# Restrictions on Purchase by Company of Its Own Shares (Section 67)

## 1. Prohibition on Direct Purchase

### General Rule

A company limited by shares or guarantee with share capital cannot buy its own shares unless the reduction is done as per provisions of the Act (i.e., under Sections 66, 68, 55, etc.).

### Exceptions: Permitted Buyers of Own Shares

#### (a) Private Companies / IFSC Public Company

A private company (or specified IFSC public company) can buy its own shares if ALL conditions met:

No other corporate body has invested in its share capital.
Borrowings from banks/financial institutions are less than 2x Paid-Up Share Capital (PUSC) OR ₹50 crore, whichever is lower.
No default in repayment of borrowings at the time of purchase.

#### (b) Nidhi Company

Nidhi companies can buy shares from members who cease to be depositors or borrowers.
This is not considered a reduction of capital.

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

### General Rule

A public company cannot provide any financial assistance (loan, guarantee, security) to any person for purchasing:

Its own shares, OR
Shares in its holding company.

### Exceptions to Financial Assistance Restriction

#### (a) Banking Companies in Lending Business

Banking companies can lend money in the ordinary course of business.
Note: If money is given solely to purchase the bank's own shares, this is NOT ordinary course of business.

#### (b) Employee Share Purchase Scheme

Company can lend money for purchase of shares for employees or trustees holding for their benefit, by Special Resolution, subject to:

For listed companies: purchase through recognised stock exchange.
For unlisted companies: valuation by registered valuer.
Purchase/subscription value cannot exceed 5% of paid-up capital + free reserves.
Disclosure of voting rights, names of employees not exercising voting directly, and reasons.

#### (c) Employee Loan (Other than Directors/KMPs)

A company can give loans to employees (NOT directors or KMPs) for purchasing shares, provided:

Loan amount does NOT exceed employee's salary/wages for 6 months.
Loan must enable purchase of fully paid-up shares.

## 3. Right to Redemption

The right of a company to redeem preference shares is NOT affected by Section 67.

## 4. Penalty for Contravention

Company: Fine between ₹1,00,000 and ₹25,00,000.

## Quick Reference - Permitted Cases of Company Buying Own Shares

Case	Section	Approval
Reduction of capital	66	NCLT
Buy-back	68	Sec 68 conditions
Preference redemption	55	Per terms
Private/IFSC Co (conditions met)	67 exception	Conditions
Nidhi Co (cessation cases)	67 exception	Per Nidhi rules

## Memory Aid

Section 67 = NO direct purchase + NO financial assistance for indirect purchase.

Exceptions: Banks, ESOPs, Employee loans (≤6 months salary).

Worked example

### Example 1

Example 1 (Private Co exception): XYZ Private Ltd has PUSC of ₹20 lakh and borrowings of ₹30 lakh from a bank. There is no corporate body investment. There are no repayment defaults. Can it buy its own shares?

Solution: Test borrowings limit: 2 × PUSC = ₹40 lakh OR ₹50 crore - whichever is LOWER = ₹40 lakh. Actual borrowings (₹30 lakh) < ₹40 lakh. All conditions met. Yes, it can buy its own shares.

### Example 2

Example 2 (Employee loan): ABC Ltd grants a loan of ₹10 lakh to its CFO (a KMP) to purchase the company's shares. The CFO's annual salary is ₹30 lakh. Is this permissible under Section 67?

Solution: No. The exception specifically excludes directors and KMPs. Since the CFO is a KMP, the company cannot grant this loan under Section 67. This would attract penalty of ₹1 lakh to ₹25 lakh on the company.

### Example 3

Example 3 (Employee loan to non-KMP): A company grants a loan of ₹4 lakh to an employee earning ₹50,000 per month, to purchase company's shares.

Solution: Maximum allowed = 6 months × ₹50,000 = ₹3 lakh. The loan of ₹4 lakh exceeds the cap. Not permitted under the exception. Reducing it to ≤₹3 lakh (for fully paid-up shares) would make it permissible.

⚠️ Common exam mistakes

Believing all private companies can buy their own shares - only those meeting all 3 conditions (no corporate investment, borrowings within limit, no default).
Calculating borrowings cap as 'higher of 2x PUSC or ₹50 crore' - it is LOWER of the two.
Giving loans to directors/KMPs under the employee loan exception - they are excluded.
Exceeding 6 months salary cap for employee loans.
Forgetting that ESOP financial assistance cannot exceed 5% of PUSC + free reserves.
Treating preference share redemption as restricted by Section 67 - it is expressly excluded.
Confusing this with Section 68 (buy-back) - Section 67 is a prohibitory provision.

Bare-Act text Section 67 · Companies Act, 2013 · click to expand

Section 67(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.

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

Worked example

⚠️ Common exam mistakes