Know About Section 64 of the Companies Act, 2013

Section 64 of the Companies Act, 2013 mandates that any company making alterations to its share capital must notify the Registrar of Companies (RoC) within a prescribed time frame. This provision ensures transparency and accountability in corporate actions related to capital structure. Whether it's an increase in authorized capital, consolidation, or conversion of shares, companies are required to file Form SH-7 along with necessary documents. Non-compliance attracts monetary penalties, emphasizing the importance of timely and accurate reporting to regulatory authorities.

Section 64 of the Companies Act, 2013 

Section 64 of the Companies Act, 2013 outlines the procedure and obligation of a company to notify the Registrar of Companies (RoC) about any alterations made to its share capital. This section is applicable when a company alters its share capital under Section 61 (Power of limited company to alter its share capital).

Key Provisions of Section 64:

• When a company alters its share capital (such as increasing the authorized share capital, consolidating shares, converting shares into stock, subdividing shares, or cancelling shares), it must file a notice with the RoC.
• The notice must be submitted in Form SH-7 within 30 days of the alteration.
• Along with the notice, the prescribed fees and a copy of the altered memorandum of association must be filed.
• Failure to comply with this requirement results in a penalty of ?1,000 per day, subject to a maximum of ?5 lakh for the company and ?1 lakh for each defaulting officer.

Purpose:

The section ensures transparency and accuracy in the records of the RoC and protects stakeholders by maintaining up-to-date corporate information.

This provision promotes legal compliance and governance in corporate structuring.

When Does Section 64 Apply?

Section 64 comes into play only in specific situations where a company changes its share capital. Here are the main cases where this rule must be followed:

1. Alteration of Share Capital under Section 61(1)

If a company makes any changes to its share capital as allowed under Section 61(1), it must inform the Registrar of Companies. These changes include:

• Share subdivision: This entails dividing each current share into more manageable portions. For example, turning one Rs.10 share into two Rs.5 shares.
• Consolidation of shares: The reverse of subdivision is share consolidation. Here, smaller shares are combined to form bigger ones. For instance, two ?5 shares are merged into one Rs.10 share.
• Conversion of shares into stock: A company can convert fully paid-up shares into stock, which can be transferred in fractions and not just as whole shares.
• Cancellation of unissued shares: If a company decides to cancel shares that were authorised but never issued, it must also report this.

All of the above fall under alterations where Section 64 requires the company to file a notice.

2. Government-Directed Increase in Authorised Capital

Sometimes, the company’s authorised capital is increased by an order from the Central Government, especially in cases that involve employee stock options or debentures. This is covered under Section 62(4) and 62(6).

In such cases, even though the company didn’t decide the change directly, it still has to notify the ROC because the authorised capital has gone up.

3. Redemption of Redeemable Preference Shares

If a company has issued redeemable preference shares, it will eventually have to buy them back from shareholders as promised. When the company redeems (repays) these shares, it changes the structure of its share capital.

This redemption must be reported to the Registrar as well, and Section 64 applies here too.

Filing Requirements under Section 64

When a company undergoes any changes in its share capital, such as alteration, increase, or redemption of shares, it must follow a few legal steps to notify the Registrar of Companies (ROC). Here's what you need to know:

1. Timeline for Filing

• The company must file the notice with the ROC within 30 days of the change happening. This includes any alteration, increase, or redemption of share capital.
• If the company misses this deadline, it could face penalties, so it is important to file on time.

2. Form to File

The form used for this filing is Form SH-7. This form must be submitted to report the change in share capital, and it must be signed by the company’s directors.

3. Documents Required

When you file the notice, the company needs to submit the following documents along with Form SH-7:

• Board Resolution: A decision approving the share capital change that has been approved by the board of directors.
• Altered Memorandum of Association (MOA): The MOA must be updated to reflect the new capital structure. This document shows the company's objectives and how its share capital has changed.
• Notice of General Meeting (if applicable): If the changes were discussed and approved during a general meeting, a copy of the notice and minutes from the meeting must be attached.
• Copy of Government Order (if applicable): If the change is based on an order from the Central Government (for instance, increasing the authorised capital through a government order), a copy of the order must be included.

4. Filing Fees

The authorized capital of the business determines the Form SH-7 filing fee. The filing fee increases with authorized capital.

5. Penalties for Non-Compliance

If a company fails to file the notice for changes in share capital within the required 30-day period, it could face serious consequences under Section 64(2) of the Companies Act, 2013. The penalties for non-compliance are clearly outlined:

As per Amended Section 64(2):

• Rs. 1,000 per day for each day of default: This means the company will have to pay a fine of Rs. 1,000 for every day the filing is delayed. The penalty continues to accumulate until the form is submitted.

Maximum Penalty:

• Rs. 5 lakh for the company: Even if the delay continues for a long time, the total fine for the company cannot exceed ?5 lakh.
• Rs. 1 lakh for each officer in default: If the company’s officers (such as directors or the company secretary) are responsible for the delay, they could be fined up to ?1 lakh individually.

