Section 67 of CA 2013 : Section 67: Restrictions On Purchase By Company Or Giving Of Loans By It For Purchase Of Its Shares

Explanation using Example

Imagine a scenario where XYZ Ltd., a public company, is considering ways to increase employee loyalty and investment in the company. They decide to implement an employee stock ownership plan (ESOP) that allows employees to purchase shares of the company. According to Section 67 of the Companies Act, 2013, XYZ Ltd. cannot directly purchase its own shares, nor can it provide financial assistance to employees for the purpose of buying shares in the company or its holding company.

However, under subsection (3)(b) of Section 67, XYZ Ltd. can set up an ESOP approved by a special resolution of the company and in compliance with prescribed requirements. This scheme would allow employees to buy fully paid-up shares of the company or its holding company, which would be held in trust for their benefit.

Furthermore, XYZ Ltd. ensures that the ESOP does not provide financial assistance to directors or key managerial personnel, aligning with the provisions of subsection (3)(c). They also make the necessary disclosures regarding the voting rights associated with these shares in the Board's report, as required.

In this way, XYZ Ltd. successfully implements an ESOP that complies with Section 67, thereby avoiding the penalties outlined in subsection (5) for any contravention of this section.