# Buy-Back of Shares (Sec 68)
Buy-back is a permitted mode by which a company repurchases its own shares, subject to strict source, quantum, and procedural conditions. It overrides Sec 66 and is a primary tool for capital restructuring.
## 1. Sources of Funds [Sec 68(1)]
A company may buy back its shares from:
- (a) Free Reserves
- (b) Securities Premium Account
- (c) Proceeds of issue of any shares / specified securities
⚠️ Restriction: Proceeds from an earlier issue of the same kind of shares cannot be used.
## 2. Conditions [Sec 68(2)]
| # | Condition | Detail |
|---|---|---|
| a | AOA authorisation | Must permit buy-back |
| b | Resolution | Special Resolution in general meeting; Board Resolution sufficient if buy-back ≤ 10% of (PESC + FR + SP) |
| c | Quantum ceiling | ≤ 25% of (PESC + FR + SP) |
| d | Debt-equity ratio | Post-buyback Debt : (PESC+FR+SP) ≤ 2:1 |
| e | Fully paid-up | Only fully paid shares eligible |
| f | SEBI Regulations | Mandatory for listed companies |
| g | Lock-in | No buy-back within 1 year from previous buy-back closure |
## 3. Pre-Buy-Back Procedure
The explanatory statement with the notice must disclose:
- All material facts
- Necessity for buy-back
- Class of shares/securities
- Amount to be invested
- Time limit for completion
## 4. Timeline — 12-Month Window
Must be completed within 12 months from passing the resolution.
Stepwise Process:
1. File Letter of Offer (Form SH.8) with ROC within 20 days
2. Offer open 15 to 30 days
3. Proportionate acceptance if oversubscribed
4. Verification within 15 days of offer closure
5. Payment within 7 days of verification
6. Return unaccepted shares
## 5. Sources of Buy-Back (From Whom)
- Existing shareholders / security holders
- Open market
- ESOP / Sweat equity holders
## 6. Declaration of Solvency
- File Form SH-9 with ROC (and SEBI for listed)
- Verified by affidavit
- Confirms company can meet liabilities for 12 months from declaration date
- Signed by at least 2 directors including the MD
## 7. Extinguishment
Bought-back securities must be extinguished and destroyed within 7 days of buy-back completion.
## 8. Cooling Period
- 6 months before issuing the same kind of shares again
- Exceptions: Bonus shares; discharge of subsisting obligations (warrant conversion, ESOP, sweat equity, preference share conversion)
## 9. Register of Buy-Back
Maintained at registered office, authenticated by CS, recording:
- Shares/securities bought
- Consideration paid
- Cancellation and destruction dates
## 10. Filing of Buy-Back Return
- Form SH.15 filed with ROC (and SEBI for listed) within 30 days of completion
- Certifies compliance with all provisions
## 11. Penalty for Default
| Defaulter | Fine |
|---|---|
| Company | ₹1,00,000 to ₹3,00,000 |
| Officer in default | ₹1,00,000 to ₹3,00,000 |
## 12. Capital Redemption Reserve (Sec 69)
If buy-back is from free reserves or securities premium, an amount equal to the nominal value of shares bought back must be transferred to the Capital Redemption Reserve Account.
## 13. Prohibition (Sec 70)
No buy-back, directly or indirectly:
- Through any subsidiary (including own subsidiaries)
- Through investment company / group of investment companies
- If defaulted in: deposit repayment, debenture redemption, preference share redemption, dividend, or term loan/interest to FI/bank
Exception: Allowed if default is rectified AND 3 years have elapsed since rectification.
Buy-back is also prohibited for non-compliance with Sec 92, 123, 127, or 129.