Question 15 · 2 marks · Chapter 4: Share Capital and Debentures · hard

Certain shareholders of Trident Electronics Limited have failed to pay calls on partly paid shares. The Articles expressly authorise forfeiture after proper notice and completion of the prescribed procedure. Which statement most appropriately distinguishes this forfeiture from reduction under Section 66?

1. Forfeiture always requires a special resolution and NCLT confirmation, irrespective of the Articles.
2. Forfeiture and reduction are identical transactions and must follow exactly the same statutory procedure.
3. A bona fide forfeiture for non-payment of calls, properly undertaken under the Articles, does not ordinarily require the Section 66 reduction-confirmation procedure. (correct answer)
4. Forfeiture is valid only when the shares are fully paid-up and shareholders voluntarily request cancellation.

Answer: C — A bona fide forfeiture for non-payment of calls, properly undertaken under the Articles, does not ordinarily require the Section 66 reduction-confirmation procedure.

Explanation. Forfeiture is generally an action taken by the company under its Articles when a shareholder fails to pay valid calls, subject to compliance with the prescribed notice and procedure. It is distinct from a company-initiated capital reduction requiring a special resolution and Tribunal confirmation under Section 66. However, forfeiture cannot be used as a disguised method of cancelling issued capital without complying with the applicable law. The Articles and procedural validity of the forfeiture remain essential.

Where it goes wrong. Assuming that every cancellation or extinguishment of shares automatically requires Section 66 confirmation, without examining whether it is a valid forfeiture.

Authority. Section 66 of the Companies Act, 2013; Articles of Association of the company; Companies Act, 2013 provisions governing calls and forfeiture of shares

Question 16 · 2 marks · Chapter 4: Share Capital and Debentures · medium

A shareholder voluntarily offers to surrender fully paid-up shares to Trident Electronics Limited. The company proposes accepting the surrender and cancelling the shares without making an application under Section 66. Which statement is the most appropriate?

1. Surrender is not automatically a substitute for capital reduction; it must satisfy the applicable Articles and legal requirements, and an extinguishment reducing capital cannot be used to bypass Section 66. (correct answer)
2. Surrender is always valid because a shareholder may permanently waive ownership of shares without company approval.
3. Surrender is identical to forfeiture because both transactions necessarily arise from non-payment of calls.
4. Surrender is automatically treated as a buy-back under Section 68 irrespective of the transaction's terms.

Answer: A — Surrender is not automatically a substitute for capital reduction; it must satisfy the applicable Articles and legal requirements, and an extinguishment reducing capital cannot be used to bypass Section 66.

Explanation. The Companies Act does not provide a general unrestricted right of surrender of shares. Surrender must be supported by the Articles and must satisfy the applicable legal circumstances. Where the arrangement involves extinguishment of shares and consequent reduction of capital, the company cannot simply label it surrender to avoid Section 66. The legal treatment depends on the substance of the transaction rather than the terminology adopted by the Board or shareholder.

Where it goes wrong. Assuming that voluntary surrender automatically permits a company to extinguish issued share capital without following the applicable statutory procedure.

Authority. Section 66(1) of the Companies Act, 2013; Articles of Association of the company

Question 17 · 2 marks · Chapter 4: Share Capital and Debentures · medium

Scenario. A limited company has passed a special resolution proposing to cancel ₹15 crore of its paid-up share capital, which has been completely lost and is no longer represented by available assets. The company has also repaid all matured deposits but has not yet applied to the Tribunal. The Board proposes recording the reduction directly in the financial statements. Which statement correctly describes the legal position under Section 66?

A limited company has passed a special resolution proposing to cancel ₹15 crore of its paid-up share capital, which has been completely lost and is no longer represented by available assets. The company has also repaid all matured deposits but has not yet applied to the Tribunal. The Board proposes recording the reduction directly in the financial statements. Which statement correctly describes the legal position under Section 66?

