Section 67 of the Companies Act, 2013
Section 67 of the Companies Act, 2013 – Restrictions on purchase by company or giving of loans by it for purchase of its own shares
Bare Act Summary:
Section 67(1):
A company shall not buy its own shares unless it complies with the provisions of Section 68 (which allows buy-back under certain conditions).
Section 67(2):
A public company shall not provide, directly or indirectly, any:
Loan,
Guarantee,
Security, or
Financial assistance
for the purchase or subscription of its own shares or those of its holding company.
Section 67(3):
Exceptions to this restriction (i.e., the company can provide assistance in these cases):
(a) If lending is part of the company’s ordinary business, and it provides the loan in the regular course (like banks).
(b) If it provides the loan under a scheme approved by shareholders through a special resolution.
(c) If the shares are held by trustees for the benefit of employees (employee benefit schemes), or under an Employee Stock Option Scheme (ESOP) approved by shareholders.
Section 67(4):
If a person is knowingly involved in a contravention of this section, they are liable for punishment:
Fine: ₹1 lakh to ₹25 lakhs.
Imprisonment: up to 3 years, or with fine, or both.
Objective of Section 67:
To:
Prevent manipulation of the company’s share price.
Ensure that company funds are used for legitimate purposes.
Protect shareholders and creditors by preventing depletion of company resources to finance share purchases.
Example:
If ABC Ltd. is a public company, it cannot give a loan to one of its directors to buy its own shares.
However, if ABC Ltd. is a bank, it can give such a loan in the normal course of its business.
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