Restrictions on purchase by company or giving of loans by it for purchase of its shares :
Purchase of or loans to others for purchasing its own shares by company prohibited – A fundamental principle of Company Law was that a Company cannot buy its own shares. This is laid by Section 67 of the Companies Act, 2013, which provides that no company limited by shares, and so guarantee company having a share capital shall buy its own shares, unless the consequent reduction of share capital is effected under the provisions of this Act. No public company shall give any financial assistance (by mean of a loan, guarantee, by the provisioning of security or otherwise) for purchase or subscription made or to be made, by any person of or for any shares in the company or in its holding company. On contravention of the above, the company shall be punishable with fine (from one lakh rupees to twenty-five lakh rupees) and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to three years and with fine (from one lakh rupees to twenty-five lakh rupees)
Exceptions: There are, however, certain exceptions where the company may provide the financial assistance, namely:
(a) the lending of money by a banking company in the ordinary course of its business;
(b) the provision is made by a company for lending of money in accordance with any scheme approved by company through special resolution with such requirements as may be prescribed, for the purchase of, or subscription for, fully paidup shares in the company or its holding company, if the purchase of, or the subscription for, the shares held by trustees for the benefit of the employees or such shares held by the employee of the company;
(c) the giving of loans by a company to persons in the employment of the company other than its directors or key managerial personnel, for an amount not exceeding their salary or wages for a period of six months with a view to enabling them to purchase or subscribe for fully paid-up shares in the company or its holding company to be held by them by way of beneficial ownership:
However, disclosures in respect of voting rights not exercised directly by the employees in respect of shares to which the scheme relates shall be made in the Board’s report in such manner as may be prescribed. [Section 67].
(d) nothing in Section 67 shall affect the right of a company to redeem any preference shares issued under this Act or under any previous Companies law.