# Buy-Back of Securities (Section 68)
## What is Buy-Back?
Buy-back is the process by which a company repurchases its own shares or other specified securities from existing security holders. It is a method of returning surplus cash to shareholders and reducing the company's outstanding capital.
## Sources from Which Buy-Back Can Be Made
Buy-back must be made from:
- Free reserves, or
- Securities premium account, or
- Proceeds of a fresh issue of shares or other specified securities.
> Important: Buy-back cannot be funded from the proceeds of an issue of the same kind of shares/securities being bought back.
## From Whom Can Buy-Back Be Made?
1. Existing shareholders/security holders on a proportionate basis,
2. The open market, or
3. Employees holding ESOP or sweat equity shares.
## The Four Key Conditions (Memorise!)
| Condition | Rule |
|---|---|
| AOA | Buy-back must be authorised by Articles of Association |
| 25% Share Test | For equity shares, max 25% of paid-up equity capital (in number of shares) can be bought back in a FY |
| 25% Resource Test | Amount used cannot exceed 25% of (paid-up capital + free reserves) |
| Debt-Equity Test | Post-buyback, Debt ≤ 2 × (paid-up capital + free reserves) |
### Approval Required
- Special Resolution (SR) is required.
- Board Resolution (BR) suffices if buy-back does not exceed 10% of paid-up equity capital + free reserves.
### Other Conditions
- Securities for buy-back must be fully paid-up.
- Compliance with SEBI Regulations (listed shares) or Rule 17 of Companies (Share Capital & Debentures) Rules, 2014 (unlisted).
> For Section 68, free reserves include the securities premium account.
## Explanatory Statement Disclosures
The explanatory statement attached to the SR notice must disclose:
- Full and complete material facts,
- Necessity of buy-back,
- Class of securities to be purchased,
- Amount to be invested,
- Time limit for completion.
## Declaration of Solvency (Form SH-9)
- Filed before buy-back with ROC (and SEBI if listed).
- Verified by affidavit; states that the Board has made full inquiry and the company is capable of meeting all liabilities and will not become insolvent within 12 months.
- Signed by at least 2 directors (one must be MD, if any).
## Procedure Timeline
| Step | Form | Timing |
|---|---|---|
| File Letter of Offer with ROC | SH-8 | Before dispatch |
| Dispatch Letter of Offer to security holders | — | Within 21 days of filing with ROC |
| Offer remains open | — | 15 to 30 days (less than 15 days if all members agree) |
| Verification of offers | — | Within 15 days of closure |
| Communicate rejection | — | Within 21 days of closure |
| Payment to accepted security holders | — | Within 7 days of verification |
| Complete buy-back | — | Within 12 months of BR/SR |
| Extinguish & destroy securities | — | Within 7 days of completion |
| Maintain Register of Buy-Back | SH-10 | At registered office |
| File Return of Buy-Back with ROC/SEBI | SH-11 (with SH-15 certificate) | Within 30 days of completion |
> If offers received exceed shares to be bought back, acceptance is proportionate.
> Securities are deemed accepted unless rejection is communicated within 21 days.
## Cooling Period (Post Buy-Back)
- No further issue of same kind of shares/specified securities for 6 months (exceptions: bonus issue, conversion of warrants/preference shares/debentures, ESOP, sweat equity, discharging existing obligations).
- No fresh buy-back offer within 1 year of closure of preceding buy-back.
## Form SH-15 Certificate
Filed with the Return of Buy-Back; signed by 2 directors (1 must be MD, if any) certifying compliance.
## Punishment for Default
Company and every Officer in Default: Fine ₹1 lakh to ₹3 lakhs.