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CS Executive · Capital Market and Securities Laws · Buy-Back of Securities

Mahalaxmi Pharma Ltd defaulted in repaying a term loan to a bank. The default ceased on 1 April 2022 when the dues were paid. Ignoring other conditions, from which date would section 70 of the Companies Act, 2013 no longer prohibit its buy-back on account of that default?

The prohibition lapses only after three years from the date the default ceased. Since the term loan default ended on 1 April 2022, the company can buy back only after that three-year period expires, provided the default was remedied and other conditions are met.

  1. AImmediately after 1 April 2022
  2. BFrom 1 October 2022
  3. CAfter a period of three years from 1 April 2022, that is after 1 April 2025Correct
  4. DAfter a period of one year from 1 April 2022

Explanation

Section 70(1)(c) prohibits buy-back where the company has defaulted in repayment of a term loan or interest to a bank. The proviso lifts the bar only if the default is remedied and three years have lapsed after the default ceased to subsist. The default ceased on 1 April 2022, so the bar continues until three years have passed. Shorter periods are wrong.

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