UNDERSTANDING REDUCTION OF SHARE CAPITAL
Reduction of share capital refers to the reduction in the issued, subscribed, and paid-up capital of the company. The share capital of a company can be reduced under section 66 of the company’s Act 2013(amended) which ensures that for a company to reduce its share capital it should have power under its Article of Association (‘’AOA’’) to do so by following the procedures laid down under such provisions. The capital reduction can be done through share cancellations, paid-back capital, and buyback or exit offers.
ABOUT RELIANCE RETAIL LIMITED
Reliance Retail is the retail wing of Reliance Industries Limited and is leading the Reliance group Consumer durable services business. Reliance Retail is the fastest-growing retailer in the World and is the largest and most successful retailer in India. Reliance Retail has been the top performer in the retail segment with a huge base of loyal customers with 2, 80,000 plus customers served every hour. Reliance Retail has been operating its business through 18,774 retail stores spread across 7,500 plus cities in India. For the Financial year 2023, the revenue of Reliance Retail Limited has been 2, 60,364 crore rupees and the EBITDA has been 17,928 crore rupees.
RELIANCE RETAIL LIMITED REDUCTION OF SHARE CAPITAL
The Board of Directors of Reliance Retail Limited on July 4, 2023, approved the reduction of share capital at a consideration of the amount of Rupees 1362 per share against the fair value of Rupees 885. After this capital reduction plan was executed Reliance Retail became a 100% subsidiary of Reliance Retail Ventures Limited (RRVL). The purpose behind the reduction of share capital is to ensure the structuring of Businesses owned by the company.
TAX LIABILITY IN THE CASE OF RELIANCE RETAIL LIMITED (CAPITAL REDUCTION)
In India, any company undergoing a Reduction of share capital (listed/unlisted) is liable to pay the tax at the rate of 20% (plus applicable surcharge and cess) on the amount of distributed income. In the case of Reliance Retail Limited, the reduction of share capital has been considered as a payout of Dividend income to the respective shareholders, so the company Reliance Retail Limited will be deducting TDS under section 194 of the Income Tax Act at 10% subject to reduction of share capital.
REGULATORY FILING IN NCLT BY RELIANCE RETAIL LIMITED
The Application filed by Reliance Retail with the NCLT states that the capital reduction has been approved by 99.99% of shareholders. Of the minority shareholders, 84.65% by value and 51.57 % by number have approved the capital reduction. The record date for the execution of capital reduction was January 30, 2024.