A buy-back by an unlisted company is a capital transaction with a strict sequence. Section 68 of the Companies Act, 2013 sets the financial and approval conditions; Rule 17 of the Companies (Share Capital and Debentures) Rules, 2014 adds the offer process; and MCA webforms SH-8, SH-9 and SH-11 sit at different stages of that process.
The current Companies Act, 2013 published by MCA is the statutory starting point. For an unlisted company, the procedural rules are in MCA's Companies (Share Capital and Debentures) Rules, 2014.
Check the Section 68 capacity limits before preparing the offer
A company can fund a buy-back from free reserves, the securities premium account, or proceeds of an issue of shares or other specified securities, but it cannot use the proceeds of an earlier issue of the same kind of shares or securities for that buy-back.
The articles must authorise the buy-back. Ordinarily, members approve it by special resolution. Section 68 also permits Board approval where the proposed buy-back is 10% or less of the total paid-up equity capital and free reserves. The overall statutory ceiling is 25% or less of the aggregate paid-up capital and free reserves; for equity shares, the 25% test is applied to total paid-up equity capital in that financial year.
After the buy-back, the aggregate secured and unsecured debt must ordinarily not exceed twice the paid-up capital and free reserves, unless a higher ratio has been notified for a permitted class. The securities proposed to be bought back must also be fully paid-up.
Section 70 can stop a buy-back even when the numerical limits fit
Before launching the transaction, the company should separately test the prohibitions in section 70. A buy-back cannot be carried out through a subsidiary or through an investment company or group of investment companies. It is also restricted where specified defaults exist in repayment of deposits, interest, redemption obligations, dividends, or term-loan obligations, subject to the statutory cure-and-wait rule.
Section 70 also prohibits a buy-back where the company has not complied with sections 92, 123, 127 and 129. This is why a buy-back checklist should include annual-return, dividend and financial-statement compliance rather than looking only at paid-up capital and reserves.
SH-8 is the letter of offer filed before the buy-back
For the Rule 17 route, the company files the letter of offer in Form SH-8 with the Registrar before the buy-back. MCA's current SH-8 instruction kit describes SH-8 as the letter of offer for a company undertaking a buy-back of its own shares or other specified securities.
Rule 17 requires the letter of offer to be dispatched to shareholders or security holders immediately after filing it with the Registrar and not later than 20 days from that filing. The offer must remain open for at least 15 days and not more than 30 days from dispatch. If tenders exceed the quantity proposed to be bought back, acceptance is on a proportionate basis under the rule.
SH-9 is the declaration of solvency
SH-9 is not a post-transaction form. It is the declaration of solvency filed before the buy-back. MCA's SH-9 instruction kit states that the declaration is filed under section 68(6) read with Rule 17(3) and records the Board's view that the company can meet its liabilities and will not be rendered insolvent within one year from the date of the declaration adopted by the Board.
For an unlisted company, the Registrar is the relevant filing authority for the declaration. Listed companies have the additional SEBI layer and should follow the applicable SEBI buy-back framework rather than using this unlisted-company guide as a complete transaction checklist.
The offer period creates its own operating timetable
Rule 17 requires the company to complete verification of offers received within 15 days from closure of the offer. The rule also provides a deemed-acceptance mechanism unless rejection is communicated within the prescribed period.
Immediately after closure of the offer, the company must open a separate bank account and deposit the amount needed to pay the consideration for the securities tendered for buy-back. The payment and return of unaccepted securities then follow the Rule 17 timetable. These steps should be mapped in the treasury calendar before the offer opens because the cash requirement becomes operational very quickly after closure.
Completion does not end the compliance work
Section 68 requires every buy-back to be completed within one year from the date of the special resolution or, where the Board approval route applies, the Board resolution. Shares or securities bought back must be extinguished and physically destroyed within seven days of the last date of completion of the buy-back.
The company must also maintain the prescribed register of securities bought back. Rule 17 identifies this register as Form SH-10. Where shares are bought back out of free reserves or securities premium, section 69 requires transfer to the capital redemption reserve of an amount equal to the nominal value of the shares bought back, with the transfer disclosed in the balance sheet.
SH-11 is the return filed after completion
SH-11 is the post-completion return. MCA's SH-11 instruction kit states that the return is filed under section 68(10) read with Rule 17(13) within 30 days of completion of the buy-back. For an unlisted company, the return is filed with the Registrar; a listed company also has the SEBI filing requirement.
The distinction between SH-8, SH-9 and SH-11 is therefore practical:
- SH-8: the letter of offer filed before the buy-back.
- SH-9: the declaration of solvency filed before the buy-back.
- SH-11: the return filed after the buy-back is completed.
A workable sequence for an unlisted company
- Test eligibility: confirm articles authority, funding source, buy-back percentage, post-buy-back debt ratio, fully paid securities and section 70 restrictions.
- Obtain the correct approval: determine whether Board approval is available for a buy-back within the 10% threshold or whether a special resolution is required.
- Prepare and file the pre-offer documents: complete SH-8 and SH-9 and ensure the underlying financial and solvency analysis supports the filings.
- Dispatch and run the offer: follow the Rule 17 dispatch, offer-window, verification and payment timetable.
- Complete statutory records: update the buy-back register, extinguish the bought-back securities within the statutory period and make the capital redemption reserve transfer where section 69 requires it.
- File SH-11: submit the return within 30 days of completion and reconcile it to SH-8, SH-9, the Board or member approval, bank payments and the register of securities bought back.
Two timing rules are easy to confuse
The one-year period in section 68 is the outer period for completing the buy-back after the authorising resolution. It is not the offer window. Rule 17 separately limits the offer period to 15 to 30 days from dispatch of the letter of offer and imposes shorter deadlines for verification and payment-related steps.
Similarly, the 30-day SH-11 filing period begins after completion of the buy-back. It should not be counted from the special resolution, the filing of SH-8 or the date the offer opened.
Do not plan a new issue without checking the six-month restriction
After completing a buy-back, section 68 generally restricts a further issue of the same kind of shares or securities for six months. The section preserves specified exceptions, including a bonus issue and discharge of subsisting obligations such as conversion of warrants, stock options, sweat equity, preference shares or debentures into equity shares.
For finance and secretarial teams, the safest way to execute an unlisted-company buy-back is to treat it as one controlled capital project rather than three MCA forms. SH-8 opens the offer process, SH-9 supports the solvency position, the Rule 17 timetable controls tender and payment, and SH-11 closes the ROC reporting. The legal limits, section 70 checks, cash plan, capital records and post-buy-back restrictions should all reconcile to that same transaction file.
