SECTION 67: RESTRICTIONS ON PURCHASE BY COMPANY OR GIVING OF LOANS BY IT FOR PURCHASE OF ITS SHARES
Updated: May 9, 2022
ACQUISITION RESTRICTIONS OR LOANS FOR THE PURCHASE OF THE COMPANY’S SHARES:
Purchases of or loans to others for the purpose of obtaining the company's own shares are forbidden – A basic concept of company law is that a corporation cannot buy its own stock. This is stated forth in Section 67 of the Companies Act, 2013, which states that no company is limited by shares, and hence guarantees company having a share capital, shall buy its own shares unless the share capital is reduced as a result of this Act's provisions. No public corporation shall provide financial assistance (by way of a loan, guarantee, supply of security, or otherwise) for the purchase or subscription of or for any shares in the company or its holding company by any individual.
In the event of a violation of the foregoing, the firm will be fined (ranging from one lakh rupees to twenty-five lakh rupees), and any official of the company who is in default will be sentenced to three years in prison and fined (from one lakh rupees to twenty-five lakh rupees)
However, there are few exceptions in which the corporation may provide financial aid, such as:
A banking organization lending money in the ordinary course of its operations;
If the purchase of, or subscription for, fully paid-up shares in the company or its holding company is made by trustees for the benefit of the employees or such shares are held by a company employee, the company makes provision for lending money in accordance with any scheme approved by the company through special resolution with such requirements as may be prescribed.
The provision of loans by a company to persons in its employ who are not directors or key managerial personnel for a period of six months in an amount not exceeding their salary or wages in order to enable them to purchase or subscribe for fully paid-up shares in the company or its holding company to be held by them by way of beneficial ownership;
However, disclosures in the Board's report in respect of voting rights not exercised directly by workers in respect of shares to which the plan relates must be made in the manner prescribed. [Section 67]
Section 67 has no bearing on a company's right to redeem share capital purchased under this Act or any earlier Companies law.