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 in general meeting of the company authorising the buy-back.

3. the buy-back is or less than twenty-five percent of the total 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 percent of the total paid-up capital in that financial year.]

4. the ratio of the debt owed by the company is not more than twice the capital and its free reserves after such buy-back. Provided that the Central Government may prescribe a higher ratio of the debt than that specified under this clause for a class or classes of companies.
   [Explanation : For the purposes of this clause, the expression "debt" includes all amounts of unsecured and secured debts.]

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 of India in this behalf.

7. the buy-back in respect of shares or other specified securities other than those specified in clause (f) is in accordance with the guidelines as may be prescribed.

The notice of the meeting at which special resolution is proposed to be passed shall be accompanied by an explanatory statement stating :

1. a full and complete disclosure of all material facts ;

2. the necessity for the buy-back ;

3. the class of security intended to be purchased under the buy-back;

4. the amount to be invested under the buy-back ; and

5. the time limit for completion of buy-back.

Every buy-back shall be completed within twelve months from the date passing the special resolution under clause (b) of sub-section (2)

The buy-back under sub-section (1) may be :

1. from the existing security holders on a proportionate basis ; or

2. from the open market ; or

3. from odd lots, that is to say, where the lot of securities of a public company whose shares are listed on a recognised stock exchange, is smaller than such marketable lot, as may be specified by the stock exchange ; or

4. by purchasing the securities issued to employees of the company pursuant to a scheme of stock option or sweat equity.

Where a company has passed a special resolution under clause (b) sub - section (2) to buy-back its own shares or other securities under this section, it shall before making such buy-back, file with the Registrar and the Securities and Exchange Board of India a declaration of solvency in the form as may be prescribed, and verified by an affidavit to the effect that the board has made a full inquiry into the affairs of the company as a result of which they have formed an opinion that it is capable of meeting its liabilities and will not be rendered insolvent within a period of one year of the date of declaration adopted by the Board, and signed by at least two directors of the company, one of whom shall be the Managing Director, if any. Provided that no declarations of solvency shall be filed with the Securities and Exchange Board of India by a company whose shares are not listed on any recognised stock exchange.

Where a company buys-back its own securities it shall extinguish and physically destroy the securities so bought-back within seven days of the last date of completion of buy-back.

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 (including allotment of further shares under clause (a) of sub-section (1) of section 81) or other specified securities within a period of twenty-four months except by way of bonus issue or in the discharge of subsisting obligations such as conversion of warrants, stock option schemes, swear equity or conversion of preference shares or debentures into equity shares.

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.

A company shall, after the completion of the buy-back under this section file with the Registrar and the Securities Exchange Board of India, a return containing such particulars relating to the buy-back within thirty days of such completion, as may be prescribed.
[Provided that no return shall be filed with the Securities and Exchange Board of India by a company whose shares are not listed on any recognised stock exchange.]

If a company makes default in complying with the provision of this section or any rules made thereunder, or any regulations made under clause (f) of sub-section(2) , the company or any officer of the company who is in default shall be punishable with imprisonment for a term which may extend to two years, or with fine which may extend to fifty thousand rupees, or with both.