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CS Executive · Capital Market and Securities Laws

Buy-Back of Securities under Sections 68 to 70 for CS Executive

Buy-back is a company purchasing its own shares or other specified securities, governed mainly by Sections 68 to 70 of the Companies Act, 2013. To solve questions, check the source of funds, the approvals, the 25% and 2:1 debt limits, the prohibitions, the timelines, and then conclude whether the buy-back is valid.

What this chapter covers

This chapter covers how a company can buy back its own shares or other specified securities. The core is Section 68 of the Companies Act, 2013. It lists the permitted sources of funds, the conditions to satisfy, the approvals, the explanatory statement, the time limits, the modes, the declaration of solvency and the records. Section 70 adds the cases where buy-back is prohibited.

In Paper 5, the chapter sits in the Capital Market and Securities Laws paper and links company law with securities regulation. Section 68(2)(f) sends listed-company buy-backs to the regulations of the Securities and Exchange Board. So you must know the Companies Act position and also understand that SEBI rules govern the listed-company mechanics. Section 68(2)(g) sends other companies to the prescribed rules.

The chapter is mostly rule-based, with many limits, percentages and time periods. Questions are usually application-based: a company gives facts, and you decide whether the buy-back is allowed. Learn the conditions as a checklist and practise applying them to facts.

Buy-back is a rule-heavy chapter with clear numbers, conditions and consequences, so a well-prepared student can write precise answers and score reliably. Written papers reward the correct provision, correct application to the facts and a clear conclusion. Section 68 gives you many limits that examiners can vary in problems, such as 10% Board route, 25% cap, debt ratio and one-year gap. If you learn them as a checklist, you can handle both theory questions and case-based questions. It also builds your understanding of how company law and securities regulation work together, which helps across the paper.

Buy-Back of Securities: topics in the order to study them

  1. 1Buy-Back of Securities: Meaning and ConceptStart here to understand what buy-back is, the securities covered and why companies do it, before learning the rules.
  2. 2Section 68: Sources and Conditions for Buy-BackThis is the core of the chapter: the three sources of funds and the conditions in Section 68(2), so study it right after the concept.
  3. 3Procedure for Buy-Back and Filing RequirementsOnce you know the conditions, learn the steps: approvals, explanatory statement, declaration of solvency, completion period and extinguishing securities.
  4. 4Modes of Buy-Back and Listed Company RulesNow learn how the buy-back is carried out, the three modes in Section 68(5), and how listed securities follow SEBI regulations.
  5. 5Restrictions, Prohibitions and PenaltiesWith the permitted route clear, learn the bars in Section 70, the six-month bar on fresh issues and the penalty for default.
  6. 6Register, Records and Return of Buy-BackFinish with post-buy-back compliance: the register and the return within thirty days, which are short and easy to revise.

How to prepare Buy-Back of Securities

Treat this chapter as a checklist you can apply to facts. Build the checklist first, then practise using it.

  1. Read Sections 68 and 70 once in full so you see how the conditions, procedure and prohibitions fit together.
  2. Make a one-page checklist of Section 68(2): articles, approval, 25% limit, debt ratio, fully paid-up shares, SEBI or prescribed rules and the one-year gap.
  3. Separate the two approval routes: special resolution at a general meeting, or Board resolution where the buy-back is 10% or less of total paid-up equity capital and free reserves.
  4. List every time period in one table-like note: one year to complete, seven days to destroy, six months bar on fresh issue, thirty days for return, three years after default is remedied.
  5. Learn the three modes in Section 68(5) and the filings that go with the process, noting which are not filed with SEBI by unlisted companies.
  6. Practise short fact-based questions: write the provision, apply each condition to the facts, then give a clear conclusion.
  7. Revise Section 70 and the penalty provision last, since they are easy to confuse with the Section 68 conditions.

Common mistakes in Buy-Back of Securities

  • Mixing up the 10% and 25% limits.

    Fix: Remember 10% is the ceiling for the Board-resolution route, while 25% is the overall ceiling for any buy-back.

  • Writing that a debt-equity ratio of 2:1 applies before the buy-back.

    Fix: Write that the aggregate of secured and unsecured debts owed after the buy-back must not exceed twice the paid-up capital and free reserves.

  • Confusing the time periods.

    Fix: Keep a one-line list pairing each period with its event and revise it daily.

  • Ignoring the Section 70 prohibitions when answering a case-based question.

    Fix: Always add a second check: buy-back through a subsidiary or investment company, default in deposits, debentures, dividends or term loans, and non-compliance with Sections 92, 123, 127 and 129.

  • Stating that every company files the declaration of solvency and return with SEBI.

    Fix: State that both are filed with the Registrar, and with SEBI only where the company's shares are listed.

  • Writing the old penalty with imprisonment.

    Fix: Write the current position: fine of not less than ₹1,00,000 which may extend to ₹3,00,000 on the company and on every officer in default.

Last-day revision: Buy-Back of Securities

  • Section 68(1): buy-back out of free reserves, securities premium account or proceeds of a fresh issue.
  • No buy-back out of the proceeds of an earlier issue of the same kind of shares or other specified securities.
  • Buy-back must be authorised by the articles.
  • Special resolution at a general meeting is needed, unless the Board route applies.
  • Board route: buy-back is 10% or less of total paid-up equity capital and free reserves, authorised by a Board resolution at a meeting.
  • Buy-back must be 25% or less of paid-up capital and free reserves; for equity shares, 25% of total paid-up equity capital in that financial year.
  • Debts after buy-back must not be more than twice the paid-up capital and free reserves.
  • All securities to be bought back must be fully paid-up.
  • No fresh offer within one year from the closure of the preceding offer.
  • Complete the buy-back within one year of the resolution; destroy securities within seven days of completion.
  • Declaration of solvency is signed by at least two directors, one being the managing director if any; filed with the Registrar and SEBI, but not with SEBI by an unlisted company.
  • Return is filed within thirty days of completion; default fine is ₹1,00,000 to ₹3,00,000 on the company and on each officer in default.

Buy-Back of Securities practice questions

Buy-Back of Securities in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Buy-Back of Securities: frequently asked questions

Which sections of the Companies Act, 2013 cover buy-back?

Section 68 gives the power, sources, conditions, procedure, records and penalty. Section 70 lists the circumstances in which buy-back is prohibited. Read both together when answering a question.

Is a special resolution always needed for buy-back?

No. A special resolution at a general meeting is the general rule. The Board can authorise the buy-back by a resolution at its meeting where the buy-back is 10% or less of the total paid-up equity capital and free reserves of the company. The articles must authorise buy-back in all cases.

What are the modes of buy-back under Section 68?

Section 68(5) allows buy-back from existing shareholders or security holders on a proportionate basis, from the open market, or by purchasing securities issued to employees under a stock option or sweat equity scheme. Listed securities must follow SEBI regulations.

What happens if a company defaults in complying with Section 68?

The company is punishable with a fine of not less than ₹1,00,000, which may extend to ₹3,00,000. Every officer in default faces the same range of fine. Imprisonment was removed from this provision with effect from 21 December 2020.

Can a company issue new shares right after a buy-back?

Not of the same kind of shares or other securities for six months after completing the buy-back. The exceptions are a bonus issue and discharging subsisting obligations such as conversion of warrants, stock option schemes, sweat equity or conversion of preference shares or debentures into equity shares.