# Section 69 — Transfer to Capital Redemption Reserve (CRR) Account on Buy-Back

## Purpose

Section 69 ensures that capital is conserved even after a buy-back. When a company uses free reserves or securities premium to buy back its shares, an equivalent amount (equal to the nominal value of shares bought back) must be quarantined in the Capital Redemption Reserve (CRR) Account. This effectively replaces the capital that has been returned to shareholders.

## Sub-section (1) — Amount to be Transferred

Where a company purchases its own shares out of:

Free reserves; or
Securities premium account,

then:

1. A sum equal to the nominal value of shares so purchased shall be transferred to the Capital Redemption Reserve account; and

2. Details of such transfer shall be disclosed in the Balance Sheet.

> Note: If buy-back is funded out of fresh issue proceeds (Section 68(1)(c)), no CRR transfer is required because no existing reserve is being capitalised.

## Sub-section (2) — Permitted Application of CRR

The Capital Redemption Reserve account may be applied only by the company in:

Paying up unissued shares of the company to be issued to members as fully paid bonus shares.

> CRR cannot be used for dividend, buy-back, or any other purpose — it can only be used to issue bonus shares.

## Linkage with Buy-Back Sources

Buy-back Source (Sec 68(1))	CRR Transfer Required?
Free reserves	YES — equal to nominal value
Securities premium account	YES — equal to nominal value
Proceeds of fresh issue of shares/securities	NO

Worked example

### Example 1

Example 1 — CRR transfer:

ABC Ltd buys back 1,00,000 equity shares of face value ₹10 each at ₹40 each. Total payment = ₹40,00,000. The buy-back is funded entirely out of free reserves.

Amount transferred to CRR = nominal value = 1,00,000 × ₹10 = ₹10,00,000.
Remaining ₹30,00,000 (premium) is debited to free reserves/securities premium.
Disclosure to be made in Balance Sheet.

### Example 2

Example 2 — Application for bonus issue:

DEF Ltd has CRR of ₹15,00,000. It capitalises this entire amount to issue fully paid bonus shares of nominal value ₹15,00,000 to its members. This is the only permitted application of CRR under Section 69(2).

### Example 3

Example 3 — No CRR transfer when funded by fresh issue:

KLM Ltd issues fresh debentures to raise ₹50 lakh, and uses these proceeds to buy back ₹50 lakh worth of its equity shares. No transfer to CRR is required because the buy-back is funded out of fresh issue proceeds, not free reserves or securities premium.

⚠️ Common exam mistakes

Transferring the entire buy-back amount to CRR — only the nominal value is transferred, not the premium paid.
Forgetting to make CRR transfer when buy-back is from securities premium — both free reserves and securities premium sources require CRR transfer.
Transferring to CRR even when buy-back is funded from proceeds of fresh issue — that scenario does NOT require CRR transfer.
Using CRR for purposes other than bonus issue (e.g., dividend, paying employees, future buy-back) — only bonus shares is the permitted use.
Missing the balance sheet disclosure requirement — disclosure of the CRR transfer is mandatory.

Bare-Act text Section 69 · Companies Act, 2013 · click to expand

Section 69(1): Where a company purchases its own shares out of free reserves or securities premium account, a sum equal to the nominal value of the shares so purchased shall be transferred to the capital redemption reserve account and details of such transfer shall be disclosed in the balance sheet. Section 69(2): The capital redemption reserve account may be applied by the company, in paying up unissued shares of the company to be issued to members of the company as fully paid bonus shares.

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Section 69 - Transfer to Capital Redemption Reserve Account

Worked example

⚠️ Common exam mistakes