# Section 69 — Capital Redemption Reserve Account on Buy-Back
When a company buys back its own shares out of free reserves or the securities premium account, the share capital reduces. To preserve the capital base for creditors, an equivalent amount must be transferred to a special account — the Capital Redemption Reserve (CRR) Account.
## 1. Amount to be Transferred [Sub-section 1]
Where a company purchases its own shares out of free reserves or securities premium account:
(a) A sum equal to the nominal (face) value of the shares so purchased shall be transferred to the Capital Redemption Reserve Account; and
(b) Details of the transfer shall be disclosed in the Balance Sheet.
> Why nominal value? It ensures the creditor's buffer (capital) is reconstituted notionally even though shares have been cancelled.
>
> Note: If buy-back is funded purely from proceeds of a fresh issue of shares/specified securities, no CRR transfer is required — the capital is being replaced, not depleted.
## 2. Application of CRR Account [Sub-section 2]
The CRR Account is highly restricted in use. It may be applied by the company only for:
> Paying up unissued shares of the company to be issued to members as fully paid bonus shares.
In other words, CRR can only be capitalised by way of bonus issue — it cannot be distributed as dividend or used for any other purpose.
## 3. Why CRR is Important — Conceptual Link
| Source of Buy-Back | CRR Transfer? |
|---|---|
| Free reserves | Yes — nominal value to CRR |
| Securities premium account | Yes — nominal value to CRR |
| Proceeds of fresh issue (of different kind) | No — capital is replenished |
This mirrors the principle in Section 55 (redemption of preference shares) — capital, once contributed, cannot leave creditors' protection silently.