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Explanation:

According to Section 77A (1) of the Companies (Amendment) Act, 1999, a company may purchase its own shares or other specified securities out of:
(i) Its free reserves (i.e. reserves which are free for distribution as dividend); or

(ii) The securities premium account; or

(iii) The proceeds by any shares or other specified securities.

Specified securities include employees’ stock option or other securities as may be notified by the Central Government from time to time. Buyback of shares of any kind is not allowed out of fresh issue of shares of the same kind. In other words, if equity shares are to be bought back, preference shares or debentures may be issued for buyback of equity shares.