1. The accounting entry itself is sufficient because the paid-up capital has already been lost economically.
2. The company needs only an ordinary resolution because no actual payment is being made to shareholders.
3. The company may proceed after obtaining approval from the Registrar without approaching the Tribunal.
4. The company must obtain Tribunal confirmation on its application before implementing the proposed reduction. (correct answer)

Answer: D — The company must obtain Tribunal confirmation on its application before implementing the proposed reduction.

Explanation. Section 66(1)(b)(i) expressly permits cancellation of paid-up share capital which is lost or unrepresented by available assets. However, the reduction remains subject to confirmation by the Tribunal on an application by the company after passing a special resolution. The economic loss of capital does not automatically authorise its removal from the legal capital structure. Therefore, the company cannot implement the reduction merely by recording an accounting entry.

Where it goes wrong. Assuming that a write-off of capital in the financial statements automatically changes the company's legally registered share capital.

Authority. Section 66(1)(b)(i) of the Companies Act, 2013

Question 18 · 2 marks · Chapter 4: Share Capital and Debentures · hard

Scenario. A company applying for reduction of share capital receives separate notices from the Tribunal. The Central Government receives its notice on 3 May 2027, the Registrar on 7 May 2027 and an unsecured creditor on 11 May 2027. The creditor submits its representation on 15 April 2027. The company argues that the representation is late because three months expired from the date of the original application in December 2026. Which conclusion is correct?

A company applying for reduction of share capital receives separate notices from the Tribunal. The Central Government receives its notice on 3 May 2027, the Registrar on 7 May 2027 and an unsecured creditor on 11 May 2027. The creditor submits its representation on 15 April 2027. The company argues that the representation is late because three months expired from the date of the original application in December 2026. Which conclusion is correct?

1. The representation is necessarily late because every recipient's period begins on the application date.
2. The representation period is calculated separately from receipt of notice, and the creditor's representation is within three months of 11 May 2027. (correct answer)
3. The representation is late because the creditor must object within thirty days from the date of issue of notice.
4. The representation period begins only when the Tribunal schedules the final hearing.

Answer: B — The representation period is calculated separately from receipt of notice, and the creditor's representation is within three months of 11 May 2027.

Explanation. Section 66(2) calculates the representation period of three months from the date of receipt of notice by the relevant recipient. The creditor received notice on 11 May 2027, making its representation on 15 April 2027 within the corresponding three-month period. The application date in December 2026 is not the statutory starting point for the creditor's representation period. The principal trap is calculating the deadline uniformly from the company's original filing date.

Where it goes wrong. Using the company's application date instead of the date on which the creditor received the Tribunal's notice.

Authority. Section 66(2) of the Companies Act, 2013

Question 19 · 2 marks · Chapter 4: Share Capital and Debentures · medium

Scenario. A company proposes reducing its capital by cancelling paid-up capital that is no longer represented by available assets. One unsecured creditor objects within three months of receiving the Tribunal's notice. The creditor's claim has neither been paid nor determined, and the company has not obtained the creditor's consent. The company offers no security for the outstanding claim. Can the Tribunal confirm the reduction merely because the majority of shareholders have approved it?

A company proposes reducing its capital by cancelling paid-up capital that is no longer represented by available assets. One unsecured creditor objects within three months of receiving the Tribunal's notice. The creditor's claim has neither been paid nor determined, and the company has not obtained the creditor's consent. The company offers no security for the outstanding claim. Can the Tribunal confirm the reduction merely because the majority of shareholders have approved it?

1. Yes, because shareholder approval takes precedence over the interests of unsecured creditors.
2. Yes, because the objection of an unsecured creditor is irrelevant to proceedings under Section 66.
3. No, because the creditor's debt or claim must be discharged, determined, secured or consented to for the statutory confirmation requirement to be satisfied. (correct answer)
4. No, because every creditor must receive full cash repayment even when the creditor has consented.

Answer: C — No, because the creditor's debt or claim must be discharged, determined, secured or consented to for the statutory confirmation requirement to be satisfied.

