1. Notwithstanding anything contained in this Act, but subject to the provisions of sub-section (2 ), a company may purchase its own shares or other specified securities (hereinafter referred to as buy-back) out of—
a. its free reserves;
b. the securities premium account; or
c. the proceeds of the issue of any shares or other specified securities:
Provided that: no buy-back of any kind of shares or other specified securities shall be made out of the proceeds of an earlier issue of the same kind of shares or same kind of other specified securities.
2. No company shall purchase its own shares or other specified securities under sub-section (1 ), unless—
a. the buy-back is authorised by its articles;
b. a special resolution has been passed at a general meeting of the company authorising the buy-back:
Provided that: nothing contained in this clause shall apply to a case where—
i. the buy-back is, ten per cent. or less of the total paid-up equity capital and free reserves of the company; and
ii. such buy-back has been authorised by the Board by means of a resolution passed at its meeting;
c. the buy-back is twenty-five per cent. or less of the aggregate of paid-up capital and free reserves of the company:
Provided that: in respect of the buy-back of equity shares in any financial year, the reference to twenty-five per cent. in this clause shall be construed with respect to its total paid-up equity capital in that financial year;
d. the ratio of the aggregate of secured and unsecured debts owed by the company after buy-back is not more than twice the paid-up capital and its free reserves:
Provided that: the Central Government may, by order, notify a higher ratio of the debt to capital and free reserves for a class or classes of companies;
e. all the shares or other specified securities for buy-back are fully paid-up;
f. the buy-back of the shares or other specified securities listed on any recognized stock exchange is in accordance with the regulations made by the Securities and Exchange Board in this behalf; and
g. the buy-back in respect of shares or other specified securities other than those specified in clause (f ) is in accordance with such rules as may be prescribed:
Provided that: no offer of buy-back under this sub-section shall be made within a period of one year reckoned from the date of the closure of the preceding offer of buy-back,if any.
3. The notice of the meeting at which the special resolution is proposed to be passed under clause (b ) of sub-section (2 ) shall be accompanied by an explanatory statement stating—
a. a full and complete disclosure of all material facts;
b. the necessity for the buy-back;
c. the class of shares or securities intended to be purchased under the buy-back;
d. the amount to be invested under the buy-back; and
e. the time-limit for completion of buy-back.
4. Every buy-back shall be completed within a period of one year from the date of passing of the special resolution, or as the case may be, the resolution passed by the Board under clause (b ) of sub-section (2 ).
5. The buy-back under sub-section (1 ) may be—
a. from the existing shareholders or security holders on a proportionate basis;
b. from the open market;
c. by purchasing the securities issued to employees of the company pursuant to a scheme of stock option or sweat equity.
6. Where a company proposes to buy-back its own shares or other specified securities under this section in pursuance of a special resolution under clause (b ) of sub-section (2 ) or a resolution under item (ii ) of the proviso thereto, it shall, before making such buy-back, file with the Registrar and the Securities and Exchange Board, a declaration of solvency signed by at least two directors of the company, one of whom shall be the managing director, if any, in such form as may be prescribed and verified by an affidavit to the effect that the Board of Directors of the company has made a full inquiry into the affairs of the company as a result of which they have formed an opinion that it is capable of meeting its liabilities and will not be rendered insolvent within a period of one year from the date of declaration adopted by the Board:
Provided that: no declaration of solvency shall be filed with the Securities and Exchange Board by a company whose shares are not listed on any recognised stock exchange.
7. Where a company buys back its own shares or other specified securities, it shall extinguish and physically destroy the shares or securities so bought back within seven days of the last date of completion of buy-back.
8. Where a company completes a buy-back of its shares or other specified securities under this section, it shall not make a further issue of the same kind of shares or other securities including allotment of new shares under clause (a ) of sub-section (1 ) of section 62 or other specified securities within a period of six months except by way of a bonus issue or in the discharge of subsisting obligations such as conversion of warrants, stock option schemes, sweat equity or conversion of preference shares or debentures into equity shares.
9. Where a company buys back its shares or other specified securities under this section, it shall maintain a register of the shares or securities so bought, the consideration paid for the shares or securities bought back, the date of cancellation of shares or securities, the date of extinguishing and physically destroying the shares or securities and such other particulars as may be prescribed.
10. A company shall, after the completion of the buy-back under this section, file with the Registrar and the Securities and Exchange Board a return containing such particulars relating to the buy-back within thirty days of such completion, as may be prescribed:
Provided that: no return shall be filed with the Securities and Exchange Board by a company whose shares are not listed on any recognised stock exchange.
11. If a company makes any default in complying with the provisions of this section or any regulation made by the Securities and Exchange Board, for the purposes of clause (f ) of sub-section (2 ), the company shall be punishable with fine which shall not be less than one lakh rupees but which may extend to three lakh rupees and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to three years or with fine which shall not be less than one lakh rupees but which may extend to three lakh rupees, or with both.
Explanation.- I.—For the purposes of this section and section 70,specified securities' includes employees' stock option or other securities as may be notified by the Central Government from time to time.
Explanation.- II.—For the purposes of this section,free reserves' includes securities premium account.
Legal Commentary & Landmark Judgments: Section 68
Section 68 governs the legal mechanics of corporate share buybacks, enacting statutory limits (25% cap), debt-equity ratios, solvency declarations, and mandatory extinguishment timelines.
Sub-section (7) requires complete physical extinguishment and destruction of bought-back securities within seven days of completion.
Section 68 is heavily utilized by cash-rich companies as a tax-efficient mechanism for capital distribution. Corporate directors must exercise extreme diligence when executing the Declaration of Solvency under Section 68(6); if the company becomes insolvent within one year of buyback, directors face personal liability and criminal penalties under Section 447 for fraudulent misrepresentation.