Sections 69 and 70 of the Companies Act, 2013: Capital Redemption Reserve and Prohibition for Buy-Back
Sections 69 and 70 form part of the statutory framework governing a company's purchase of its own shares or other specified securities. Section 69 deals with the transfer of an amount to the Capital Redemption Reserve Account when specified sources are used for a buy-back, while Section 70 identifies circumstances in which a buy-back is prohibited.
Section 69: Transfer to Capital Redemption Reserve Account
Meaning. Section 69 applies where a company purchases its own shares out of its free reserves or securities premium account. In such a case, an amount equal to the nominal value of the shares purchased must be transferred to the Capital Redemption Reserve Account, and the transfer must be disclosed in the balance sheet.
Section 69(1) - When transfer to CRR is required
If the buy-back of the company's own shares is financed out of free reserves or the securities premium account, the company must transfer to the Capital Redemption Reserve Account a sum equal to the nominal value of the shares bought back.
Section 69(2) - Permitted use of the Capital Redemption Reserve
The Capital Redemption Reserve Account may be used for paying up unissued shares of the company that are to be issued to members as fully paid bonus shares. This links Section 69 with the statutory framework for bonus shares under Section 63.
Section 70: Prohibition for Buy-Back in Certain Circumstances
Meaning. Section 70 prevents a company from directly or indirectly buying back its own shares or other specified securities through certain routes, during specified defaults, or where the company has failed to comply with specified provisions of the Companies Act.
1. Buy-back through a subsidiary is prohibited
A company cannot directly or indirectly purchase its own shares or other specified securities through any subsidiary company, including its own subsidiary companies.
2. Buy-back through an investment company is prohibited
A company cannot directly or indirectly purchase its own shares or other specified securities through an investment company or a group of investment companies.
3. Buy-back during specified payment defaults
Section 70 prohibits buy-back where the company has defaulted in repayment of deposits or interest on deposits, redemption of debentures or preference shares, payment of dividend to shareholders, or repayment of a term loan or interest on a term loan to a financial institution or banking company.
The statutory proviso allows the prohibition arising from such a default to cease after the default has been remedied and three years have elapsed from the date on which the default ceased to subsist.
4. Non-compliance with Sections 92, 123, 127 or 129
Under Section 70(2), a company cannot directly or indirectly purchase its own shares or other specified securities if it has not complied with the provisions of Sections 92, 123, 127 and 129.
| Provision | Subject relevant to Section 70(2) |
|---|---|
| Section 92 | Annual return requirements. |
| Section 123 | Declaration and payment of dividend. |
| Section 127 | Consequences relating to failure to distribute declared dividend within the statutory framework. |
| Section 129 | Financial statements and the requirement that they give a true and fair view and comply with the applicable statutory framework. |
What are "Specified Securities" for Buy-Back?
For Sections 68 and 70, the Companies Act explains that "specified securities" include employees' stock options or other securities that may be notified by the Central Government from time to time. The exact statutory definition and any applicable notification should be checked when a transaction concerns securities other than shares.
How Sections 68, 69 and 70 Work Together
Section 68 provides the principal power and conditions for a company to buy back its own shares or other specified securities. Section 69 imposes the Capital Redemption Reserve requirement where the buy-back is made out of free reserves or the securities premium account. Section 70 then operates as a statutory bar where a prohibited route, specified default or specified compliance failure exists.
- First, determine whether the proposed buy-back is permitted and satisfies Section 68.
- Second, identify the source of funds and determine whether Section 69 requires a transfer to the Capital Redemption Reserve Account.
- Third, verify that none of the prohibitions in Section 70 applies.
- For listed securities, also check the current SEBI (Buy-Back of Securities) Regulations, 2018 and applicable SEBI circulars.
Current Regulatory Position for Listed Companies
Buy-backs of shares or other specified securities listed on a recognised stock exchange are additionally governed by the SEBI (Buy-Back of Securities) Regulations, 2018. SEBI's official regulations page records that these regulations were last amended on July 6, 2026. Listed companies should therefore verify the latest SEBI regulations and circulars before initiating a buy-back.
Official Legal Resources
Companies Act, 2013 - Ministry of Corporate Affairs Companies Act, 2013 - India Code SEBI Regulations
Law and official regulatory sources reviewed for this article on September 17, 2026. Readers should verify subsequent amendments, notifications, rules and circulars before acting on a transaction.