Section 68 of CA 2013 : Section 68: Power Of Company To Purchase Its Own Securities

Explanation using Example

Imagine XYZ Corp, a publicly traded company, has been performing well and has accumulated substantial cash reserves. The management decides to return some value to its shareholders and improve financial metrics such as earnings per share (EPS). They propose to buy back 5% of the company's outstanding shares using the company's free reserves.

To comply with Section 68 of The Companies Act, 2013, XYZ Corp's Board of Directors first ensures that their Articles of Association authorize share buy-backs. Then, they convene a general meeting where the shareholders pass a special resolution approving the buy-back plan.

XYZ Corp sends a notice of the meeting to the shareholders, which includes an explanatory statement detailing the reasons for the buy-back, the class and amount of shares to be bought back, and the time frame for completion.

After the resolution is passed, the company's directors sign a declaration of solvency, affirming that XYZ Corp will remain solvent after the buy-back. This declaration is filed with the Registrar of Companies, as the shares are publicly traded.

XYZ Corp proceeds with the buy-back from the open market over several months, ensuring it does not exceed the 5% limit without another special resolution. Once the buy-back is completed, the bought-back shares are extinguished and physically destroyed within seven days.

The company maintains a register recording the details of the buy-back process, and after completion, files a return with the Registrar detailing the buy-back within thirty days.

Following the buy-back, XYZ Corp refrains from issuing any new shares of the same kind for the next six months, unless it's for a bonus issue or to fulfill existing obligations such as converting warrants or debentures into equity shares.