Explanation. Section 66(3) requires the debt or claim of every creditor to be discharged, determined, secured or consented to before the Tribunal can confirm the reduction. Here, the creditor's claim remains unresolved and unsecured, and no consent has been obtained. Consequently, shareholder approval alone is insufficient. The provision protects creditors without making cash repayment the only possible solution, since determination, adequate security or creditor consent may also satisfy the statutory requirement.

Where it goes wrong. Assuming that a special resolution passed by shareholders can override an unresolved creditor claim.

Authority. Section 66(3) of the Companies Act, 2013

Question 20 · 2 marks · Chapter 4: Share Capital and Debentures · hard

Scenario. A company receives a voluntary offer from a shareholder to surrender shares without any obligation to pay outstanding calls. The Articles do not contain a provision authorising surrender, and the Board proposes cancelling the shares without Tribunal approval. The company argues that acceptance is permissible because the shareholder has voluntarily requested it. Which statement is most appropriate?

A company receives a voluntary offer from a shareholder to surrender shares without any obligation to pay outstanding calls. The Articles do not contain a provision authorising surrender, and the Board proposes cancelling the shares without Tribunal approval. The company argues that acceptance is permissible because the shareholder has voluntarily requested it. Which statement is most appropriate?

1. The Board cannot assume an unrestricted power to accept surrender; surrender must be authorised and legally permissible, and an extinguishment amounting to reduction cannot bypass Section 66. (correct answer)
2. The Board may always accept surrender because voluntary consent makes every cancellation legally valid.
3. The shareholder's request automatically converts the surrender into forfeiture under the Articles.
4. The company can accept surrender only after obtaining prior approval from the Registrar under Section 64.

Answer: A — The Board cannot assume an unrestricted power to accept surrender; surrender must be authorised and legally permissible, and an extinguishment amounting to reduction cannot bypass Section 66.

Explanation. Surrender of shares is not an unrestricted statutory power available to every company. It must have an appropriate basis in the Articles and comply with the applicable legal requirements. Further, where shares are surrendered to the company and extinguished, the transaction may result in reduction of share capital and cannot be used merely as a device to avoid Section 66. The shareholder's voluntary request does not by itself confer an otherwise unavailable power on the Board.

Where it goes wrong. Treating voluntary consent as sufficient authority for cancellation of shares without examining the Articles and capital-reduction requirements.

Authority. Section 66(1) of the Companies Act, 2013; Articles of Association of the company

Question 21 · 2 marks · Chapter 4: Share Capital and Debentures · hard

Scenario. A shareholder fails to pay a valid call on partly paid-up equity shares despite receiving the prescribed notice. The Articles authorise forfeiture for such default, and the Board completes the forfeiture procedure strictly in accordance with those Articles. The shareholder argues that the company must first obtain an NCLT confirmation order under Section 66 because the shares are being cancelled. Which statement is correct?

A shareholder fails to pay a valid call on partly paid-up equity shares despite receiving the prescribed notice. The Articles authorise forfeiture for such default, and the Board completes the forfeiture procedure strictly in accordance with those Articles. The shareholder argues that the company must first obtain an NCLT confirmation order under Section 66 because the shares are being cancelled. Which statement is correct?

1. The forfeiture is invalid unless the company obtains a special resolution and NCLT confirmation.
2. The forfeiture is automatically a buy-back because the company acquires control over the forfeited shares.
3. The company must first obtain written consent from every other shareholder before forfeiture.
4. A bona fide forfeiture for non-payment of calls under authorised Articles is distinct from a Section 66 capital reduction and does not ordinarily require that confirmation procedure. (correct answer)

Answer: D — A bona fide forfeiture for non-payment of calls under authorised Articles is distinct from a Section 66 capital reduction and does not ordinarily require that confirmation procedure.

Explanation. Forfeiture is a company-initiated action resulting from a shareholder's failure to pay calls, where the Articles authorise it and the prescribed procedure has been followed. It is distinct from a voluntary reduction of share capital under Section 66, which requires a special resolution and Tribunal confirmation. Consequently, a valid forfeiture does not ordinarily require a separate Section 66 application. However, forfeiture cannot be used as a sham arrangement to conceal an actual capital reduction.

