CS Executive · Capital Market and Securities Laws · Buy-Back of Securities
Zenith Polymers Ltd, an unlisted company, wants to buy back its own shares. Its directors propose to carry out the buy-back through a wholly owned subsidiary that would acquire the shares from the market on the company's behalf. Under the Companies Act, 2013, what is the position?
The proposal is prohibited. The Companies Act, 2013 says a company cannot directly or indirectly purchase its own shares through any subsidiary company, including its own subsidiaries. Passing a special resolution or using the subsidiary's own funds does not remove this bar.
- APermitted, if the subsidiary uses its own free reserves
- BPermitted, if a special resolution is passed
- CProhibited, because a company cannot buy back directly or indirectly through any subsidiary companyCorrect
- DPermitted, if the subsidiary is wholly owned and the declaration of solvency is filed
Explanation
Section 70(1)(a) bars a company from purchasing its own shares directly or indirectly through any subsidiary company, including its own subsidiaries. A special resolution, solvency declaration or the use of the subsidiary's own funds does not cure this. Hence the proposal is prohibited.
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