Section 94 of the Companies Act, 1956 that the company provides limited by shares or guarantee and may having share capital, if so authorized by its articles alter, by an resolution which is ordinary, in the following ways its share capital

It may divide and consolidate, all or its existing shares any into a larger denomination than of its shares existing e.g., by ten shares consolidating of each Rs.10 each into one share of each Rs.100.

It may sub-divide into denomination which is smaller its shares which is existing between the paid-up and the amount which is unpaid-up e.g., Rs 100 share each, Rs. 60 paid up and be sub-divided of Rs 10 each into ten shares, Rs. 6 paid-up per share.

It may convert all or any of its fully paid-up shares into stock or reconvert stock into paid-up shares fully of any denomination.

Shares may cancel which have not been taken up or accepted to be taken by any person and share capital amount diminish by the shares amount so cancelled. However, such shares cancellation, will not be deemed to be a share capital reduction, within the meaning of Section 100 of the Companies Act, 1956. In other words, of unis-sued cancellation share-capital not being taken or to be taken agreed by any person.

In order to alter its Memorandum capital clause, the company requires in its articles authority, but if the articles give this effect no power, the articles must be amended by resolution which is special before the power to the capital to alter clause by the company can be exercised. Further, to alter the capital clause the powers should not be exercised bona fide and  in the company interest and not for any group benefit. Any ordinary resolution will be enough for modifying capital clause in the Memorandum of Association.

The alteration of capital notice in each of the cases aforementioned Form No.5 of Central Government (General Forms and Rules), 1956) must be given to the registrar of companies of such alteration within thirty days who will register the change and make in the Memorandum alterations,. default in this case will make the company and every company officer liable to a fine extending up to Rs.500 per day during which continues the default.

Where the company nominal capital altered stands by the Central Government order under Section 94A, the company shall file the return which is important  within the registrar of companies for capital increase for such increase with the fees.

Under Section 94A of the Act, the company share capital stands automatically increased two situations following:

  1. When a Central Government, by its order under Section 81(4) made of the Act, directs that any debentures issued to, or the obtained loans from the Government by a company or thereof shall any part be converted into any company shares, on conditions and terms are considered 
  2. Where the Central Government, on an application by the public made financial institutions, directs that the issued debentures for raised loans by the company or thereof any part should be converted into the company shares in pursuance of the exercise of the attached option to such debenture such or issued loans to or granted by the Financial Institutions.
  3. Power of Alteration
  4. As mentioned earlier under this section the powers by the members can be exercised only by the articles if authorized. But without reason why in a single meeting a special resolution both the articles amending and a resolution fro a exercise of any of the powers should not be passed under this Section. In Re North Cheshire Brewery Co., 1920 WN 149. Re Metropolitan Cementry Co., (1934) Sc 65 the passed special resolution of the company  to reduce and to increase its capital and the Court, while the former confirming, refused a reference to include to the latter as the company by its articles not authorized to increase its capital and compliance strict with the Act was important. The court could conform also the latter to the effect if it has the words of consequential to the authority of the resolution which is former.
  5. The exercised power bona fide in the company interest and not for any group benefit-ting.
  6. The meeting of classes consent of shareholders will not be needed as increase of share capital any kind cannot be told to ‘vary’ or ‘affect’ class rights. The capital increased may consists of shares preference, provided that this is not consistent given by the Memorandum of the Association with the rights. The convening notice the meeting to the resolution to pass for increase must indicate the increase of the proposed amount increase
  7. .Beyond the authorized amount if the shares are issued and a resolution was passed subsequently passed at a general meeting issue ratifying, it was although held that the issue original was not in respect with the articles, was the effective ratification and were bound the allot tees.
  8. Sub-division and consolidation by the resolution which is same may be effected.

It was held that the cancellation of the  shares unis-sued or of the issued shares but not by any person taken up, may be effected without seeking the Court confirmation.

Under section 94(1) to a limited company to open to shares cancel which has not been considered or permitted by any person to be taken for such resolution but a resolution to be passed by the company is needed in general meeting under Section 94(2)

It is not the court function with the powers of the company interfere to consider a resolution of its share capital for cancelling the portion unis-sued. The exercise power to cancel the shares unis-sued by a company cannot be restrained by an injunction.

Stock nature.

Section 94 permits the company to convert its paid-up shares fully into stock, and it is, therefore, important to learn the stock nature and which may have the advantages.

Section 2(46) of the Act in a share defining, mentions that “includes shares except stock where a distinction between stock and shares is implied or is expressed “. Thus by converting shares into stock, a shareholder is defined as a stockholder. A stockholder has the rights which is same as a shareholder to the dividends.

