The purchase of a long position to offset a short position.

Buy-Back is a corporate action in which a company buys back its shares from the existing shareholders usually at
a price higher than market price. When it buys back, the number of shares outstanding in the market reduces1.
A buyback allows companies to invest in themselves2. By reducing the number of shares outstanding on the
market, buybacks increase the proportion of shares a company owns.

One of the first multinationals (MNCs) to offer buy back option was royal Philips electronics of
Netherlands (Philips), the Dutch parent of Philips India limited in the year 2000. The open offer was made
at rs.105, a premium of 46% over the then prevailing stock market price. Cadbury India, Otis elevators,
carrier Aircon etc. soon followed suit. Fund managers which held these companies' stocks felt that allowing
buyback of shares was one of most favourable developments in the Indian stock markets.3

For a company,

WHAT IS A 'BUYBACK'

A buyback, also known as a repurchase, is the purchase by a company of its outstanding shares that reduces the
number of its shares on the open market. Companies buy back shares for a number of reasons, such as to increase
the value of shares still available by reducing the supply of them or eliminate any threats by shareholders who
may be looking for a controlling stake.

Buyback of Shares and securities is popular in United States of America. Till October, 1998, the scheme of
buyback of shares and securities was not known to the Indian companies. The Prime Minister of India, Mr. Atal
1 Avtar Singh, Company Law (15th edn Eastern Book Company, 2009) 260-61

2 Gujarat Amiya Exports Ltd, Re (2004) Comp Cas 265 Guj.

3 https:// 2Flegalservicesindia Fcompany-law-9-1.html&h=ATNxsCqisBt9mO1uDu-

PyaMe1oWKdQlZOje
Bihari Vajpayee unveiled an economic package to reverse the sagging capital market on 24th October, 1998 at the
71st annual session of the Federation of Indian Chambers of Commerce and Industry (FTCCI). One of the items
of the economic package was the introduction of the scheme of buyback of shares and securities.

Within a week followed by this announcement by the Prime Minister, the Government of India issued an
ordinance on October 31, 1998 for buyback of shares, amending the Companies Act, 1956. Prior to the
amendment of the Companies Act, 1956, the buyback of shares in India was prohibited. Section 77 of the Act4, as
stood before the amendment made in 1998, imposed a blanket ban on companies from buying their own shares.
Section 77A, 77AA and 77B have been introduced in 1999 in the Companies Act, 1956 to enable companies5 to
purchase their own shares on other specified securities.

Buy back can be of:

SHARES DEBENTURES

Only equity shares can be bought back by the Sometimes article of association of company may
Company. empower directors of company to purchase its own
These shares are brought back for the purpose debentures from open market:
of Cancellation.
1. either for immediate cancellation OR

2.for investment and cancellation at a subsequent stage

BUY BACK OF EQUITY SHARES:

Equity shares- Equity shares do not enjoy any preferential rights in the matter of payments of dividend or
repayment of capital. They carry voting rights at the general meetings of the company and have the right to
control the management of the company. These shares can be issued by a company either
(i) For cash or
(ii) For consideration other than cash.

Meaning- Equity shares are the main source of finance of a firm. It is issued to the general public. Equity
shareholders do not enjoy any preferential rights with regard to repayment of capital and dividend. They are
entitled to residual income of the company, but they enjoy the right to control the affairs of the business and
all the shareholders collectively are the owners of the company
The provisions regulating buy back of shares6 are contained in Section 77AA and 77AB of the Companies
Act, 1956.

4 See, e.g., Illinois (Ill Rev Stat ch 32, 9.10); Maryland; Indiana (Ind Code 23-1-28-1 et seq.);
Massachusetts (Mass Gen Laws Ann ch 156B, 45, 61); Michigan (Mich Comp Laws 450.1365); Virginia (Va Code
13.1-653)

5 MBCA, 2(l)
 These were inserted by the Companies (Amendment) Act, 1999.
The Securities and Exchange Board of India (SEBI) framed the SEBI(Buy Back of Securities)
Regulations,1999 and the Department of Company Affairs framed the Private Limited Company and Unlisted
Public company (Buy Back of Securities) rules,1999 pursuant to Section 77A(2)(f) and (g) respectively
Buyback is reverse of issue of shares by a company where it offers to take back its shares owned by 7 the
investors at a specified price; this offer can be binding or optional to the investors.

