# Prohibition for Buy-Back in Certain Circumstances [Section 70]

## Overview

Section 70 lists situations in which a company is absolutely prohibited from buying back its own shares or other specified securities — directly or indirectly. The intent is to safeguard creditors, depositors and other stakeholders whose claims rank ahead of shareholders.

## 1. Prohibition by Route of Buy-Back

A company shall NOT purchase its own shares or other specified securities through:

Route	Prohibited?
Any subsidiary company (including its own subsidiaries)	Yes
Any investment company / group of investment companies	Yes

## 2. Prohibition on Account of Subsisting Defaults

Buy-back is barred if the company has defaulted in any of the following and the default still subsists:

Repayment of deposits or interest thereon
Redemption of debentures
Redemption of preference shares
Payment of dividend to any shareholder
Repayment of any term loan or interest thereon to a financial institution or banking company

Cure of default: Where the default is remedied AND 3 years have elapsed after the default ceased to subsist, buy-back is permitted.

## 3. Non-Compliance Triggers

The company is also prohibited from buy-back where it has not complied with:

Section 92 – Annual Return
Section 123 – Declaration & Payment of Dividend
Section 127 – Punishment for failure to distribute dividends
Section 129 – Financial Statement

## 4. Explanation – Meaning of 'Specified Securities'

Explanation I to Section 68 (carried into Section 70) provides that specified securities include:

Employees' stock option
Such other securities as may be notified by the Central Government from time to time

## Quick Memory Map

Routes blocked → Subsidiaries / Investment companies

Defaults that block → DDDP T-L (Deposits, Debentures redemption, Dividend, Preference share redemption, Term loan)

Sections to comply → 92 / 123 / 127 / 129 (think: Return → Declare → Punish → Finance)

Worked example

### Example 1

Q. XYZ Ltd. defaulted in payment of interest on a term loan from SBI on 1 April 2022. It cleared the default on 1 April 2023. On 15 May 2025 the Board proposes a buy-back. Is it permissible?

A. No. Although the default ceased on 1 April 2023, the 3-year cooling period under Section 70 expires only on 1 April 2026. A buy-back on 15 May 2025 would still fall within the prohibited window.

### Example 2

Q. ABC Ltd. wishes to buy back equity shares from the open market by routing the purchase through its wholly-owned subsidiary, PQR Ltd. Is this permissible under Section 70?

A. No. Section 70(a) expressly prohibits a company from buying back its own shares 'through any subsidiary company including its own subsidiary companies'. The route is impermissible even if all other conditions of Sections 68 and 69 are satisfied.

⚠️ Common exam mistakes

Confusing the 3-year cooling period: students often think it runs from the date the default arose, when in fact it runs from the date the default ceased to subsist.
Treating prohibition as limited to direct purchase only. Section 70 covers both direct and indirect purchases (e.g., through subsidiaries or investment companies).
Forgetting that buy-back is barred for non-compliance with Sections 92, 123, 127 and 129 – not merely for an active default in repayment.
Assuming 'specified securities' means only equity shares. It includes ESOPs and other securities as notified by the Central Government.

Bare-Act text Section 70 · The Companies Act, 2013 · click to expand

Section 70, Companies Act, 2013 – No company shall directly or indirectly purchase its own shares or other specified securities (a) through any subsidiary company including its own subsidiary companies; or (b) through any investment company or group of investment companies; or (c) if a default, is made by the company, in the repayment of deposits accepted either before or after the commencement of this Act, interest payment thereon, redemption of debentures or preference shares or payment of dividend to any shareholder, or repayment of any term loan or interest payable thereon to any financial institution or banking company. Provided that the buy-back is not prohibited, if the default is remedied and a period of three years has lapsed after such default ceased to subsist.

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Prohibition for Buy-back of Shares [Section 70]

Worked example

⚠️ Common exam mistakes