Where it goes wrong. Assuming that forfeiture for non-payment of calls and voluntary reduction of share capital are legally identical.

Authority. Articles of Association of the company; Section 66 of the Companies Act, 2013

Question 22 · 2 marks · Chapter 4: Share Capital and Debentures · medium

Scenario. A company purchases its own fully paid-up equity shares from existing shareholders after complying with the applicable requirements of Section 68. Certain directors argue that because the transaction reduces the number of issued shares and consequently affects the company's capital, the company must additionally seek confirmation under Section 66. Which statement is correct?

A company purchases its own fully paid-up equity shares from existing shareholders after complying with the applicable requirements of Section 68. Certain directors argue that because the transaction reduces the number of issued shares and consequently affects the company's capital, the company must additionally seek confirmation under Section 66. Which statement is correct?

1. Both Sections 66 and 68 must always be complied with independently for every buy-back.
2. Section 66(6) expressly excludes buy-back under Section 68 from the operation of Section 66. (correct answer)
3. Section 66 applies only when buy-back is undertaken by a listed public company.
4. A buy-back becomes a reduction under Section 66 whenever the company purchases more than 10% of its shares.

Answer: B — Section 66(6) expressly excludes buy-back under Section 68 from the operation of Section 66.

Explanation. Section 66(6) specifically provides that the provisions of Section 66 shall not apply to a buy-back of a company's own securities under Section 68. Buy-back is therefore governed by its separate statutory framework rather than the NCLT confirmation procedure for ordinary capital reduction under Section 66. The fact that a buy-back decreases the number of shares does not make it necessary to obtain an additional confirmation under Section 66.

Where it goes wrong. Confusing the economic effect of buy-back with the separate statutory procedure governing reduction of share capital.

Authority. Section 66(6) of the Companies Act, 2013; Section 68 of the Companies Act, 2013

Question 23 · 2 marks · Chapter 4: Share Capital and Debentures · hard

Scenario. A company receives the certified copy of an NCLT order confirming reduction of its share capital on 1 October 2026. The company proposes filing the order on 20 November 2026, together with the Tribunal-approved minute. The minute includes the revised total share capital, number of shares, nominal value of each share and amount deemed paid-up on each share. Which statement correctly describes the filing?

A company receives the certified copy of an NCLT order confirming reduction of its share capital on 1 October 2026. The company proposes filing the order on 20 November 2026, together with the Tribunal-approved minute. The minute includes the revised total share capital, number of shares, nominal value of each share and amount deemed paid-up on each share. Which statement correctly describes the filing?

1. The filing is late because the certified order must be delivered within fifteen days.
2. The filing is invalid because the minute need not specify the amount deemed paid-up on the reduced shares.
3. The filing is within the thirty-day period under Section 66(5), and the order and approved minute may be delivered through the applicable INC-28 procedure. (correct answer)
4. The filing is premature because the Registrar can register the order only after the company's next annual general meeting.

Answer: C — The filing is within the thirty-day period under Section 66(5), and the order and approved minute may be delivered through the applicable INC-28 procedure.

Explanation. The company received the certified order on 1 October 2026 and proposes filing on 20 November 2026, which is within thirty days of receipt. Section 66(5) requires delivery of the certified order and the Tribunal-approved minute, specifying the particulars of the reduced capital and shares, to the Registrar. The applicable MCA e-form process is INC-28. The stated minute contains the required particulars, including the amount deemed paid-up on each share, making the proposed filing appropriate.

Where it goes wrong. Confusing the thirty-day period with a shorter filing deadline or overlooking the mandatory particulars of the Tribunal-approved minute.