REASONS FOR BUY BACK:

1) TO RETURN THE SURPLUS CASH TO THE INVESTORS8

If the company has huge cash reserves with not many new profitable projects to invest in and if the
company thinks the market price of its share is undervalued the company may return the surplus cash by
buy backing the equity shares.

2) SHOW ROSIER FINANCIALS

Companies try to use buyback method to show better financial ratios.
For e.g. when a company uses its cash to buy stock, it reduces outstanding shares
and also the assets on the balance sheet.
If the company earnings are identical before and after the buyback earnings per
share (EPS) and the P/E ratio would look better even though earnings did not
improve.
Since investors carefully scrutinize only EPS and P/E figures, an improvement
could jump-start the stock.

3) AT THE TIME OF LIQUIDATION

The promoters of the company at the time of liquidation buy back the shares from
the shareholders and retain their majority shareholding in the company.
So after revaluation and closing the books of accounts, whatever excess profits
earned are enjoyed by them.

4) INCREASE PROMOTER'S STAKE

Sometimes the promoters do not have majority shareholding in the company.
So to increase their shareholding in the company they buy back the shares from
the existing shareholder.
However they retain their own shares as they were before buy back.
As a result they get comparative advantage and their share in company
increases relatively.
5) OTHER REASONS9:
a. To increase promoters holding.
6 The Companies Act 1956

7 Zahn v Transamerica Corp, 162 F.2d 36 (3d Cir. 1947)

8 legalserviceindia.com
 b. Increase earnings per share
c. Rationalise the capital structure by writing off capital not represented by available assets.
d. Support share value.
e. To thwart takeover bid.
f. To pay surplus cash not required by business.

In fact the best strategy to maintain the share price in a bear run is to buy back the shares from the
open market at a premium over10 the prevailing market price

SOURCES OF FUNDS FOR BUY BACK OF SHARES:

The purchase of shares should be out of

free reserves
securities premium account
proceeds of any shares or other specified securities
(Buy back of shares cannot be made out of earlier issue of same kind of shares).

FROM WHOM THE COMPANY CAN BUY BACK11?

The provisions regulating buy back of shares are contained in Section 77A, 77AA and 77B of the Companies
Act, 1956. These were inserted by the Companies (Amendment) Act, 1999. The Securities and Exchange
Board of India (SEBI12) framed the SEBI(Buy Back of Securities) Regulations,1999 and the Department of

9 Buy back of shares M.Siddharta

10 http://www.docstoc.com/

11 IPCC Module

12 http://www.indiainfoline.com/
Company Affairs framed the Private Limited Company and Unlisted Public company (Buy Back of Securities)
rules,1999 pursuant to Section 77A(2)(f) and (g) respectively.

SO ACCORDING TO THESE REGULATIONS & PROVISIONS CERTAIN

GENERAL CONDITIONS, RESTRICTIONS & PENALTIES ETC. ARE
MENTIONED WHICH ARE AS FOLLOWS:

CONDITIONS OF BUY BACK:

1. Buy back should be authorized by The Articles of Association.

2. If the article is silent then it needs13 to get amended.
3. Company should pass a special resolution in general meeting authorizing the buyback.
4. Partly paid up equity shares cannot be bought back. In order to buy back. They have to be made fully paid
up by making a final call.
5. Buy back should be completed within 12 months of passing special resolution.
6. Shares/securities bought up should be physically destroyed within 7 days of completion of buy backing.
7. After the completion of buyback the company cannot issue the same class of equity shares for a period of
24 months.
8. Shares can be bought back either at par, or at premium or at discount.
9. Rs.10 share Rs.10 (at Par)
a. Rs.10 share Rs.12 (at Premium)
b. Rs.10 share Rs.9 (at discount)

