Chapter IV - Share Capital and Debentures
Section 69
Section 69: capital redemption reserve after buy-back
When a company buys back its own shares out of free reserves or securities premium account, it must transfer a sum equal to the nominal value of those shares to the capital redemption reserve account and disclose it in the balance sheet.
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This article is for general information. Refer to the Companies Act, 2013 official text for the official provisions. If you need professional advice for your situation, contact Bizeneed.
Statutory text
Bare law
(1) Where a company purchases its own shares out of free reserves or securities premium account, a sum equal to the nominal value of the shares so purchased shall be transferred to the capital redemption reserve account and details of such transfer shall be disclosed in the balance sheet.
(2) The capital redemption reserve account may be applied by the company, in paying up unissued shares of the company to be issued to members of the company as fully paid bonus shares.
Introduction
Section 69 preserves the capital base after a buy-back under section 68. The capital redemption reserve may be used only to pay up unissued shares as fully paid bonus shares.
Section 69 came into force on 12 September 2013 under S.O. 2754(E). The consolidated text shows no amendment.
Key takeaways
Trigger
A buy-back out of free reserves or securities premium account.
Amount
Equal to the nominal value of the shares purchased, with the transfer disclosed in the balance sheet.
Use
Paying up unissued shares to be issued to members as fully paid bonus shares.
Compute the transfer
Where the buy-back is funded out of free reserves or the securities premium account, transfer a sum equal to the nominal value of the shares bought back to the capital redemption reserve account. Disclose the details of the transfer in the balance sheet.
Permitted use
Sub-section (2) allows the company to apply the capital redemption reserve in paying up unissued shares to be issued to members as fully paid bonus shares.
Practical preparation
Identify the funding source of the buy-back. Compute the nominal value of the shares bought back. Pass the accounting entry to the capital redemption reserve. Disclose it in the balance sheet. Use the reserve only for bonus shares.
Practical checklist
Do
- Reconcile the reserve transfer with the number and nominal value of shares extinguished.
Avoid
- Do not distribute the capital redemption reserve as dividend; section 69(2) lists bonus shares as its use.
Illustrative example
Hypothetical: buy-back from free reserves
A company buys back 10,000 shares of ₹10 each out of free reserves.
Compute
The nominal value is ₹1,00,000.
Transfer
Credit ₹1,00,000 to the capital redemption reserve account.
Disclose
Show the transfer in the balance sheet.
Outcome
- The capital base is preserved and the reserve is available only for fully paid bonus shares.
Glossary
- Capital redemption reserve account
- A reserve credited with the nominal value of shares bought back out of free reserves or securities premium.
- Free reserves
- For buy-back purposes, section 68 states that free reserves include the securities premium account.
Frequently asked questions
How much must be transferred?
A sum equal to the nominal value of the shares purchased.
Can the reserve be used for anything else?
Section 69(2) provides for its use in paying up unissued shares as fully paid bonus shares.
Need help applying this provision to your situation?
Contact BizeneedLast updated 11 October 2026