Prohibition on buy back in following circumstances: (section 70) :
No company shall directly or indirectly purchase its own shares or other specified securities –
a) through any subsidiary company including its own subsidiary companies;
b) through any investment company or group of investment companies; or
c) if a default, is made 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. Provided that the buy-back is not prohibited, if the default is remedied and a period of three years has lapsed after such default ceased to subsist.
No company shall, directly or indirectly, purchase its own shares or other specified securities in case such
company has not complied with the provisions of:
a) Sections 92: Annual Return
b) Section 123: Declaration and Payment of Dividend
c) Section 127: Failure to pay Dividend
d) Section 129: Failure to give True and Fair Statement
Accounting Enteries
| 1. In case investments are sold for buying back own shares: |
| Bank Dr.
To Investment Account |
| 2. In case the proceeds of fresh issues are used for buy back purpose: |
| Bank Dr.
To debentures/other Investment account To Securities premium account(if any) |
| 3. For Buying back of shares: |
| Equity Shareholders Dr.
To Bank (With the amount paid) |
| 4. For cancellation of shares bought back: |
| Equity Share Capital Account Dr. (with the nominal value of shares bought back)
Free reserves/SecuritiesPremium Account Dr. (with the excess amount/premium paid over nominal value) To Equity Shareholders (with the amount payable)
|
| 5. In case the shares are bought back at discount: |
| Equity Share Capital Account Dr. (with the nominal value)
To Equity shareholders (with the amount paid) To Capital Reserve Account (with the amount of discount on buy-back)
|
| 6. For transfer of nominal value of shares purchased out of free reserves/securities premium to |
| Free Reserves Dr. (with the amount transferred)
Securities Premium Account Dr. (with the amount transferred) To Capital Redemption Reserve Account (with the nominal value of shares bought back) |
| 7. For expenses incurred in buy-back of shares: |
| Buy-back Expenses Dr. (with the amount)
To Bank |
| 8. For transfer of buy-back expenses |
| Profit and Loss Account Dr.
To Buy-back Expenses ISSUE |