10. Discount on buy back is a capital profit which should be transferred to Capital Reserve.
11. There has been no default in any of the following
i. in repayment of deposit or interest payable thereon,
ii. Redemption of debentures, or preference shares or
iii. payment of dividend, if declared, to all shareholders within the stipulated time of 30 days from the
date of declaration of dividend or
12. Repayment of any term loan or interest payable thereon to any financial institution or bank.
13. There has been no default in complying with the provisions of filing of Annual Return, Payment of
Dividend, and form and contents of Annual Accounts.
14. All the shares or other specified securities for buy-back are fully paid-up.
15. The buy-back of the shares or other specified securities listed on any recognised stock exchange shall be
in accordance with the regulations made by the Securities and Exchange Board of India in this behalf.
16. The buy-back in respect of shares or other specified securities of private and closely held companies is in
accordance with the guidelines as may be prescribed.
17. Premium on buy back is a loss which should be adjusted from free reserves.
18. Amount utilized for buyback of nominal value if share out of free reserves should be transferred to a
newly opened A/c known as Capital Redemption Reserve.

13 YourArticleLibrary.com
DISCLOSURES IN THE EXPLANATORY STATEMENT14:
The notice of the meeting at which special resolution is proposed to be passed shall be accompanied by an
explanatory15 statement stating -
(a) a full and complete disclosure of all material facts;
(b) the necessity for the buy-back;
(c) the class of security intended to be purchased under the buy-back;
(d) the amount to be invested under the buy-back; and
(e) the time-limit for completion of buy-back

Sources from where the shares will be purchased

The securities can be bought back from
(a) existing security-holders on a proportionate basis;
Buyback of shares may be made by a tender offer through a letter of offer from the holders of shares of the
company or
(b) the open market through
(i). book building process;
(ii) stock exchanges or
(c) odd lots, that is to say, where the lot of securities of a public company, whose shares are listed on a recognized
stock exchange, is smaller than such marketable lot, as may be specified by the stock exchange; or
(d) purchasing the securities issued to employees of the company pursuant to a scheme of stock option or sweat
equity.

FILING OF DECLARATION OF SOLVENCY

After the passing of resolution but before making buy-back, file with the Registrar and the Securities and
Exchange Board of India a declaration of solvency in form 4A. The declaration must be verified by an affidavit to
the effect that the Board has made a full inquiry into the affairs of the company as a result of which they have
formed an opinion that it is capable of meeting its liabilities and will not be rendered insolvent within a period of
one year of the date of declaration adopted by the Board, and signed by at least two directors of the company, one
of whom shall be the managing director16, if any:
No declaration of solvency shall be filed with the Securities and Exchange Board of India by a company whose
shares are not listed on any recognized stock exchange.

REGISTER OF SECURITIES BOUGHT BACK:

14 http://www.legalserviceindia.com/article/l270

15 Right line education buyback (site)

16 Declaration regarding solvency in buy back of shares

After completion of buyback, a company17 shall maintain a register of the securities/shares so bought and enter
therein the following particulars
a. the consideration paid for the securities bought-back,
b. the date of cancellation of securities,
c. the date of extinguishing and physically destroying of securities and
d. such other particulars as may be prescribed

Where a company buys-back its own securities, it shall extinguish and physically destroy the securities so
bought-back within seven days of the last date of completion of buy-back.

ISSUE OF FURTHER SHARES AFTER BUY BACK:

Every buy-back shall be completed within twelve months from the date of passing the special resolution or Board
resolution as the case may be.
A company which has bought back any security cannot make any issue of the same kind of securities in any
manner whether by way of public issue, rights issue up to six months from the date of completion of buy back.

FILING OF RETURN WITH THE REGULATOR:

A Company shall, after the completion of the buy-back file with the Registrar and the Securities and Exchange
Board of India, a return in form 4 C containing such particulars relating to the buy-back within thirty days of such
completion.
No return shall be filed with the Securities and Exchange Board of India by an unlisted company.

