1. Prohibition on the purchase of own shares -
No company may buy its own shares unless it has reduced its capital in accordance with the provisions of this Act. . (Section 67(1)]
2. Financial Assistance Restriction for purchase of shares of his own or its own holding company -
No public company can directly or indirectly give to any person any financial assistance (in the form of loans, guarantees, security, etc.) for the purchase or subscription of shares of the company or its holding company. Section 67( 2)]]
Exception - The above provision does not apply in the following cases:
(a) Loan granted by a banking company in the course of its normal business. [Section 67(3)(a)]
(b) if under any approved scheme of the company (which is approved by special resolution and fulfills the requirements laid down) or by providing money for the purchase or subscription of those fully paid up shares of the company which is the facilitator of the company, which are held by the trustees or by the employees for the benefit of the employees. [Section 67(3)(b)]
(c) To give loans to the employees of the company (other than the operators or key managerial officers) for the purchase or subscription of fully paid-up shares of the company or its subsidiary company. Such loans can be given on the condition that the employees will retain those shares as beneficial owners. Loan cannot be given to any employee in excess of the amount of his salary/wages for 6 months. (Section 67(3)(c)]
No effect on redemption of preference shares:
The above provisions do not affect the right of redemption of preference shares of a company. [Section 67(4)]
Penalty - If a company does the above provisions, then it can be punished with a fine of not less than one lac rupees and maximum 25 lac rupees. Every erring officer of this company shall be punished with imprisonment of either description for a term which may extend to three years and shall also be liable to fine which shall not be less than one lakh rupees and not exceeding 25 lakh rupees. (Section 67(5)]]
Exemption to certain private companies - Any company that fulfills the following conditions can buy its shares without complying with the provisions relating to reduction in capital. or may give loan for purchase of shares
(1) If no other body corporate has invested any money in the share capital of that company.
(ii) if the amount borrowed by that private company from banks or financial institutions or any body corporate is not equal to twice its paid up share capital or 50 crore, whichever is less.
(iii) if at the time of such transaction (at the time of part order) no error has been committed by the company in the repayment of such borrowings. Provision added to section 67 vide notification dated 15th June, 2015