It should be noted that (i) only paid-up shares fully can be converted into stock, and (ii) direct no issue by a company of stock is lawful. It is only the fully-paid shares conversion into stock, that is permitted by Section 94(1)(c) and not a issue direct of stock.

After shares into stock are converted, the shareholder may own Rs, 1000 stock worth where formely he held shares of one hundred of Rs.10 each. Thus, though this investment remains same in the company, the company stockholder interest is differently described.

Difference between stock and Share.

Physical shares form bear numbers which are distinct, whereas stocks are the share capital consolidated value.]

Shares may or may not be paid-up fully. Stock is always paid-up fully. 

Shares have a nominal value, stock does not have any nominal value.

All shares are of denomination which is equal whereas stock denomination may vary.

Stock cannot be issued in the instance first, whereas issued shares initially to the public. On conversion into stock the shares, the provisions of the Act the shares governing shall cease to apply to the capital of share as it is converted into stock. 

Stock is divisible into any needed amount. Thus, it is possible to transfer Rs. 50.87 stock worth, while it is not possible to transfer a share fraction.

The capital share reduction may arise in different circumstances for example losses of trading, expenses of heavy capital and assets of reduced or value which is doubtful. As a result, the original capital may either have become a capital or a lost may find that it has resources more that it can employ profitably. In either case, the need may arise the relation to adjust between assets and the capital 

The reduction mode, as laid down in Section 100 of the Companies Act, is as mentioned.

A limited company shares or by a  limited company guarantee and may have share capital, if authorized by special resolution, by its articles, and subject to its confirmation by the Tribunal/Court on petition, decrease of share capital may any and in particular.

a, By reduction or the members liability extinguishing in accordance of unpaid capital or uncalled e.g., where fully paid-up shares, reduce them to  Rs. 75 each and  Rs.25 per share, pay back.

by paying off the capital paid up on the conditions that it may be again called up again so that is not extinguished limited liability.

By following of any of the preceding methods a combination

By writing the capital or cancelling off  which has been lost or is represented under by the assets available e.g., a share capital paid-up fully or Rs.100 is represented by the assets of Rs.75 worth. In such a situation can be re-introduced reality by writing off of Rs. 25 per share. This is common most method of reduction capital. The balance sheet asset may include assets useless which are cancelled. On the other side, on the side of liability a reduced share-capital.

The Act does not in the manner prescribe in which the capital reduction is to be effected. Nor is there any power limitation of the Court/Tribunal to confirm the reduction except that it must be established first that all the creditors to object entitled to the reduction have been paid or consented wither or secured.

Where its exercising discretion, the Tribunal/court must make sure that the reduction is better and equitable. In short the Tribunal/court shall think about the following. While  sanctioning the reduction.

i. The creditors interest must be protected.

ii. The shareholders interest  must be considered; and

iii Finally, the interest of the public as well must be considered.

Reduction Type of commonly adopted capital.

The following are some of the reduction types adopted commonly.

Reduction of the members of liability in accordance of the capital unpaid or uncalled e.g., if the Rs.10 face values the shares, of which Rs.5 has been paid, the company may decrease the amount unpaid to Rs.2/- of the present Rs.5/- instead.

The liability of the  members extinguishment in accordance of uncalled or share capital unpaid e.g., in the above case to pay Rs.5/- the liability may be fully extinguished.

Paying off share capital paid-up not needed for the company purposes e.g., where the  Rs.100 fully paid-up shares, deducting them to Rs.50 and paying back per share of Rs.50

Shares purchase by the directors.

The share capital cancellation  as part of the arrangement scheme.

Share capital reduction without Court sanction.

The following cases which the share capital amount and where no confirmation by the Tribunal/court is necessary.

Shares surrender – Surrender of shares means surrender on the registered holder part of the company of already issued shares. 

Where to the company surrendered the shares, whether by the way of dispute settlement or for any other reason, it will have the effect which is same as a transfer in the company favor and to a capital reduction amount. But if, under any arrangement, shares such, instead of being surrendered to the company to the company nominee are transferred then there will be no capital reduction. Surrender may by the company be accepted under circumstances such where justified forfeiture. It has the releasing effect the shareholder whose surrender is accepted from shares further liability.

The Companies Act contain shares surrendered has no provision. Thus shares surrender is only valid when Articles of Association issues for the same and

i, when such shares forfeiture is justified or

ii, when surrendered shares in exchange of same  nominal value for new shares.

Both surrender and  forfeiture lead to termination of membership. But in the  former case, it is at the company initiative and in the case latter  at the member initiative or shareholder.

Shares Forfeiture – A company may if by its articles authorized, forfeit shares for calls non-payment and the same will not need  the Court confirmation/Tribunal.


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