RESTRICTIONS ON BUY BACK:

1. The amount of buy back should not exceed 25% own funds (share holder fund)
2. Own funds = 25% [ESC+PSC+A.R.-M.E] (share holder fund)
ESC= Equity share capital
PSC=Preference share capital
A.R. = All Reserves
M.E. =Miscellaneous expenses
3. Post buy back, debt equity ratio should not exceed 2:1.
4. Debt equity ratio = Debt/equity
I.e. own fund/borrowed fund = 1/2
5. Own fund should be half of borrowed fund
6. Money borrowed from banks and financial institutions cannot be utilized for the purpose of buy back.
7. Number of shares bought back should not exceed 25% of fully paid equity shares of the company.
8. For e.g. A Company has 30000 fully paid up equity shares of Rs.100 each. Then the no of shares that can
be bought back by the company is 25% of 30000 =7500 shares.

17 investorwords
PENALTY18:

If a company makes default in complying with the provisions the company or any officer of the company who is
in default shall be punishable with imprisonment for a term which may extend to two years, or with fine which
may extend to fifty thousand rupees, or with both. The offences are, of course compoundable under Section 621A
of the Companies Act, 1956.

THE PROVISIONS REGULATING BUY BACK OF SHARES ARE CONTAINED

IN SECTION 77A, 77AA AND 77B OF THE COMPANIES ACT, 1956, WHICH
ARE AS FOLLOWS:

BUY BACK AND COMPANIES ACT 1956

BUY BACK OF ITS OWN SHARES AND SPECIFIED SECURITIES BY A PRIVATE COMPAN
YUNDER THE COMPANIES ACT 1956

Buy back refers to buying back its own securities by a company19. The provisions regulating buy back of shares
and specified securities are contained in Section 77A, 77AA and 77B of the Companies Act, 1956 and Private
Limited Company and Unlisted Public Limited Company (Buy-Back of Securities) Rules, 1999. The provisions
regarding20 buy back is as follows:

1. Pre and Post Buy Back Conditions:

The following terms and conditions are required to be fulfilled by a company in order to become eligible to buy-
back its own securities:
(i) There must be a provision in the Articles of Association authorizing the company to buy-back its own
shares and specified securities; otherwise the Articles must be amended by a special resolution to
incorporate a suitable provision.
(ii) All the shares or other specified securities involved for buy-back must be fully paid-up.
(iii) After the buy-back, the debt (secured and unsecured) of the company namely the amount of
secured and unsecured debts21 shall not be more than twice the paid-up capital and free reserves.
(iv)In terms of section 77AA, where a company purchases its own shares out of free reserves, then a sum
equal to the nominal value of the share so purchased shall be transferred to the capital redemption
reserve account referred to in clause (d) of the proviso sub-section (1) of section 80 and details of such
transfer shall be disclosed in the balance sheet.

18 bseindia

19 http://corporatelawreporter.com

20 http://dx.doi.org/10.2139/ssrn.2117482

21 Singh, Kirti, Buy Back of Securities by the Company (July 25, 2012).SSRN
 (v) The buyback shall be completed within 12 months from the date of passing the Board Resolution or
Shareholders Resolution as the case may be.

2. MODES OF BUY BACK

The buyback may be:
(a) From the existing security holders on a proportionate basis; or
(b) From the open market; or
(c) By purchasing the securities issued to employees of the company pursuant to a scheme of stock
option or sweat equity.

3. SOURCES OF BUY BACK:

As per section 77A (1) buyback of shares and specified securities can be made only out of the following sources:
i. free reserves of the company; or
ii. The securities premium account; or
iii. By the proceeds of any shares or other specified securities:
Further as per the provisions of section 77A (1) buy-back of any kind of shares or other
specified securities shall be not be made out of the proceeds of an earlier issue of the same
kind of shares or same kind of other specified securities.

