Section 70 of CA 2013 : Section 70: Prohibition For Buy-Back In Certain Circumstances

Explanation using Example

Imagine a scenario where XYZ Ltd. is a publicly traded company that has been performing well and has accumulated excess cash. The management decides that it would be beneficial for the company to buy back some of its shares to improve earnings per share and provide value to its shareholders. However, XYZ Ltd. must comply with Section 70 of the Companies Act, 2013 before proceeding.

Upon reviewing their situation, they find that:

1. The company has not defaulted on any repayments of deposits or interest, nor on the redemption of debentures or preference shares, nor on the payment of dividends or repayment of any term loans.
2. XYZ Ltd. has complied with the provisions of sections 92 (Annual Return), 123 (Declaration of Dividend), 127 (Punishment for failure to distribute dividends), and 129 (Financial Statement) of the Companies Act, 2013.

With these conditions met, XYZ Ltd. can proceed with the share buy-back, ensuring that they do not conduct the purchase through any subsidiary or investment company, in accordance with Section 70(1)(a) and (b). This action by XYZ Ltd. demonstrates a practical application of Section 70, as it ensures that the company is not circumventing legal obligations or financial responsibilities while returning value to its shareholders.