Why Non-Compliance Can Be Risky

• Unnecessary Penalties: If you do not file on time, this can lead to escalate fines that could have been avoided with timely compliance.
• Credibility Issues: Delays in on-time filings reflect poorly on a company's credibility. Stakeholders, investors, and partners may lose confidence in the company’s ability to follow legal requirements.
• Future MCA Filings May Get Flagged: The Ministry of Corporate Affairs (MCA) keeps track of company filings. If a company repeatedly misses deadlines, its future filings may attract extra scrutiny, which may lead to further complications.

Practical Use of Section 64 of the Companies Act, 2013

Section 64 is frequently applied in various corporate scenarios involving changes to a company’s share capital. Here are some practical use cases:

1. Increase in Authorized Share Capital

Before issuing new shares, a company may need to increase its authorized capital. Once approved by shareholders, the company must file Form SH-7 with the RoC under Section 64 to update the capital structure in official records.

Example: A startup expanding operations raises funds via equity. To do this, it increases its authorized capital from ?10 lakh to ?50 lakh and files the necessary documents with RoC.

2. Stock Split or Subdivision of Shares

Companies often subdivide shares to improve liquidity and affordability for investors. This structural change must be reported to RoC through Section 64 compliance.

Example: A company with ?100 face value shares decides to split them into ?10 face value shares. The subdivision is approved, and Form SH-7 is filed with supporting resolutions.

3. Consolidation of Share Capital

Consolidating shares (e.g., ten ?1 shares into one ?10 share) to reduce the number of outstanding shares must be filed under Section 64.

Example: A company consolidates its 1 crore ?1 shares into 10 lakh ?10 shares to streamline shareholding. The consolidation is approved and reported through SH-7.

4. Conversion of Shares into Stock or Vice Versa

When companies convert shares into stock or stock back into shares, such structural changes require RoC notification under this section.

Example: An old manufacturing firm converts fully paid shares into stock for accounting ease and reports the action to the RoC.

5. Cancellation of Unissued Shares

If a company cancels unissued shares after a capital restructuring, this change must be updated in the RoC’s records through Form SH-7 under Section 64.

Example: A company had an authorized capital of ?1 crore but decides to cancel ?20 lakh worth of unissued shares. It must inform the RoC accordingly.

Why It Matters Practically

• Keeps the MCA records accurate and up-to-date
• Helps in future fundraising, mergers, or due diligence
• Avoids penalties and compliance risks
• Boosts investor confidence through regulatory transparency

Common Errors and How to Avoid Them

While you filing under Section 64, companies often make a few common errors that can lead to delays or fines. Here are a few examples of those mistakes and advice on avoiding them:

• Missing Documents: If you fail to include all the necessary documents, such as the Board Resolution or the Altered Memorandum of Association (MOA), it is a common mistake. To avoid this, always double-check the requirements and prepare the documents well in advance.
• Wrong Form or Incorrect Details: If you use the wrong form or enter any incorrect details, it can lead to rejection by the Registrar of Companies. To avoid this, make sure you understand the exact requirements for each form and verify all details before you submit.
• Late Submission: The most common mistake is simply missing the 30-day filing deadline. To avoid this, set reminders and keep track of important dates on a calendar or software that can help you manage the deadlines.
• Non-compliance Due to Lack of Awareness: Sometimes companies fail to file because they are unaware of the requirements under Section 64. Regular training for directors and staff on compliance issues can help keep everyone informed and avoid these kinds of mistakes.

Importance of Compliance for New and Existing Companies

Compliance with Section 64 is not just about avoiding penalties, it is also about building a strong foundation for your company’s growth and credibility. Whether you start a new business or manage an existing one, here is why staying compliant is crucial:

1. Especially Crucial for Startups Planning to Scale or Raise Capital

For startups, compliance is essential when you look to scale or raise funds. Investors, venture capitalists, and banks will always check your company’s legal standing, which includes its adherence to filing requirements like those under Section 64. A company that follows the law and files on time shows potential investors that it’s serious, reliable, and prepared for growth.

2. Affects Statutory Records, Investor Confidence, and Due Diligence Outcomes

Every time a company alters its share capital, it must update its statutory records to keep them accurate. If these records are not in order, it could lead to complications during future audits, mergers, or acquisitions.

Additionally, investor confidence can take a hit. Potential investors may hesitate to invest in a company that fails to keep its share capital records accurate and up-to-date. During due diligence processes, any discrepancies or delays in compliance may raise red flags and lead to the loss of opportunities.

3. Regular Compliance Builds a Strong Legal Foundation for the Company

When a company consistently follows legal and regulatory requirements, it strengthens its legal standing. This creates a stable, trustworthy reputation, which is important for long-term success. Regular compliance also helps avoid unnecessary legal hassles, penalties, and delays in business operations. It makes sure the company stays on the right side of the law.

If you keep up with filing requirements like Section 64, companies, especially startups, can protect themselves from future issues and create a solid legal framework for success.

Conclusion

Compliance with Section 64 of the Companies Act, 2013 is essential to maintain your company’s legal standing and credibility. Timely reporting of changes in share capital helps avoid penalties and builds trust with investors, regulators, and stakeholders.

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