Authority. Section 66(5) of the Companies Act, 2013; Instruction Kit for eForm INC-28, Ministry of Corporate Affairs

Question 24 · 2 marks · Chapter 4: Share Capital and Debentures · hard

Scenario. Following confirmation of a capital reduction, the nominal value of a shareholder's shares is reduced. Before the reduction, the shareholder had paid ₹80 per share on a nominal value of ₹100. Under the Tribunal-approved reduction, ₹70 per share is treated as paid-up on a revised nominal value of ₹80. The company subsequently makes a call on the shareholder for ₹20 per share in respect of the reduced shares. What is the maximum additional amount that the shareholder may be required to contribute under Section 66(7)?

Following confirmation of a capital reduction, the nominal value of a shareholder's shares is reduced. Before the reduction, the shareholder had paid ₹80 per share on a nominal value of ₹100. Under the Tribunal-approved reduction, ₹70 per share is treated as paid-up on a revised nominal value of ₹80. The company subsequently makes a call on the shareholder for ₹20 per share in respect of the reduced shares. What is the maximum additional amount that the shareholder may be required to contribute under Section 66(7)?

1. ₹10 per share, being the difference between ₹80 deemed paid-up and the revised nominal value of ₹80. (correct answer)
2. ₹20 per share, because the company may recover the entire unpaid amount on the reduced shares.
3. ₹30 per share, being the difference between the original nominal value and deemed paid-up amount.
4. ₹80 per share, because the original paid-up liability continues without restriction after reduction.

Answer: A — ₹10 per share, being the difference between ₹80 deemed paid-up and the revised nominal value of ₹80.

Explanation. Section 66(7) limits a past or present member's liability in respect of shares to the difference, if any, between the amount paid or reduced amount deemed paid on the shares and the amount fixed by the Tribunal's reduction order. Here, ₹70 is deemed paid-up and the reduced nominal value is ₹80. The remaining maximum possible contribution is ₹10 per share. Therefore, the company cannot demand the full ₹20 merely because the reduced shares remain partly unpaid.

Where it goes wrong. Calculating the member's liability using the original nominal value instead of the reduced share value fixed by the Tribunal.

Authority. Section 66(7) of the Companies Act, 2013

Question 25 · 2 marks · Chapter 4: Share Capital and Debentures · hard

Scenario. During capital-reduction proceedings, the finance director knowingly instructs the accounts department to omit a creditor's outstanding debt from the list submitted to the Tribunal. The director also knowingly misrepresents the amount of another creditor's claim to prevent objections. The company subsequently obtains confirmation of the reduction. Which statutory consequence is applicable to the finance director?

During capital-reduction proceedings, the finance director knowingly instructs the accounts department to omit a creditor's outstanding debt from the list submitted to the Tribunal. The director also knowingly misrepresents the amount of another creditor's claim to prevent objections. The company subsequently obtains confirmation of the reduction. Which statutory consequence is applicable to the finance director?

1. Only a penalty under Section 64 applies because the misconduct concerns an incorrect capital-reduction filing.
2. The director is liable exclusively under Section 66(8), with no separate consequences for fraudulent conduct.
3. The director may be removed by shareholders, but no statutory fraud provision applies after Tribunal confirmation.
4. The director is liable under Section 66(10) read with Section 447 for knowingly concealing creditor information or misrepresenting creditor claims. (correct answer)

Answer: D — The director is liable under Section 66(10) read with Section 447 for knowingly concealing creditor information or misrepresenting creditor claims.

Explanation. Section 66(10) specifically covers an officer who knowingly conceals the name of a creditor entitled to object, knowingly misrepresents the nature or amount of a creditor's debt or claim, or abets or is privy to such conduct. Such officer is liable under Section 447, which deals with punishment for fraud. Obtaining Tribunal confirmation does not erase the officer's liability for earlier fraudulent concealment or misrepresentation. The principal trap is confusing this serious misconduct with an ordinary filing default.

Where it goes wrong. Assuming that Tribunal confirmation protects an officer from liability for deliberate concealment or misrepresentation during reduction proceedings.

Authority. Section 66(10) of the Companies Act, 2013; Section 447 of the Companies Act, 2013