# Section 68 — Power of Company to Purchase its Own Shares (Buyback)

Section 68 permits a company to buy back its own shares or other specified securities (including ESOPs / sweat equity, etc.) subject to strict conditions.

## 1. Sources of Buyback

Buyback may be made out of:

Source	Notes
Free Reserves	Surplus available for distribution
Securities Premium Account (SPA)	Reserve representing premium received
Proceeds of issue of shares or other securities	Provided NOT of the same kind

### Critical Restriction

Buyback shall NOT be made out of proceeds of an earlier issue of the same kind of shares or securities.

> Why? — Otherwise, the company would be using freshly raised money from one set of shareholders to pay off another set, defeating the purpose of buyback.

## 2. Conditions for Buyback (Authorisation)

Buyback must be authorised by:

1. Articles of Association (AOA) — must contain enabling provision.

2. Special Resolution (SR) passed at a General Meeting.

### Exception — When SR is NOT required:

SR is N/A (and a Board Resolution (BR) alone suffices) if:

Buyback is ≤ 10% of (Paid-up Equity Share Capital + Free Reserves), AND
The buyback is authorised by a Board Resolution at a duly convened Board meeting.

## Quick Comparison

Buyback size	Authorisation required
Up to 10% of PUESC + FR	Board Resolution
Above 10% (up to 25% max)	Special Resolution + AOA

Worked example

### Example 1

Example 1 — Source check: ABC Ltd recently issued equity shares and collected ₹10 crores. It now wants to buy back equity shares using these proceeds. This is NOT permitted — buyback cannot be funded from proceeds of an earlier issue of the same kind of securities.

### Example 2

Example 2 — BR vs SR: XYZ Ltd has Paid-up Equity Capital of ₹50 crores and Free Reserves of ₹50 crores (total ₹100 crores). It proposes a buyback of ₹8 crores (8% of ₹100 cr). Since 8% < 10%, a Board Resolution is sufficient — no SR required.

### Example 3

Example 3 — SR required: PQR Ltd has PUESC + FR of ₹200 crores. It proposes a buyback of ₹30 crores (15%). Since this exceeds 10%, both AOA authorisation and Special Resolution are required.

⚠️ Common exam mistakes

Allowing buyback funded from proceeds of issue of the SAME kind of securities — strictly prohibited.
Forgetting that SR is not required if buyback is within 10% of PUESC + Free Reserves (BR is enough).
Confusing the 10% (BR vs SR threshold) with the 25% (overall maximum buyback limit).
Missing that AOA must authorise buyback — this is a primary requirement.

Bare-Act text Section 68(1) and 68(2) · Companies Act, 2013 · click to expand

No company shall purchase its own shares or other specified securities unless— (a) the buy-back is authorised by its articles; (b) a special resolution has been passed at a general meeting authorising the buy-back: Provided that nothing contained in clause (b) shall apply to a case where the buy-back is, ten per cent or less of the total paid-up equity capital and free reserves of the company; and such buy-back has been authorised by the Board by means of a resolution passed at its meeting.

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Buyback of Shares — Sources and Conditions [Section 68]

Worked example

⚠️ Common exam mistakes