Section 68: Power of company to purchase its own securities
This section is for the power of a company to purchase its own securities, outlining the conditions, procedures, and requirements for buy-back, including authorization, special resolution, and declaration of solvency.
Penalty
(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 1*** with fine which shall not be less than one lakh rupees but which may extend to 2[three lakh rupees].
The section, clause by clause
What the section says
In plain terms
(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 company can buy back its own shares or other specified securities using its free reserves, securities premium account, or proceeds from issuing new shares or securities, but not from the proceeds of an earlier issue of the same kind of shares or securities.
(1)(a)its free reserves;
(1)(b)the securities premium account; or
(1)(c)the proceeds of the issue of any shares or other specified securities:
provisoProvided 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—
To buy back its own shares or securities, a company must have authorization in its articles, pass a special resolution, ensure the buy-back is 25% or less of its paid-up capital and free reserves, and meet other conditions such as having all shares fully paid-up.
(2)(a)the buy-back is authorised by its articles;
(2)(b)a special resolution has been passed at a general meeting of the company authorising the buy-back:
provisoProvided that nothing contained in this clause shall apply to a case where—
(2)(b)(i)the buy-back is, ten per cent. or less of the total paid-up equity capital and free reserves of the company; and
(2)(b)(ii)such buy-back has been authorised by the Board by means of a resolution passed at its meeting;
(2)(c)the buy-back is twenty-five per cent. or less of the aggregate of paid-up capital and free reserves of the company:
provisoProvided 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;
(2)(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:
provisoProvided 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;
(2)(e)all the shares or other specified securities for buy-back are fully paid-up;
(2)(f)the buy-back of the shares or other specified securities listed on any recognized stock exchange is in accordance with the regulations made by the Securities and Exchange Board in this behalf; and
(2)(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:
provisoProvided 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—
The notice for the meeting to pass the special resolution must include an explanatory statement with details such as the necessity for the buy-back, the class of shares to be purchased, and the time-limit for completion.
(3)(a)a full and complete disclosure of all material facts;
(3)(b)the necessity for the buy-back;
(3)(c)the class of shares or securities intended to be purchased under the buy-back;
(3)(d)the amount to be invested under the buy-back; and
(3)(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).
Every buy-back must be completed within one year from the date of passing the special resolution or the Board's resolution.
(5)The buy-back under sub-section (1) may be—
A company can buy back its shares or securities from existing shareholders, the open market, or by purchasing securities issued to employees under a stock option or sweat equity scheme.
(5)(a)from the existing shareholders or security holders on a proportionate basis;
(5)(b)from the open market;
(5)(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 atleast 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:
Before making a buy-back, a company must file a declaration of solvency with the Registrar and the Securities and Exchange Board, signed by at least two directors, stating that the company can meet its liabilities and will not be insolvent within one year.
provisoProvided 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.
A company must extinguish and physically destroy the bought-back shares or securities within seven days of the last date of completion of the 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.
After completing a buy-back, a company cannot make a further issue of the same kind of shares or securities within six months, except by way of a bonus issue or to discharge subsisting obligations.
(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.
A company must maintain a register of the shares or securities bought back, including details such as the consideration paid and the date of cancellation.
(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:
After completing a buy-back, a company must file a return with the Registrar and the Securities and Exchange Board within thirty days, containing prescribed particulars.
provisoProvided 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 1*** with fine which shall not be less than one lakh rupees but which may extend to 2[three lakh rupees].
If a company defaults in complying with the provisions of this section, it shall be punishable with a fine of not less than one lakh rupees but which may extend to three lakh rupees.
explanationExplanation 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.
explanationExplanation II.—For the purposes of this section, “free reserves” includes securities premium account.
The right-hand column is written from the section text, not quoted from it, and it has no legal force. Where the two differ, the left-hand column is the law.
Amendment notes
- 1. The words “with imprisonment for a term which may extend to three years or” omitted by Act 29 of 2020, s. 14 (w.e.f. 21-12- 2020).
- 2. Subs. by s. 14, ibid., for “three lakh rupees, or with both” (w.e.f. 21-12-2020).
This section refers to
Referred to by
Search the whole Act, or ask it a question, in the interactive browser.
Reproduced from the official India Code print for reference. Check the current text on India Code before you rely on it, and read the section alongside its Rules. Nothing here is legal advice.