4. BUY BACK CEILING PER FINANCIAL YEAR:

In terms of clause (c) of sub section (2) of section 77A the Company can buy back its own shares and specified
securities, up to 25% of its paid up capital and free reserves in a financial year provided that the buy-back of
equity shares in any financial year shall not exceed twenty-five per cent of its total paid-up equity capital in
that financial year22.
It is pertinent to note further that as per clause (b) of sub section (2) of section 77A, no offer of buy-back shall be
made within a period of three hundred and sixty-five days reckoned from the date of the preceding offer of buy-
back, if any.

5. APPROVAL REQUIRED:
The buyback can be made with the approval of the Board of Directors and Shareholders.
(i) The company can buy back its own shares up to a maximum of 10% of its paid up capital
and free reserves by passing a resolution only in the Board Meeting.
(ii) If the Buy Bank is more than 10% and up to a maxim of 25% of its paid up capital and free
reserves, it required the consent of Shareholders by way of Special Resolution to
authorizing the directors for buy back.

22 papers.ssrn.com
 6. PROHIBITION FOR BUY-BACK IN CERTAIN CIRCUMSTANCES:
Section 77B provides that a company shall not, directly or indirectly purchase its own shares or other specified
securities23
(i) through any subsidiary company including its own subsidiary companies; or
(ii) through any investment company or group of investment companies; or
(iii) If a default, by the company, in repayment of deposit or interest payable thereon,
redemption of debentures or preference shares or payment of dividend to any shareholder or
repayment of any term loan or interest payable thereon to any financial institution or bank, is
subsisting.
(iv)In case such company has not complied with the provisions of sections 159, 207 and 211. i.e.
defaulted in filing annual return, defaulted in distributing dividends within thirty days of its
declaration and default in filing profit and loss account and balance sheet with the Registrar of
Companies.24

7. PROCEDURAL ASPECT OF BUY BACK OF SHARES AND SPECIFIED SECURITIES:

The following steps shall be taken for buying back the securities of a company:

A. HOLDING BOARD MEETING OR SHAREHOLDERS MEETING AS THE CASE MAY BE AND

PASSING BOARD RESOLUTION/ SHAREHOLDERS SPECIAL RESOLUTION:
If the proposed25 buy back is not more than 10% of the total paid up equity share capital and free
reserves of the company, Board Meeting shall be held to approve the scheme of buy back. If buy
back is more than 10% of the total paid up equity share capital and free reserves of the company,
the Board Meeting shall be conducted to decide about the date time and place for calling extra
ordinary general meeting (EGM) of the company and finalizing the notice for calling EGM.
Board Resolution shall be passed to convene an extraordinary general meeting. The EGM shall be
convened by serving a notice and annexing an explanatory statement thereto. An explanatory
statement shall have to be annexed to the said notice pursuant to Section 173 of the Act stating the
following:
(a) A full and complete disclosure of all material facts
(b) The necessity for the buy-back;
(c) The class of security intended to be purchased under the buy-back;
(d) The amount to be invested under the buy-back; and
(e) The time limit for completion of buy-back.

23 Section 77b

24 Sec. 77-B

25 Companies act section 77

 In the EGM the special resolution approving the buy back and authorizing directors shall be
passed.

B. FILING OF THE SPECIAL RESOLUTION APPROVING THE BUY-BACK WITH THE REGISTRAR
OF COMPANIES.
The copy of special resolution shall be filed along with Form No. 23 within 30 days of
passing special resolution.

In addition to form 23 there are certain other filings to be made with the ROC. There is no
statutory time period prescribed for the same. However, we recommend that such filings be
made within the same period as prescribed for the filing of the special resolution. Such other
filings are:
(a) Draft letter of offer (LoF) containing disclosures in the form as prescribed in
Annexure C. Please note that once the draft letter of offer has been filed with the
ROC, it shall not be withdrawn.
(b) Declaration of solvency in Form- 4A prescribed under the Companies (Central
Government General Rules and Forms), 1956 and Section 77A (6) of the Act.

C. DISPATCH OF LETTER OF OFFER (LOF).

LoF shall be dispatched to the shareholders immediately after filing the same with RoC.

