Restrictions on Purchase by Company of its Own Shares (Sec 67)

# Section 67: Restrictions on Purchase by Company of its Own Shares

Section 67 generally prohibits a company from buying its own shares and from giving financial assistance for such purchase. It is a critical safeguard against capital erosion and market manipulation.

## 1. Prohibition on Direct Purchase

A company limited by shares or limited by guarantee with share capital cannot buy its own shares unless reduction is done under Sec 66.

### Exceptions (Direct Purchase Allowed)

(a) Private Companies / IFSC Public Companies — All three conditions must be satisfied:

• No corporate body has invested in its share capital
• Borrowings from banks/FIs are less than 2 × PUSC or ₹50 crore (whichever is lower)
• No default in repayment of borrowings at the time of purchase

(b) Nidhi Companies — Can buy shares from members who cease to be depositors/borrowers; not treated as a reduction of capital.

## 2. Prohibition on Indirect Purchase (Financial Assistance)

A public company cannot give any loan, guarantee, or security to anyone for purchasing its own shares or shares of its holding company.

### Exceptions (Indirect Purchase Allowed)

(a) Lending Business — Banking companies may lend in the ordinary course.

⚠️ But if money is lent solely for buying the bank's shares, it is NOT ordinary course.

(b) Employee Share Purchase Scheme — Requires a special resolution:

• Listed company: purchase via recognised stock exchange
• Unlisted: valuation by registered valuer
• Total purchase/subscription value ≤ 5% of paid-up capital + free reserves
• Disclosures on voting rights and names of non-voting employees

(c) Employee Loan (not to directors/KMP):

• Loan ≤ employee's salary/wages
• For period of 6 months
• For fully paid-up shares only

## 3. Right of Redemption Preserved

This section does NOT affect the company's right to redeem preference shares.

## 4. Penalty for Contravention

## Key Distinction: Sec 67 vs Sec 68

• Sec 67: General prohibition with narrow exceptions.
• Sec 68: Specific gateway for buy-back (overrides Sec 66 and operates as a permitted exception to Sec 67's spirit).