# Section 67 — Restriction on Buying Own Shares & Financial Assistance
## The Underlying Principle
Conservation of capital is a foundational principle of company law. The share capital is the only security on which the creditors rely. If a company could freely buy its own shares, the fund available to creditors would shrink — adversely affecting them.
Hence, the general rule: a company cannot buy its own shares. But this restriction is not absolute — Sections 68 (buy-back), 66 (reduction), and Section 67(3) carve out specific exceptions.
## 1. Restriction on Purchase by Company [Sub-section 1]
A company limited by shares, or a company limited by guarantee that has a share capital, shall not buy its own shares unless the consequent reduction of share capital is effected under the provisions of this Act.
## 2. Restriction on Financial Assistance [Sub-section 2]
A public company shall not give any financial assistance:
(a) Whether directly or indirectly, and whether by means of a loan, guarantee, the provision of security or otherwise,
(b) 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.
> Note: This sub-section applies only to public companies.
## 3. Exceptions — When Financial Assistance is Allowed [Sub-section 3]
### (a) Lending by a Banking Company in the Ordinary Course of Business
Banks make loans as their business; they cannot supervise how borrowers use loan funds. If a borrower from a bank happens to use the loan to buy the bank's shares, the bank and its officers are protected.
But: An English court held that where money is specifically given for the very purpose of purchasing the bank's shares, that is not lending in the ordinary course of business — the prohibition would then apply.
### (b) Employee Share Schemes
Provision of money for purchase of fully paid shares in the company or its holding company by trustees on behalf of company's employees, in accordance with a scheme approved by special resolution, subject to Rule 16 of the Companies (Share Capital and Debentures) Rules, 2014:
| Condition | Requirement |
|---|---|
| Listed shares | Purchase only through recognised stock exchange — not by private offers/arrangements |
| Unlisted shares | Valuation by a registered valuer |
| Aggregate ceiling | Shall not exceed 5% of paid-up capital + free reserves |
| Disclosures | Board's report must disclose names of employees not voting directly, reasons, name of person exercising voting rights, number/percentage of shares, GM date, resolutions, voting power, and whether for/against |
### (c) Loans to Employees (not directors/KMP)
Loan to employees (other than directors or KMP) not exceeding 6 months' salary, to enable them to buy or subscribe fully paid shares in the company or its holding company, to be held by way of beneficial ownership.
## 4. Redemption of Preference Shares Preserved [Sub-section 4]
Nothing in Section 67 affects the company's right to redeem preference shares issued under this Act or any previous company law.
## 5. Punishment for Contravention [Sub-section 5]
| Liable | Penalty |
|---|---|
| Company | Fine: min ₹1 lakh, max ₹25 lakh |
| Every officer in default | Imprisonment up to 3 years AND fine: min ₹1 lakh, max ₹25 lakh |
## 6. Exemptions
### (A) Private Companies & Specified IFSC Public Companies
Section 67 does not apply if all three conditions are met (and the company has not defaulted in filing financial statements under Sec 137 or annual return under Sec 92):
1. No other body corporate has invested money in its share capital;
2. Its borrowings from banks/FIs/body corporates are less than twice its paid-up share capital OR ₹50 crore — whichever is lower; and
3. The company is not in default in repayment of such borrowings subsisting at the time of the transaction.
### (B) Nidhi Companies
Section 67(1) does not apply when a Nidhi company purchases shares from a member on his ceasing to be a depositor or borrower. Such a purchase is not treated as a reduction under Section 66. The Nidhi must ensure shareholders' interests are protected.