# Restriction on Purchasing Own Shares & Financial Assistance (Section 67)

## General Rule

A company shall NOT buy its own shares unless the consequent reduction is in accordance with Sections 66 (capital reduction) or 68 (buy-back).

## Restriction on Public Companies

A public company shall NOT give financial assistance — directly or indirectly — by way of loan, guarantee, security or otherwise — for the purchase or subscription of its own shares or shares of its holding company.

## Exceptions (Permitted Cases)

### 1. Banking Company

Lending of money by a banking company in the ordinary course of business.

### 2. Loan to Trustee for Employee Benefit Scheme

Lending money to a trustee for purchase of fully paid shares (for the benefit of employees) of the company or its holding company under a scheme approved by SR.

Conditions:

| (i) | Listed shares | Purchase shall be made from Recognised Stock Exchange (RSE) |

| (ii) | Unlisted shares | Valuation by Registered Valuer |

| (iii) | Value cap | Shall not exceed 5% of paid-up capital + free reserves |

| (iv) | Disclosure | Voting rights not directly exercised by employees must be disclosed in BOD's Report |

### 3. Loan to Employees (Other than Directors/KMP)

Loan to employees (excluding directors and KMP) of the company (NOT employees of the holding company) not exceeding 6 months' salary to buy fully paid shares of the company/holding as beneficial owner.

## Punishment for Contravention

Party	Fine	Imprisonment
Company	₹1 lakh to ₹25 lakhs	—
Officer in default	₹1 lakh to ₹25 lakhs	Up to 3 years

## Exemption: Eligible Private Companies

Section 67 does NOT apply to a private company that meets ALL three conditions (and has not defaulted u/s 92 & 137):

1. No body corporate has invested any money in its share capital, AND

2. Its borrowings from banks/FIs/body corporates are less than lower of ₹50 crores OR twice its paid-up share capital, AND

3. It has not defaulted in repayment of subsisting borrowings at the time of the transaction.

## Other Carve-Outs

Purchase of own preference shares for redemption u/s 55 is permitted.
For Nidhi Company, purchase of shares from a member ceasing as depositor/borrower is allowed and not treated as capital reduction.

Worked example

### Example 1

Example: PQR Ltd. (public company) proposes to lend ₹50 lakhs to its trustee under an employee benefit scheme for purchasing PQR's shares for employees. PQR's paid-up capital is ₹500 lakhs and free reserves are ₹300 lakhs.

Analysis:

5% of (PUSC + FR) = 5% × ₹800 lakhs = ₹40 lakhs.
The proposed ₹50 lakhs EXCEEDS the 5% cap.
Hence, the company may lend only up to ₹40 lakhs under this exception.
Other conditions: SR must be passed; valuation by registered valuer (if unlisted) or purchase from RSE (if listed); BOD report disclosure required.

### Example 2

Example: An eligible private company (no body corporate shareholding, borrowings ₹10 cr < 2× paid-up capital of ₹15 cr, no default) wants to give a loan to its employees to buy its shares.

Answer: Section 67 does not apply to such an eligible private company. It may provide financial assistance without the restrictions of Section 67.

⚠️ Common exam mistakes

Treating Section 67 as applicable to private companies generally — eligible private companies are exempt subject to 3 cumulative conditions.
Forgetting that the 5% cap on the trustee loan exception is based on paid-up CAPITAL + free RESERVES (not turnover or net worth).
Confusing the salary cap on employee loans — it is 6 months' salary, not 12 months.
Believing the employee loan exception covers directors/KMP — it specifically EXCLUDES them.
Missing that the employee loan exception covers employees of the COMPANY only, not employees of the HOLDING company.

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

Section 67 prohibits a company from buying its own shares unless the reduction of capital is effected under the Act. A public company shall not give any financial assistance directly or indirectly, whether by way of loan, guarantee, security or otherwise, in connection with purchase or subscription of shares in the company or its holding company, subject to specified exceptions.

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Restriction on Purchase/Giving Loans by Company for its Own Shares (Section 67)

Worked example

⚠️ Common exam mistakes