By S&S Co. Advocates & Solicitors · Published 25 September 2026 · Informational content, not legal advice. See our disclaimer
Why Companies Undertake a Buyback
A buyback of shares allows a company to return capital to shareholders by purchasing back its own shares, out of its free reserves, securities premium account, or proceeds of a fresh issue of shares (with restrictions on buying back using proceeds of the same kind of shares or securities). Companies use buybacks to return surplus cash, adjust capital structure, or provide an exit route to shareholders, and, for listed companies, to support the market price of the stock.
The Statutory Conditions Under Section 68
Section 68 sets out several conditions that must all be satisfied: the buyback must be authorised by the company's articles; a special resolution must generally be passed (unless the buyback is up to 10% of paid-up equity capital and free reserves and is approved by the Board alone); the buyback cannot exceed 25% of the aggregate of paid-up capital and free reserves in a financial year; the debt-equity ratio after the buyback cannot exceed 2:1 unless a higher ratio is separately permitted; and all shares proposed to be bought back must be fully paid-up.
A company that has defaulted in repayment of deposits, interest on deposits, redemption of debentures or preference shares, or payment of dividend, is generally barred from undertaking a buyback until the default is remedied and a specified cooling-off period has elapsed.
Procedure and Post-Buyback Restrictions
Once shares are bought back, the company must extinguish and physically destroy the shares within a prescribed period, file a return of buyback with the Registrar, and cannot make a further buyback within one year of completion of the earlier one. A company is also barred from issuing the same kind of shares, including bonus shares, for a specified period following the buyback, other than through certain permitted exceptions such as conversion of outstanding instruments.
Listed companies undertaking a buyback face an additional, more detailed procedural layer under SEBI's Buyback Regulations, covering the offer document, escrow arrangements, and disclosure timelines, which operate alongside, and in addition to, the Companies Act conditions.
Frequently Asked Questions
Can a company buy back shares using only a Board resolution?
Only for a buyback of up to 10% of paid-up equity capital and free reserves; anything beyond that generally requires a special resolution of shareholders, subject to the overall 25% annual ceiling.
What is the debt-equity ratio restriction on a buyback?
The company's debt-equity ratio after completing the buyback cannot exceed 2:1, unless a higher ratio is permitted for that class of company under the applicable rules.
Can a company buy back shares again shortly after completing one?
No. A further buyback cannot be made within one year of completion of a preceding buyback.
Is a company in default on deposits or dividend eligible to buy back shares?
Generally no: a company must first remedy the default and observe a cooling-off period before undertaking a buyback.
References & Further Reading
This article references the following statutory provisions. Readers should always verify current rules, fees and timelines against the applicable statute and rules as amended, since these are revised from time to time.
- Companies Act, 2013, Section 68, 69 and 70, and the Companies (Share Capital and Debentures) Rules, 2014.
- SEBI (Buy-Back of Securities) Regulations, 2018, for listed company buybacks.