Payment alone does not immediately clear a buyback
Section 70(1)(c) of the Companies Act, 2013 prohibits a company from directly or indirectly purchasing its own shares or other specified securities if it makes a covered default. The proviso requires both remedy and the lapse of three years after that default ceased to subsist. A company with sufficient cash, permitted funding sources and section 68 headroom still needs a separate section 70 review.
Read the applicable text: India Code: Companies Act, 2013, sections 68, 70, 92, 123, 127 and 129.
Build the default history by obligation
The provision covers repayment of deposits accepted before or after commencement and interest on them, redemption of debentures or preference shares, payment of dividend to shareholders, and repayment of a term loan or payment of its interest to a financial institution or banking company. Record the obligor, statutory category, effective due date, amount, any unpaid interest and evidence of remedy. A generic overdue-payables report does not capture the statutory categories. An old unresolved default still matters.
Determine when the default actually ceased
Use bank value dates, registrar or lender confirmations, settlements and legally operative documents. A waiver, revised schedule, rejected payment or a disputed balance needs a supported legal conclusion; the date of an internal entry or an unsigned draft is not necessarily the cure date. If separate defaults exist, test each clock independently and use the last applicable clearance for the proposed transaction. Keep any exact anniversary or time-of-day boundary for legal confirmation rather than timing execution to an uncertain instant.
Check the prohibitions outside the default clock
Section 70(1)(a) and (b) prohibit purchases through a subsidiary or through an investment company or group of investment companies. The default proviso does not remove those structural prohibitions. Section 70(2) independently prohibits the purchase where the company has not complied with sections 92, 123, 127 and 129, which address annual returns, dividends, failure to distribute dividends and financial statements. A dividend issue may need both a default analysis and a compliance analysis. Keep the statutory bases separate rather than applying one three-year rule to every issue.
Present a dated decision before committing funds
Give the board or transaction team a release matrix showing covered obligations, evidence of cessation, waiting period and separate open statutory or structural issues. Check current status again before effecting the purchase. This review does not determine whether the transaction satisfies section 68, any unlisted-company rules or listed-company requirements.
Six worked illustrations
All facts and amounts are fictional. Calculations illustrate the stated assumptions, not a predetermined legal outcome.
Illustrative example 1: Late deposit and outstanding interest
₹25 lakh principal and ₹1.4 lakh interest were overdue. Principal and ₹1.1 lakh interest were paid. ₹30,000 remains due, so there is no complete remedy on the assumed facts.
Illustrative example 2: Well before and after the boundary
Assume a covered default ceased on 12 September 2023. A buyback proposed on 1 September 2026 is 11 days before the third anniversary and still within the wait. A proposal on 25 September 2026 is 13 days after that anniversary; check the other gates.
Illustrative example 3: Two distinct cure dates
Deposit default ceased on 1 February 2023 and a separate bank term-loan interest default ceased on 15 June 2024. By 1 April 2026 the first third anniversary has passed, while the second third anniversary is 15 June 2027. The later clock still blocks the proposal.
Illustrative example 4: Payment instructed and returned
A company instructs ₹9,00,000 against covered arrears. Only ₹7,60,000 discharges the liability and ₹1,40,000 returns unpaid. On these facts ₹1,40,000 is unresolved and the full remedy test fails.
Illustrative example 5: Section 68 headroom is a separate calculation
Assume the section 68 monetary ceiling is already properly established at ₹4 crore and the contemplated purchase is ₹2.8 crore. The resulting ₹1.2 crore of unused headroom cannot override a section 70(1)(c) wait.
Illustrative example 6: No covered default but a prohibited route
A proposed ₹75 lakh purchase of the company's own shares is to be made through its subsidiary. Under section 70(1)(a), the permitted amount through that route is nil, even with no covered arrears.
Ten-step verification table
| Step | Action | Evidence |
|---|---|---|
| 1 | Map the proposed purchase route | Transaction diagram and counterparties |
| 2 | Verify statutory compliance status | Annual return, dividend and financial-statement compliance records |
| 3 | Reconcile deposits and interest | Register, terms and payment confirmations |
| 4 | Screen debenture and preference redemptions | Terms, redemption schedules and evidence |
| 5 | Check dividend payment history | Declarations, payments and exception file |
| 6 | Obtain term-loan evidence | Facility and lender confirmations |
| 7 | Resolve disputed due and cure dates | Executed changes and legal review |
| 8 | Calculate each waiting period independently | Calendar worksheet and supporting dates |
| 9 | Review separate buyback requirements | Section 68 and applicable rule or regulation file |
| 10 | Recheck immediately before execution | Current status certificate and dated decision |
Sixteen practitioner FAQs
1. Does every unpaid invoice prevent buyback under section 70(1)(c)?
No. Check whether the liability is in a statutory category.
2. Does interest alone count?
Yes for the specified deposit and covered term-loan cases; check the terms and amount due.
3. Does a delayed preference share redemption matter?
Yes. It is a listed default category.
4. Is every delayed repayment of a financing facility covered?
Check whether it is a term loan from a financial institution or banking company within the statutory language and whether another category applies.
5. Is the original due date the start of the three years?
No. Use when the remedied default ceased to subsist.
6. Can partial payment start the clock for the entire default?
Not where a covered part still subsists.
7. What if a bank posts the payment on a different day?
Resolve effective discharge from the facility terms and payment evidence; distinguish instruction from settlement.
8. Does a lender waiver always establish cure?
Only a valid and effective arrangement may support that conclusion; determine its scope and date.
9. Can a section 186(8) clearance be reused?
It can supply evidence, but section 70 tests a wider set of defaults and includes a separate waiting period.
10. Can a company buy through a subsidiary if it has never defaulted?
Section 70(1)(a) independently prohibits that route.
11. Does the default proviso also excuse a section 92 failure?
No. Section 70(2) is a separate compliance bar.
12. What if a dividend was unpaid for a reason addressed by section 127?
Analyse the facts and applicable exception under section 127 and make a separate section 70(1)(c) determination.
13. Should we exclude a historical default when the current ledger is zero?
No. A paid balance can still be within the statutory waiting period.
14. Does shareholder approval cure a section 70 issue?
No. Required approvals and statutory eligibility are separate.
15. Do listed companies need additional checks?
Yes. For a listed company, apply the SEBI (Buy-back of Securities) Regulations, 2018 as amended, in addition to the Companies Act. Confirm the version in force for the transaction date.
16. How should a board pack show an unresolved item?
Identify the statutory limb, amount, date, evidence gap and action required before release.
Official sources
India Code: Companies Act, 2013, sections 68, 70, 92, 123, 127 and 129
SEBI: Buy-back of Securities Regulations, 2018, consolidated through 6 July 2026