Home  /  Companies Act  /  Section 69

Section 69: Transfer of certain sums to capital redemption reserve account

Companies Act • Official Statutory Text & Practice Guide

Statutory Regulation
Legal Standard
Competent Court / Tribunal
Act 2013
Section 68 All 470 Sections of Companies Act Section 70
Statutory Defined Terms in this Section: (Click any term for official legal definition)
Company Sec 2(20) Director Sec 2(34) Tribunal Sec 2(90)

Legal Commentary & Landmark Judgments: Section 69

Section 69 of the Companies Act, 2013 codifies the capital maintenance doctrine by mandating that whenever a company purchases its own shares out of free reserves or securities premium, a sum equal to the nominal value of shares purchased must be transferred to the Capital Redemption Reserve (CRR) account.

  • Mandatory Transfer of Nominal Value to CRR: Where a company purchases its own shares out of free reserves or securities premium account under Section 68, a sum equal to the nominal value of the shares so purchased must be transferred to the Capital Redemption Reserve (CRR) account.
  • Mandatory Balance Sheet Disclosure: The details of the transfer to the CRR account, including the nominal value of shares bought back and the reserve sources utilized, must be transparently disclosed in the balance sheet of the company.
  • Exhaustive Application of CRR for Bonus Shares: Under Section 69(2), the CRR account may be applied by the company solely in paying up unissued shares of the company to be issued to members of the company as fully paid bonus shares; any other utilization constitutes an unlawful capital reduction.
Key Landmark Precedents:
  • Trevor v. Whitworth, (1887) 12 App Cas 409: The House of Lords established the foundational doctrine of capital maintenance, holding that paid-up capital cannot be returned to shareholders without statutory safeguards; Section 69 enforces this by creating the CRR to prevent the depletion of creditor protection funds during buy-backs.
  • Commissioner of Income Tax v. Sterling Investment Corp. Ltd., (1980) 123 ITR 441 (Bom): The Bombay High Court held that the Capital Redemption Reserve account is not a free reserve available for dividend distribution, but partakes of the nature of paid-up capital under company law.
  • CIT v. Dalmia Investment Co. Ltd., AIR 1964 SC 1464: The Supreme Court affirmed that statutory reserves created pursuant to capital redemption mandates can only be utilized for designated statutory purposes such as fully paid bonus shares, preserving the overall capital quantum.
Courtroom Practice & Strategic Litigation Guidance:

In statutory audits or NCLT scheme verifications, inspect the company's ledger to ensure that an amount exactly equivalent to the nominal value of bought-back shares was debited from free reserves/securities premium and credited to CRR. Attempting to deploy CRR to write off accumulated operational losses or pay dividends is void ab initio without NCLT sanction under Section 66.

Section 68 All 470 Sections of Companies Act Section 70