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Diminution of Capital

Diminution as defined in the Oxford Dictionary means "a reduction in the size, extent, or importance of something".

Thereby, Diminution of capital (i.e. share capital) of a Company means reduction of the share capital by cancellation of the unsubscribed part of the issued capital.

If authorised by the Articles of Association of a Company, Diminution of capital is possible by passing of an ordinary resolution in the general meeting of shareholders. If the articles do not authorise for the same then articles can be amended as per the provisions of the Companies Act 2013 to include necessary provisions for the same in the articles.

Diminution of capital should not be confused with the reduction of capital as per section 66 of the companies act 2013 (earlier section 100 of the companies act 1956). While reduction of capital in accordance of section 66 requires confirmation of the same by the Tribunal, diminution of capital as per section 61(1)(e) do not require such confirmation by the Tribunal.

Cases where diminution of share capital amount to reduction of capital as provided in section 66

(1) Buy-back of shares under section 68;
(2) Reduction of capital by forfeiture of shares for the non-payments share capital called for;
(3) Redemption of redeemable preference shares - section 55;
(4) cancellation of shares which have not been taken or agreed to be taken by any person.

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