Section 70 of the Companies Act, 2013
Section 70 of the Companies Act, 2013 – Prohibition for Buy-Back in Certain Circumstances
Section 70 lays down circumstances under which a company is prohibited from buying back its own shares or other specified securities.
🔹 1. General Rule
A company shall not buy back its own shares or other specified securities, directly or indirectly, if any of the following conditions apply:
🔸 (a) Through Subsidiary Company
A company cannot buy back its shares through any of its subsidiary companies, including its own subsidiary (whether Indian or foreign).
🔸 (b) Through Investment Company
A company cannot buy back its shares through an investment company (a company whose principal business is acquiring shares, debentures, etc.).
🔸 (c) In Case of Default
A company is prohibited from buying back shares if it has defaulted in:
Repayment of deposits accepted or interest thereon,
Redemption of debentures or preference shares,
Payment of dividend to shareholders, or
Repayment of any term loan or interest payable to a bank, financial institution, etc.
🔹 Exception:
If the default is remedied and a period of 3 years has elapsed since such default ceased to exist, then the company may buy back.
🔸 (d) Non-Compliance with Provisions
A company cannot buy back its shares if it has not complied with the provisions of:
Sections 92 (Annual Return)
Section 123 (Declaration of Dividend)
Section 127 (Punishment for failure to distribute dividends)
Section 129 (Financial Statements)
✅ Purpose of Section 70:
To protect the financial integrity of the company.
To ensure companies do not misuse the buy-back mechanism when they are financially stressed or in default.
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