Compliance under companies act, 2013 and other law for purchase of shares from bank by private co.

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Jayalakshmi Ramasamy (Querist)
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27 July 2022 Our company is a private limited company and had taken loan from Co-operative bank for purchase of vehicle under security . And now the company is required to purchase the shares of the Bank . Do we have to take approval from members ? And is there any compliance to be done under Companies Act, 2013 or any other provision. Kindly guide urgently.

Aashok Kumar Sharma online

Aashok Kumar Sharma online

(Expert)
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06 July 2024 In the scenario where your private limited company intends to purchase shares of a cooperative bank from which it previously took a loan, here are the key points to consider:

1. **Approval from Members:**
- According to Section 42 of the Companies Act, 2013, any offer or invitation to subscribe to securities (which includes shares) must be approved by the shareholders of the company by way of a special resolution.
- Since purchasing shares of a cooperative bank involves subscribing to securities, approval through a special resolution of the shareholders is typically required.

2. **Compliance under Companies Act, 2013:**
- Ensure that the transaction is within the borrowing powers of the company as per its Articles of Association (AoA). Companies generally have borrowing limits specified in their AoA.
- Comply with the provisions related to the issue and transfer of shares as per the Companies Act, 2013, and any rules prescribed thereunder.

3. **Additional Considerations:**
- Check if there are specific provisions in the cooperative bank's bylaws or regulations that may govern the sale of its shares. Cooperative banks are governed by both cooperative laws and banking regulations, so it's crucial to ensure compliance with both.
- Obtain any necessary regulatory approvals or NOCs (No Objection Certificates) as required by the cooperative bank or regulatory authorities.

4. **Procedure:**
- Convene a board meeting to approve the proposal to purchase shares, discuss the terms, and recommend the same to shareholders.
- Issue a notice convening an Extraordinary General Meeting (EGM) to obtain approval through a special resolution from the shareholders.
- After obtaining approval, complete the purchase transaction in accordance with the terms agreed upon with the cooperative bank.

5. **Legal and Financial Advice:**
- It's advisable to seek legal advice from a corporate lawyer who specializes in company law and cooperative banking regulations to ensure all legal requirements are met.
- Additionally, consult with a financial advisor to assess the financial implications and benefits of purchasing the shares of the cooperative bank.

By following these steps and ensuring compliance with applicable laws and regulations, your company can proceed with purchasing shares of the cooperative bank while fulfilling its legal obligations under the Companies Act, 2013.

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