# Section 70: Prohibition on Buyback

No company shall directly or indirectly purchase its own shares or other specified securities in the following circumstances:

## A. Through Specified Entities

1. Through any subsidiary company, including its own subsidiaries.

2. Through any investment company or group of investment companies.

## B. On Default in Repayment

If the company has defaulted in:

Repayment of deposits (or interest payable thereon),
Redemption of debentures or preference shares,
Payment of dividend to any shareholder,
Repayment of any term loan or interest thereon to any financial institution / bank.

Exception: Buyback is allowed if the default has been remedied and a period of 3 years has elapsed after such default ceased to subsist.

## C. Non-Compliance with Certain Sections

No buyback if the company has not complied with:

Section 92 — Annual return
Section 123 — Declaration of dividend
Section 127 — Punishment for failure to distribute dividends
Section 129 — Financial statements

## Visual Summary

```

No Buyback if:

+---------------+---------------+----------------+

| | | |

Through Through Default in Non-compliance

subsidiary investment deposit/ with Sec 92,

company company debenture/ 123, 127, 129

pref share/

term loan/

dividend

(3-year cure period)

```

Worked example

### Example 1

Example 1: LMN Ltd defaulted in repayment of term loan in 2022. The default was cured in 2023. Can the company undertake buyback in 2025?

Answer: No. Although the default has been remedied, buyback is allowed only after 3 years have elapsed from cessation of default. The earliest date the company can buy back is 2026.

### Example 2

Example 2: PQR Ltd has not filed its annual return under Section 92 for FY 2024–25. Can it undertake a buyback in FY 2025–26?

Answer: No. Section 70 expressly prohibits buyback by a company that has not complied with Section 92 (annual return), Section 123 (dividend declaration), Section 127, and Section 129 (financial statements).

⚠️ Common exam mistakes

Forgetting that buyback through a subsidiary is prohibited, even if the subsidiary is wholly owned.
Assuming buyback is allowed immediately once a default is cured — students forget the 3-year cooling-off period.
Missing Section 127 (failure to distribute dividend) in the list of non-compliances that bar buyback.
Confusing 'investment company' with 'investment in shares' — Section 70 prohibits buyback through any investment company or group thereof.

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

No company shall directly or indirectly purchase its own shares or other specified securities — (a) through any subsidiary company including its own subsidiary companies; (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. No company shall, directly or indirectly, purchase its own shares or other specified securities in case such company has not complied with the provisions of sections 92, 123, 127 and section 129.

Now that you've read this — what's next?

Move from understanding → mastery in 3 clicks. Each option below picks up from this lesson's topic.

🔥 Drill 5 Qs on this → ✍️ Adaptive practice →

Section 70 - Prohibition on Buyback in Certain Circumstances

Worked example

⚠️ Common exam mistakes