(1) No company limited by shares or limited by guarantee and having a share capital shall have the power to purchase its own shares or other specified securities (hereinafter referred to as "buy-back") out of—

1. its free reserves;
2. the securities premium account; or
3. 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—

1. the buy-back is authorised by its articles;
2. 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—

   1. the buy-back is, ten per cent. or less of the total paid-up equity capital and free reserves of the company; and
   2. such buy-back has been authorised by the Board by means of a resolution passed at its meeting;
3. 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 the buy-back of equity shares in any financial year shall not exceed twenty-five per cent. of its total paid-up equity capital in that financial year;

4. 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;

5. all the shares or other specified securities for buy-back are fully paid-up;
6. the buy-back of the shares or other specified securities listed on any recognised stock exchange is in accordance with the regulations made by the Securities and Exchange Board in this behalf; and
7. 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.

(3) The notice of the meeting at which special resolution is proposed to be passed under clause (b) of sub-section (2) shall be accompanied by an explanatory statement which shall contain a full and complete disclosure of all material facts.

(4) Every buy-back shall be completed within a period of one year from the date of the 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 may be—

1. from the existing shareholders or security holders on a proportionate basis;
2. from the open market;
3. by purchasing the securities issued to employees of the company pursuant to a scheme of stock option or sweat equity.

(6) 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.

(7) Where a company completes a buy-back of its shares or other specified securities under this section, it shall not make 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 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.

(8) Where a company buys-back its securities under this section, it shall maintain a register of the securities so bought, the consideration paid for the securities bought back, the date of cancellation of securities, the date of extinguishing and physically destroying of securities and such other particulars as may be prescribed.

(9) No company shall directly or indirectly purchase its own shares or other specified securities—

1. through any subsidiary company including its own subsidiary companies; or
2. through any investment company or group of investment companies; or
3. if a default, by the company, in the repayment of deposits accepted either before or after the commencement of this Act, interest payment thereon, redemption of debentures or preference shares or payment of dividend to any shareholder or repayment of any term loan or interest payable thereon to any financial institution or banking company, is subsisting.

(10) Where a company makes default in complying with the provisions of this section or any regulation made by the Securities and Exchange Board, for listed companies, the company shall be punishable with a 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.

(11) Where a company makes a default in complying with the provisions of this section, the company or any officer of the company who is in default shall be punishable with a fine which shall not be less than one lakh rupees but which may extend to three lakh rupees or with imprisonment for a term which may extend to three years or with both.