Sections 67 and 68 of the Companies Act, 2013: Financial Assistance and Buy-Back of Shares

Section 67: Restrictions on purchase of own shares and financial assistance

Section 67 deals with two related restrictions. First, a company limited by shares, or limited by guarantee and having a share capital, cannot simply purchase its own shares unless the resulting reduction of share capital is carried out in accordance with the Act. Second, a public company is restricted from giving direct or indirect financial assistance - including by loan, guarantee, security or otherwise - for the purpose of, or in connection with, a person's purchase or subscription of shares in the company or its holding company.

Statutory exceptions to the financial-assistance restriction

The restriction in Section 67(2) does not apply to specified cases under Section 67(3), including:

• lending of money by a banking company in the ordinary course of its business;
• money provided under an employee share scheme approved by the company through a special resolution and complying with prescribed requirements, for purchase or subscription of fully paid-up shares for the benefit of employees; and
• loans to employees other than directors or key managerial personnel, within the statutory limit linked to six months' salary or wages, to enable purchase or subscription of fully paid-up shares in the company or its holding company for beneficial ownership.

Section 67 also preserves the company's right to redeem preference shares in accordance with the Companies Act, 2013 or applicable previous company law. Employee share schemes must additionally comply with the relevant Companies (Share Capital and Debentures) Rules, 2014 and, where applicable, SEBI requirements.

Section 68: Power of a company to purchase its own securities

Section 68 permits a company to purchase its own shares or other specified securities, commonly called a buy-back. The buy-back may be funded from free reserves, the securities premium account, or the proceeds of an issue of shares or other specified securities. However, proceeds of an earlier issue cannot be used to buy back the same kind of shares or the same kind of specified securities.

Key conditions for buy-back under Section 68

Meaning of specified securities and free reserves for Section 68

For Sections 68 and 70, the statutory explanation provides that specified securities include employees' stock options or other securities notified by the Central Government. For Section 68, free reserves include the securities premium account.

Explanatory statement and completion period

Where shareholder approval by special resolution is sought, the notice must be accompanied by an explanatory statement containing the material facts, necessity for the buy-back, class of shares or securities, amount to be invested and the time limit for completion. The buy-back must be completed within one year from the date of the special resolution or, where Board approval is permitted, the relevant Board resolution.

Permitted statutory modes

Section 68 contemplates buy-back from existing shareholders or security holders on a proportionate basis, from the open market, or by purchasing securities issued to employees under stock option or sweat equity schemes. The practical route for a listed company is also controlled by the current SEBI (Buy-Back of Securities) Regulations, 2018. SEBI phased out buy-back through the stock-exchange route from 1 April 2025; therefore, the bare wording of Section 68(5) should not be read as permitting a listed company to use a route that the current SEBI framework no longer allows.

Declaration of solvency, extinguishment and return

Before the buy-back, the company must make the prescribed declaration of solvency in the circumstances specified by Section 68(6). Shares or securities bought back must be extinguished and physically destroyed within seven days of the last date of completion of the buy-back. The company must maintain the prescribed register and file the prescribed return after completion. For private companies and unlisted public companies, Rule 17 of the Companies (Share Capital and Debentures) Rules, 2014 contains the detailed procedure and prescribed forms.

Restriction on fresh issue after buy-back

After completing a buy-back, the company is restricted for six months from making a further issue of the same kind of shares or other specified securities, subject to statutory exceptions such as a bonus issue and discharge of subsisting obligations including conversion of warrants, stock options, sweat equity, preference shares or debentures.

Penalty under Section 68

Section 68(11), as amended, provides monetary penalties for default in complying with Section 68 or the applicable SEBI regulations. The earlier imprisonment language was omitted by the Companies (Amendment) Act, 2020 with effect from 21 December 2020. The exact current penalty provision should be checked in the latest official text before relying on it for enforcement or compliance advice.

Listed companies: SEBI Buy-Back Regulations

Listed companies must read Section 68 with the SEBI (Buy-Back of Securities) Regulations, 2018. SEBI's regulations page records the Buy-Back Regulations as last amended on 6 July 2026. The current regulatory framework should therefore be checked before fixing the route, timetable, disclosures, record date, offer process or merchant-banker compliance for a listed-company buy-back.

Related Companies Act provisions

Continue with Sections 65 and 66 - reserve share capital and reduction of share capital, or read Sections 69 and 70 - capital redemption reserve and prohibition on buy-back in certain circumstances.