Chapter IV - Share Capital and Debentures
Section 68
Section 68: buy-back of shares and specified securities
A company may buy back its own shares or other specified securities out of free reserves, securities premium or proceeds of a different issue, within the limits and procedure in section 68.
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This article is for general information. Refer to the Companies Act, 2013 official text for the official provisions. If you need professional advice for your situation, contact Bizeneed.
Statutory text
Bare law
(1) Notwithstanding anything contained in this Act, but subject to the provisions of sub-section (2), a company may purchase its own shares or other specified securities (hereinafter referred to as buy-back) out of— (a) its free reserves; (b) the securities premium account; or (c) the proceeds of the issue of any shares or other specified securities: Provided that no buy-back of any kind of shares or other specified securities shall be made out of the proceeds of an earlier issue of the same kind of shares or same kind of other specified securities.
(2) No company shall purchase its own shares or other specified securities under sub-section (1), unless— (a) the buy-back is authorised by its articles; (b) a special resolution has been passed at a general meeting of the company authorising the buy-back: Provided that nothing contained in this clause shall apply to a case where— (i) the buy-back is, ten per cent. or less of the total paid-up equity capital and free reserves of the company; and (ii) such buy-back has been authorised by the Board by means of a resolution passed at its meeting; (c) the buy-back is twenty-five per cent. or less of the aggregate of paid-up capital and free reserves of the company: Provided that in respect of the buy-back of equity shares in any financial year, the reference to twenty-five per cent. in this clause shall be construed with respect to its total paid-up equity capital in that financial year; (d) the ratio of the aggregate of secured and unsecured debts owed by the company after buy-back is not more than twice the paid-up capital and its free reserves: Provided that the Central Government may, by order, notify a higher ratio of the debt to capital and free reserves for a class or classes of companies; (e) all the shares or other specified securities for buy-back are fully paid-up; (f) the buy-back of the shares or other specified securities listed on any recognised stock exchange is in accordance with the regulations made by the Securities and Exchange Board in this behalf; and (g) the buy-back in respect of shares or other specified securities other than those specified in clause (f) is in accordance with such rules as may be prescribed: Provided that no offer of buy-back under this sub-section shall be made within a period of one year reckoned from the date of the closure of the preceding offer of buy-back, if any.
(3) The notice of the meeting at which the special resolution is proposed to be passed under clause (b) of sub-section (2) shall be accompanied by an explanatory statement stating— (a) a full and complete disclosure of all material facts; (b) the necessity for the buy-back; (c) the class of shares or securities intended to be purchased under the buy-back; (d) the amount to be invested under the buy-back; and (e) the time-limit for completion of buy-back.
(4) Every buy-back shall be completed within a period of one year from the date of passing of the special resolution, or as the case may be, the resolution passed by the Board under clause (b) of sub-section (2).
(5) The buy-back under sub-section (1) may be— (a) from the existing shareholders or security holders on a proportionate basis; (b) from the open market; (c) by purchasing the securities issued to employees of the company pursuant to a scheme of stock option or sweat equity.
(6) Where a company proposes to buy-back its own shares or other specified securities under this section in pursuance of a special resolution under clause (b) of sub-section (2) or a resolution under item (ii) of the proviso thereto, it shall, before making such buy-back, file with the Registrar and the Securities and Exchange Board, a declaration of solvency signed by at least two directors of the company, one of whom shall be the managing director, if any, in such form as may be prescribed and verified by an affidavit to the effect that the Board of Directors of the company has made a full inquiry into the affairs of the company as a result of which they have formed an opinion that it is capable of meeting its liabilities and will not be rendered insolvent within a period of one year from the date of declaration adopted by the Board: Provided that no declaration of solvency shall be filed with the Securities and Exchange Board by a company whose shares are not listed on any recognised stock exchange.
(7) Where a company buys back its own shares or other specified securities, it shall extinguish and physically destroy the shares or securities so bought back within seven days of the last date of completion of buy-back.
(8) Where a company completes a buy-back of its shares or other specified securities under this section, it shall not make a further issue of the same kind of shares or other securities including allotment of new shares under clause (a) of sub-section (1) of section 62 or other specified securities within a period of six months except by way of a bonus issue or in the discharge of subsisting obligations such as conversion of warrants, stock option schemes, sweat equity or conversion of preference shares or debentures into equity shares.
(9) Where a company buys back its shares or other specified securities under this section, it shall maintain a register of the shares or securities so bought, the consideration paid for the shares or securities bought back, the date of cancellation of shares or securities, the date of extinguishing and physically destroying the shares or securities and such other particulars as may be prescribed.
(10) A company shall, after the completion of the buy-back under this section, file with the Registrar and the Securities and Exchange Board a return containing such particulars relating to the buy-back within thirty days of such completion, as may be prescribed: Provided that no return shall be filed with the Securities and Exchange Board by a company whose shares are not listed on any recognised stock exchange.
(11) If a company makes any default in complying with the provisions of this section or any regulation made by the Securities and Exchange Board, for the purposes of clause (f) of sub-section (2), the company shall be punishable with fine which shall not be less than one lakh rupees but which may extend to three lakh rupees and every officer of the company who is in default shall be punishable with fine which shall not be less than one lakh rupees but which may extend to three lakh rupees.
Explanation I.—For the purposes of this section and section 70, “specified securities” includes employees’ stock option or other securities as may be notified by the Central Government from time to time.
