THE COMPANIES ACT 2013: SECTION 70 - PROHIBITION FOR BUY-BACK IN CERTAIN CIRCUMSTANCES
Updated: May 9
In this article, we will discuss Circumstances or Situations under which the Buy-Back of Shares by a company is Prohibited. In other words, we will do an in-depth study about Section 70 of the Companies Act 2013.
Now, let's recall Section 67, which was Buy-Back of shares by a company; buying Back of shares is when a Company buys Its own shares from the shareholder or the market.
Precisely, A buyback of shares is buying back of own shares by a company that was issued earlier. It is a corporate action event wherein a company makes a public announcement for the buyback offer to acquire the shares from existing shareholders within a given time frame.
Section 70 of the Companies Act 2013 deals with scenarios or situations under which a Company is not eligible to purchase its own shares. Now let's study those shortcomings or situations in detail.
CIRCUMSTANCES UNDER WHICH BUY-BACK OF SHARES IS PROHIBITED
70. Prohibition of allotment in certain cases unless statement in lieu of prospectus delivered to Registrar.
(1) A company having a share capital, which does not issue a prospectus on or concerning its formation or which has given such a prospectus but has not proceeded to allot any of the shares offered to the public for subscription, shall not allow any of its shares or debentures unless at least three days before the first allotment of either shares or debentures, there has been delivered to the Registrar for registration a statement in lieu of prospectus signed by every person who is named therein as a director or proposed director of the company or by his agent authorized in writing, in the form and containing the particulars set out in Part I of Schedule III and, in the cases mentioned in Part II of that Schedule, setting out the reports specified therein, and the said Parts I and II shall have effect subject to the provisions contained in Part III of that Schedule.
(2) Every statement in lieu of prospectus delivered under sub-section (1), shall where the persons making any such report as aforesaid have made therein, or have without giving the reasons indicated therein, any such adjustments as are mentioned in clause 5 of Schedule III, have endorsed thereon or attached thereto a written statement signed by those persons, setting out the adjustments and giving the reasons thereof.
(3) This section shall not apply to a private company.
(4) If a company acts in contravention of subsection (1) or (2), the company, and every director of the company who wilfully authorizes or permits the violation, shall be punishable with a fine which may extend to one thousand rupees.
(5) Where a statement in lieu of prospectus delivered to the Registrar under sub-section (1) includes any untrue information, any person who authorized the delivery of the statement in lieu of prospectus for registration shall be punishable with imprisonment for a term which may extend to two years or with fine which may extend to five thousand rupees or with both, unless he proves either that the statement was immaterial or that he had reasonable ground to believe, and did up to the time of the delivery for registration of the statement in lieu of prospectus belief, that the statement was true.
(6) For the purposes of this section-
(a) a statement included in a report in lieu of prospectus shall be deemed to be untrue if it is misleading in the form and context in which it is included; and
(b) where the omission from a statement in lieu of prospectus of any matter is calculated to mislead, the statement in lieu of prospectus shall be deemed, in respect of such omission, to be a statement instead of the prospectus in which a piece of untrue information is included.
(7) For subsection (5) and clause (a) of sub-section (6), the expression" included," when used concerning a statement instead of a prospectus, means included in the information in place of the prospectus itself or contained in any report or memorandum appearing on the face thereof, or by reference incorporated therein, or issued in addition to that.