# Prohibition for Buy-Back (Section 70)

Even if a company satisfies Section 68 conditions, it cannot undertake buy-back in the following situations:

## Prohibited Routes

1. Through a subsidiary company (including its own subsidiary).

2. Through an investment company (or group of investment companies).

## Prohibited When Defaults Subsist

Buy-back is prohibited if the company has defaulted in:

Repayment of term loans / deposits to any financial institution or banking company,
Payment of interest on such loans/deposits,
Redemption of debentures or preference shares, or
Payment of dividend to any shareholder.

> Rectification Window: Buy-back is permitted if 3 years have lapsed after the default ceases to subsist (i.e., is rectified).

## Prohibition for Statutory Non-Compliance

Buy-back is prohibited if the company has not complied with:

Section	Subject
Section 92	Annual Return
Section 123	Declaration & payment of dividend
Section 127	Punishment for failure to distribute dividend
Section 129	Financial Statements

## Memory Hook

Think of Section 70 as the 'No Buy-Back' filter that overrides Section 68 eligibility — it ensures companies in financial distress or non-compliance with basic obligations cannot use buy-back to enrich select shareholders.

Worked example

### Example 1

Example: ABC Ltd. defaulted on debenture interest payment in FY 2022-23 and rectified the default in March 2024. The company now wishes to undertake buy-back in May 2025.

Answer: Buy-back is not allowed until 3 years have lapsed from the date the default ceased (i.e., from March 2024). Thus, buy-back is permitted only from March 2027 onwards.

⚠️ Common exam mistakes

Believing the 3-year cooling period is counted from the date of default — it is counted from the date the default CEASED to subsist.
Forgetting that Section 70 applies even where Section 68 conditions are otherwise satisfied.
Overlooking that non-compliance with annual return (Sec 92) or financial statements (Sec 129) — not just monetary defaults — also disqualifies a company.

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

Section 70 prohibits a company from purchasing its own shares or specified securities through any subsidiary company including its own subsidiary, through any investment company or group of investment companies, or if a default is subsisting in repayment of deposits, debenture/preference share redemption, dividend payment, or term loan repayment.

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Prohibition for Buy-Back in Certain Circumstances (Section 70)

Worked example

⚠️ Common exam mistakes