Explanation II.—For the purposes of this section, “free reserves” includes securities premium account.
Introduction
Section 68 is the main exception to the bar on a company buying its own shares. It sets funding sources, approval thresholds, size and debt-equity limits, a one-year gap between offers, a solvency declaration, extinguishment, a six-month bar on further issue, a register and a return.
Listed securities follow SEBI regulations; others follow rule 17 of the Companies (Share Capital and Debentures) Rules, 2014.
Key takeaways
Funding sources
Free reserves, securities premium account, or proceeds of an issue of shares or other specified securities, but not proceeds of an earlier issue of the same kind.
Size limits
Up to ten per cent. with a Board resolution; up to twenty-five per cent. with a special resolution; post buy-back debt not more than twice paid-up capital and free reserves.
Timelines
Complete within one year of the resolution; extinguish within seven days of completion; no further issue of the same kind for six months; return within thirty days.
Funding and conditions
Section 68(1) permits buy-back out of free reserves, the securities premium account, or proceeds of any issue of shares or other specified securities, but not out of proceeds of an earlier issue of the same kind. Section 68(2) requires: authority in the articles; a special resolution, or a Board resolution if the buy-back is ten per cent. or less of total paid-up equity capital and free reserves; a size of twenty-five per cent. or less of aggregate paid-up capital and free reserves (for equity shares in a financial year, measured against total paid-up equity capital); a post buy-back ratio of secured and unsecured debt not more than twice paid-up capital and free reserves, unless the Central Government notifies a higher ratio for a class of companies; fully paid-up securities; and compliance with SEBI regulations for listed securities or the prescribed rules for others.
No offer may be made within one year from the closure of a preceding buy-back offer.
Notice and explanatory statement
Where a special resolution is proposed, the notice must carry an explanatory statement giving full disclosure of material facts, the necessity for the buy-back, the class of securities, the amount to be invested and the time-limit for completion (section 68(3)).
Method and completion
The buy-back may be made proportionately from existing holders, from the open market, or by purchasing securities issued to employees under a stock option or sweat equity scheme (section 68(5)). It must be completed within one year of the special resolution or Board resolution (section 68(4)).
Solvency declaration and post-completion steps
Before the buy-back, file a declaration of solvency with the Registrar, and with SEBI if the shares are listed, signed by at least two directors, one of whom is the managing director if any, verified by affidavit that the Board has formed the opinion after full inquiry that the company can meet its liabilities and will not be rendered insolvent within one year (section 68(6)).
Extinguish and physically destroy the securities bought back within seven days of the last date of completion (sub-section (7)); do not make a further issue of the same kind within six months except bonus issues or subsisting obligations listed in sub-section (8); maintain the register under sub-section (9); and file a return within thirty days of completion (sub-section (10)).
Penalties
Under section 68(11), a default attracts a fine of not less than one lakh rupees and up to three lakh rupees for the company, and the same fine range for every officer in default. The imprisonment option for officers was removed with effect from 21 December 2020.
Amendments and commencement
Section 68 came into force on 1 April 2014 under S.O. 902(E). Section 14 of the Companies (Amendment) Act, 2020 omitted the words providing imprisonment of up to three years for officers and removed "or with both" from sub-section (11), effective 21 December 2020 (S.O. 4646(E)).
Practical preparation
Check the articles and the last offer’s closure date; compute the ten and twenty-five per cent. limits and the debt ratio; choose Board or special resolution; prepare the explanatory statement; file the declaration of solvency; complete within one year; extinguish within seven days; where shares are bought back out of free reserves or securities premium, transfer their nominal value to the capital redemption reserve under section 69; observe the six-month bar; update the register; file the return within thirty days.
Practical checklist
Do
- Compute limits on audited figures and keep the working papers.
- Diarise the seven-day extinguishment and thirty-day return deadlines.
Avoid
- Do not fund a buy-back from proceeds of an earlier issue of the same kind of securities.
- Do not start a new offer within one year of closing the last one.
- Do not issue the same kind of securities within six months except as sub-section (8) allows.
Illustrative example
Hypothetical: Board-approved buy-back
An unlisted company proposes a buy-back of eight per cent. of its paid-up equity capital and free reserves.
Limits
Under ten per cent., so a Board resolution suffices if the articles authorise the buy-back; the debt ratio is tested after the buy-back.
Declare
Two directors, including the managing director if any, sign the solvency declaration verified by affidavit and file it with the Registrar.
Complete
Securities are extinguished within seven days and the return is filed within thirty days.
Outcome
- The buy-back follows section 68 and rule 17; no issue of the same kind is made for six months.
Glossary
- Buy-back
- A company’s purchase of its own shares or other specified securities under section 68.
- Specified securities
- Includes employees’ stock option or other securities notified by the Central Government (Explanation I).
- Free reserves
- For section 68, includes the securities premium account (Explanation II).
Frequently asked questions
When can the Board approve a buy-back without shareholders?
When the buy-back is ten per cent. or less of total paid-up equity capital and free reserves and the articles authorise it.
How soon must bought-back shares be destroyed?
Within seven days of the last date of completion of the buy-back.
Is there a gap between two buy-backs?
Yes. No offer may be made within one year from the closure of the preceding offer.
Need help applying this provision to your situation?
Contact BizeneedLast updated 11 October 2026