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.
3. Nothing in sub-section (2 ) shall apply to:—
a. the lending of money by a banking company in the ordinary course of its business;
b. the provision by a company of money in accordance with any scheme approved by company through special resolution and in accordance with such requirements as may be prescribed, for the purchase of, or subscription for, fully paid up 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:
Provided that: 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.
4. Nothing in this section shall affect the right of a company to redeem any preference shares issued by it under this Act or under any previous company law.
5. If a company contravenes the provisions of this section, it shall be punishable with fine which shall not be less than one lakh rupees but which may extend 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 which shall not be less than one lakh rupees but which may extend to twenty-five lakh rupees.
Legal Commentary & Landmark Judgments: Section 67
Section 67 enacts the statutory prohibition against corporate financial assistance, barring companies from buying their own shares or providing financial aid to third parties to purchase their shares.
Sub-section (3) provides specific statutory exceptions: lending money in the ordinary course of banking business, schemes for purchase of shares for benefit of employees (trust schemes), and loans to bona fide employees (other than directors) up to six months' salary.
Section 67 codifies the classic capital maintenance doctrine, preventing corporate management from using company funds to manipulate share prices or entrench their own control. In leveraged buyouts (LBO) and acquisition financing, structuring transactions requires careful analysis of Section 67 to ensure that target company assets or balance sheets are not impermissibly deployed as collateral for acquisition debt.