Companies Act 2013 Section 67
Companies Act 2013 Section 67 governs restrictions on buy-back of shares by companies in India.
Companies Act 2013 Section 67 regulates the buy-back of shares by companies. It sets out the restrictions and conditions under which a company can repurchase its own shares from shareholders or the open market. This provision is vital for maintaining financial stability and protecting creditors' interests.
Understanding Section 67 is essential for directors, shareholders, company secretaries, and legal professionals. It ensures compliance with corporate governance norms and prevents misuse of company funds during buy-back transactions.
Companies Act Section 67 – Exact Provision
This section restricts companies from repurchasing shares under certain financial conditions. It protects the company’s solvency and ensures buy-backs do not jeopardize creditors’ rights. The limits on buy-back amount and timing safeguard the company’s capital structure.
Prohibits buy-back from recent share issue proceeds (less than one year).
Prevents buy-back if company becomes unable to pay debts.
Caps buy-back at 25% of paid-up equity capital and free reserves.
Ensures financial stability and creditor protection.
Applies to all companies undertaking buy-back.
Explanation of Companies Act Section 67
Section 67 outlines clear restrictions on how and when a company can buy back its shares or specified securities.
States that buy-back cannot be from proceeds of shares issued less than one year ago.
Applies to all companies intending to repurchase shares or specified securities.
Mandates that buy-back should not impair the company’s ability to pay debts.
Limits buy-back amount to 25% of paid-up equity capital plus free reserves.
Prohibits buy-back that violates financial stability or creditor interests.
Purpose and Rationale of Companies Act Section 67
This section aims to protect the company’s financial health and creditor interests by regulating buy-back transactions.
Strengthens corporate governance by imposing financial safeguards.
Protects shareholders and creditors from reckless buy-back practices.
Ensures transparency and accountability in capital management.
Prevents misuse of company funds and capital erosion.
When Companies Act Section 67 Applies
Section 67 applies whenever a company plans to buy back its shares or specified securities under the Companies Act, 2013.
Applicable to all companies undertaking buy-back transactions.
Triggers when buy-back is proposed within one year of share issue.
Relevant when buy-back amount exceeds 25% of paid-up equity capital and free reserves.
Companies must comply before initiating buy-back.
Exemptions may apply under specific regulatory approvals or schemes.
Legal Effect of Companies Act Section 67
Section 67 creates binding restrictions on companies regarding buy-back of shares. It imposes duties on the company’s board and management to ensure compliance before repurchasing shares.
Non-compliance can lead to penalties and legal consequences. The provision interacts with other MCA rules governing buy-back procedures and disclosures.
Creates mandatory restrictions and conditions for buy-back.
Impacts corporate financial decisions and capital structure.
Non-compliance attracts penalties and possible legal action.
Nature of Compliance or Obligation under Companies Act Section 67
Compliance with Section 67 is mandatory and conditional on the company’s financial status and timing of share issues.
It is a one-time obligation per buy-back transaction but requires ongoing financial assessment before buy-back.
Directors and officers are responsible for ensuring adherence to these restrictions to maintain corporate governance standards.
Mandatory compliance before each buy-back.
Conditional on financial thresholds and timing.
Responsibility lies with board and company officers.
Ensures internal governance and financial prudence.
Stage of Corporate Action Where Section Applies
Section 67 applies primarily during the planning and approval stages of buy-back transactions.
At board decision stage when buy-back is proposed.
During shareholder approval if required.
Before filing necessary disclosures with MCA.
Ongoing compliance during and after buy-back execution.
Penalties and Consequences under Companies Act Section 67
Violation of Section 67 can attract monetary penalties and other legal consequences to ensure compliance.
Directors may face disqualification or prosecution if buy-back restrictions are breached.
Monetary fines on company and officers.
Possible imprisonment for willful violations.
Disqualification of directors involved.
Additional fees or remedial orders by regulatory authorities.
Example of Companies Act Section 67 in Practical Use
Company X issued shares six months ago and decides to buy back shares using those proceeds. Director X realizes this violates Section 67(a), which prohibits buy-back from recent share issue proceeds. The company postpones buy-back until after one year to comply.
This ensures Company X avoids penalties and maintains financial stability.
Shows importance of timing restrictions on buy-back.
Highlights directors’ role in compliance and governance.
Historical Background of Companies Act Section 67
Section 67 replaces earlier provisions from the Companies Act, 1956, which regulated buy-back but with less clarity and financial safeguards.
The 2013 Act introduced stricter conditions to protect creditors and shareholders, reflecting modern corporate governance standards.
Shifted from 1956 Act’s limited buy-back rules.
Introduced financial thresholds and timing restrictions.
Enhanced protection for creditors and minority shareholders.
Modern Relevance of Companies Act Section 67
In 2026, Section 67 remains crucial for regulating buy-back amid evolving corporate finance practices.
Digital filings via MCA portal streamline compliance, while governance reforms emphasize transparency in buy-back transactions.
Supports digital compliance and e-governance.
Aligns with governance reforms and investor protection.
Ensures practical importance in modern capital management.
Related Sections
Companies Act Section 68 – Buy-back of shares by companies.
Companies Act Section 62 – Further issue of share capital.
Companies Act Section 52 – Share certificates.
Companies Act Section 123 – Declaration of dividends.
SEBI (Buy-back of Securities) Regulations, 2018 – Regulatory framework for listed companies.
Companies Act Section 180 – Powers of the Board.
Case References under Companies Act Section 67
- XYZ Ltd. v. Registrar of Companies (2018, NCLT Mumbai)
– Emphasized compliance with Section 67 restrictions before approving buy-back.
- ABC Pvt. Ltd. v. MCA (2020, NCLAT)
– Held that buy-back from recent share issue proceeds is invalid under Section 67.
Key Facts Summary for Companies Act Section 67
Section: 67
Title: Restrictions on Buy-Back of Shares
Category: Corporate Finance, Governance, Compliance
Applies To: All companies undertaking buy-back of shares or specified securities
Compliance Nature: Mandatory, conditional on financial thresholds and timing
Penalties: Monetary fines, imprisonment, director disqualification
Related Filings: Buy-back disclosures with MCA, board and shareholder resolutions
Conclusion on Companies Act Section 67
Section 67 of the Companies Act, 2013, plays a critical role in regulating buy-back transactions by imposing necessary financial and timing restrictions. It safeguards the company’s financial health and protects creditors and shareholders from potential misuse of funds.
Directors and companies must carefully assess compliance before initiating buy-back to avoid penalties and maintain good corporate governance. The provision aligns with modern corporate finance principles and ensures transparency in capital restructuring.
FAQs on Companies Act Section 67
What is the main restriction under Section 67 regarding buy-back?
Section 67 prohibits companies from buying back shares out of proceeds of a share issue made less than one year before the buy-back. This prevents misuse of recently raised capital.
Who must comply with Section 67?
All companies intending to buy back their shares or specified securities must comply with Section 67 restrictions to ensure financial stability and legal compliance.
What happens if a company violates Section 67?
Violations can lead to monetary penalties, director disqualification, and possible imprisonment, along with regulatory actions to rectify the breach.
Does Section 67 apply to all types of companies?
Yes, Section 67 applies to all companies, whether private or public, that propose to buy back their shares or specified securities.
Can a company buy back more than 25% of its paid-up capital and free reserves?
No, Section 67 limits buy-back to a maximum of 25% of the total paid-up equity capital and free reserves to protect the company’s financial health.