Companies Act Section 67 — Restriction on purchase by company or giving of loans by it for purchase of its shares
CHAPTER IV SHARE CAPITAL AND DEBENTURES
Commercial / Corporate
Summary
Sub-section (1) states that a company limited by shares, or a company limited by guarantee that also has a share capital, does not have the power to buy its own shares. The only exception is if the reduction of share capital that results from such a purchase is carried out according to the procedures laid down in this Act.
Sub-section (2) prohibits a public company from giving any financial assistance, whether directly or indirectly, and whether through a loan, guarantee, provision of security, or any other means. This prohibition applies to assistance given for the purpose of, or in connection with, any person purchasing or subscribing for shares in that company or in its holding company.
Sub-section (3) lists the situations where the prohibition in sub-section (2) does not apply. Under clause (a), the lending of money by a banking company in the ordinary course of its business is exempted. Under clause (b), a company may provide money according to a scheme approved by the company through a special resolution and in line with prescribed requirements, for the purchase or subscription of fully paid-up shares in the company or its holding company, provided those shares are held by trustees for the benefit of employees or are held by the employees themselves. Under clause (c), a company may give loans to its employees, excluding directors and key managerial personnel, for an amount not exceeding their salary or wages for six months, so that these employees can purchase or subscribe for fully paid-up shares in the company or its holding company, which they will hold as beneficial owners. There is also a proviso stating that disclosures about voting rights that employees do not exercise directly, in relation to shares covered by such a scheme, must be made in the Board's report in the prescribed manner.
Sub-section (4) clarifies that nothing in this section affects a company's right to redeem any preference shares it has issued under this Act or under any previous company law.
Sub-section (5) sets out the penalties for contravening this section. If a company violates the provisions, it is liable to a fine of not less than one lakh rupees, which may extend to twenty-five lakh rupees. Additionally, every officer of the company who is in default is punishable with imprisonment for a term that may extend to three years, along with a fine of not less than one lakh rupees, which may extend to twenty-five lakh rupees.
Official Text
(1) No company limited by shares or by guarantee and having a share capital shall have power to buy its own shares unless the consequent reduction of share capital is effected under the provisions of this Act.
(2) No public company shall give, whether directly or indirectly and whether by means of a loan, guarantee, the provision of security or otherwise, any financial assistance for the purpose of, or in connection with, a purchase or subscription made or to be made, by any person of or for any shares in the company or in its holding company.
(3) Nothing in sub-section (2) shall apply to—
(a) the lending of money by a banking company in the ordinary course of its business;
(b) the provision by a company of money in accordance with any scheme approved by company through special resolution and in accordance with such requirements as may be prescribed, for the purchase of, or subscription for, fully paid-up shares in the company or its holding company, if the purchase of, or the subscription for, the shares held by trustees for the benefit of the employees or such shares held by the employee of the company;
(c) the giving of loans by a company to persons in the employment of the company other than its directors or key managerial personnel, for an amount not exceeding their salary or wages for a period of six months with a view to enabling 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:
Provided that disclosures in respect of voting rights not exercised directly by the employees in respect of shares to which the scheme relates shall be made in the Board's report in such manner as may be prescribed.
(4) Nothing in this section shall affect the right of a company to redeem any preference shares issued by it under this Act or under any previous company law.
(5) If a company contravenes the provisions of this section, it shall be punishable with fine which shall not be less than one lakh rupees but which may extend to twenty-five lakh rupees and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to three years and with fine which shall not be less than one lakh rupees but which may extend to twenty-five lakh rupees.