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A company can buy-back
securities u/s. 77A. The following regulations and rules are relevant :
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Securities and Exchange Board of India
(Buy-back of Securities) Regulations, 1998 (18 SCL (St.) 233) (as
amended from time to time). These regulations are applicable to buy-back
of shares or other specified securities of a company listed on a stock
exchange. Buy-back cannot be for delisting of a company’s shares from
the stock exchange.
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Private Limited Company and Unlisted
Public Limited Company (Buy-back of Securities) Rules, 1999 (21 SCL
(St.) 109).
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Buy-back of securities can be done out of free
reserves or securities premium account or proceeds of issues of any shares
or other specified securities. Proceeds out of issue of same kind of
securities cannot be used. Buy-back can be of preference shares also.
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The following conditions have to be satisfied.
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Authorisation under Articles for buy-back.
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Special resolution in General Meeting
except as under:
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Buy-back is up to or less than 25% of
total paid-up capital and free reserves subject to buy-back in a
financial year not to exceed 25% of total paid-up equity capital.
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Debt equity ratio post buy-back not to
exceed 2:1. Debt includes secured and unsecured debts.
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Securities under buy-back are fully
paid-up.
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Securities under buy-back should be in
accordance with the regulations as listed at 1(a) / (b) above.
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Buy-back should be completed within 12
months of passing special resolution. No buy-back shall be made within
365 days from the date of preceding offer of buy-back.
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The notice for special resolution should
contain prescribed particulars giving full and complete disclosure of
buy-back.
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Securities bought back shall be
extinguished/physically destroyed within 15 days of the date of
acceptance of the securities. All the securities bought back shall be
extinguished within 7 days of the last date of completion of buy-back.
Where securities bought back are already dematerialized, they shall be
extinguished/destroyed in the manner specified under SEBI (Depositories
and Participants) Regulations, 1996 and the bye-laws framed thereunder.
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Declaration of solvency to be filed in
Form No. 4A before buy-back, with ROC and SEBI, verified by Affidavit by
Board of Directors to the effect that the company is capable of meeting
its liabilities and will not be rendered insolvent within one year. The
declaration is to be signed by at least two Directors, including one
Managing Director.
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Further issue of same kind of securities
cannot be made by the company for a period of six months except bonus
issues or discharging subsisting obligations like conversion of
warrants, stock option schemes, sweat equity or conversion of preference
shares of debentures.
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Return to be filed with ROC and SEBI on
completion of buy-back within 30 days containing particulars as
contained in Form No. 4C.
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Where buy-back is out of free reserves,
amount equal to par value of securities paid back to be transferred to
capital redemption reserve account with appropriate disclosure in the
Balance Sheet (Sec. 77AA).
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As per sec. 77B buy-back of Securities
cannot be done
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through any subsidiary company,
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through any investment company or
group of investment companies,
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if company has defaulted in repayment
of deposit or interest payable thereon, in redemption of debentures
or preference shares or in payment of dividend to any shareholder,
or repayment of any term loan or interest payable thereon to any
financial institution or bank,
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if a company has not complied with
provisions of sub-sections 159, 207 and 211.
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Register of buy-back to
be maintained in Form No.4B detailing consideration paid for buy-back,
date of cancellation and other similar information.
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Methods of buy-back
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Proportionate method from existing
security holders.
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Open market method.
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Odd lot purchase.
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Securities buy-back from employees who
were issued securities under scheme of stock option or sweat equity.
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Default in compliance with provisions
relating to buy-back would lead to two years imprisonment or a fine of Rs.
50,000/- or both to every person connected with the default.
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While submitting the offer documents or a
copy of the public announcement to SEBI, fees have to be paid as per the
size of the buy-back, as follows:
|
Offer size |
Fee (Rs.) |
|
Less than or equal to ten |
One lakh rupees |
|
crore rupees. |
(Rs. 1,00,000/-). |
|
More than ten crore rupees, |
0.125% of the offer size. |
|
but less than or equal to one |
|
|
thousand crore rupees. |
|
|
More than one thousand crore |
One Crore twenty five lakh |
|
rupees, but less than or equal |
rupees (Rs. 1,25,00,000/-) plus |
|
to five thousand crore rupees. |
0.03125 per cent of the portion |
|
|
of the offer size in excess of |
|
|
one thousand crore rupees |
|
|
(Rs. 1000,00,00,000/-) |
|
|
|
|
More than five thousand |
A flat charge of three crore |
|
crore rupees. |
rupees (Rs. 3,00,00,000/-).” |
(Note: The above feee table
was substituted vide amendment regulations dated 31st March, 2008.)
|
