public company buy its own shares or provide financial hell) for the Purchase

No company, limitcd by shares and no company limited by guarantee having share capital, has the power to buy its own shares except when the

share capital of the company is legally reduced in pursuance of Sections 100 to 104 or where shares are to be purchased for prevention of oppression

and miSllaJulgement under Section 402 of the Companies Act ISection 77(1)]. This is because buying of its own shares by a company im’oh’es

permanent reduction of capital without the sanction of the court i 11 violation of the law. Any reduction of capital contrary to these Sections (100 to 104 and

4(2) is illegal and ultra vires since the preservation of capital is one of the most important aims of the Act, hence the restriction on pllTchase of its own

shares by a company has been laid down under Section 77.

Further, Scction 77(2) provides that no public company, and no private company can give any financial a.sistance in any shape towards the purchase of

its own shares or of its holding company, except in the following cases:

Where a loan is made by a banking company in the ordinary course

of its businc:ss.

When.: provision of money is made under a scheme (e.g., a pensionscheme) to cItable trlstees to buy fully paid shares in the company to be hc1d for the

benefit of the employecs of the company including directors holding

salaried post. .

3. Where loans are made by a company to employees other than directors to enable them to buy fully paid shares in the company to be held by them as

beneficial owners. Such loan shall not exceed the amoilllt of six month’s salary or wages of such employees..

In case of contravention of the above provisions. the company and every officer ofthe company who is in default, shall be puuishable with fine which may

extend to Rs. 10,000.

It must be noted that forfeiture of shares for non-payment of calls and valid surrender of shares does not amount to purchase of own shares by a company