D. OFFER PERIOD FOR THE MEMBERS.

The offer shall remain open for a period of not less than 15 (fifteen) days and not exceeding 30 (thirty)
days from the date of dispatch of LoF. Further the offer shall also testify that the company has sufficient
funds available for the Buy-back.

E. ACCEPTANCE/REJECTION OF OFFER:
The company shall not issue any shares including by way of bonus till the date of the closure of the offer.
The company shall, immediately after the date of closure of the offer, open a special bank account and
deposit therein, such sum as would make up the entire sum due and payable as consideration for the
Buy-back.
Further verification of the offers received to be completed within 15 days from the date of closure of the
offer. The shares lodged till such time shall be deemed to be accepted unless a communication of
rejection has been made within 21 days of the closure of the offer.

F. PAYMENT TO THE SHAREHOLDER (S) FOR THE BUY-BACK

 Make payment from the special bank account in cash or bank draft / pay order to the shareholder (s)
whose offer has been accepted or return the share certificate to the shareholder (s) forthwith within 7
days of the closure of offer. Company shall also maintain a register of shares bought back by the
company in the form as prescribed.

G. EXTINGUISHMENT OF SHARE CERTIFICATE (S)

Extinguish and physically destroy the share certificates so bought back in the presence of company
secretary in whole time practice and maintain a record of the same in the form as prescribed.

H. FILING OF CERTIFICATE OF COMPLIANCE AS TO THE EXTINGUISHMENT OF SHARE

CERTIFICATE:
File the certificate duly verified by 2 (two) whole time directors including the managing director
and company secretary in whole time practice to this effect.

I. FILING OF RETURN WITH THE ROC AS TO THE BUY-BACK.

Return is to be filed in the form as prescribed within 30 (thirty) days of payment to the shareholders
(s).

THE PROVISIONS REGULATING BUY BACK OF SHARES ARE ALSO CONTAINED

IN THE SECURITIES AND EXCHANGE BOARD OF INDIA (SEBI) FRAMED THE
SEBI (BUY BACK OF SECURITIES) REGULATIONS, 1999 AND THE
DEPARTMENT OF COMPANY AFFAIRS FRAMED THE PRIVATE LIMITED
COMPANY AND UNLISTED PUBLIC COMPANY (BUY BACK OF SECURITIES)

ANALYSIS OF SEBI (BUY BACK OF SECURITIES) AMENDMENT REGULATIONS, 2013 IN

RELATION TO THE EXISTING REGULATIONS AND THE COMPANIES BILL26, 2013

The Securities and Exchange Board of India [SEBI] has issued SEBI (Buy back of Securities) Amendment
Regulations, 2013 (8th August, 2013)27 amending the existing SEBI (Buy back of Securities) Regulations, 1998.
Also, recently the Companies Bill, 2013 [hereinafter referred to as Companies Bill] has been passed by the
Rajya Sabha. Considering the above New Regulations, Regulations and the Companies Bill an analysis has been
done discussing the various provisions. The changes have been discussed point wise as follows:

26 Corporate law reporter

27 Article shared by k.aggarwal

 1. CEILING PRESCRIBED FOR BUY BACK FROM OPEN MARKET: Regulation 4 of the
Regulations state that a company may buy-back its shares or other specified securities from the existing
security-holders on a proportionate basis through tender offer or from the open market offer. The existing
regulations do not prescribes any cap on the amount on buy back of securities. However, with the issue of
new regulations, provision has been added to Regulation 4 which provides that buy-back offer from the
open market shall not be made for 15% or more of the paid up capital and free reserves of the company. In
this regard, clause 68 of the Companies Bill, recently approved by Rajya Sabha provides that the buy-
back of securities shall be limited to 25% of total paid-up capital and free reserves. Provided that in case
of buy-back of equity shares it is 25% of total paid- up equity capital in a financial year.

2. LOCK IN PERIOD ON FURTHER BUY-BACK: The existing regulations do not provide for any lock
in period between two buy back offers. However, the new regulations has issued a sub-regulation 4 after
sub-regulation 3 of Regulation 4 which provides that no offer of buy-back shall be made by any company
within a period of one year from the date of closure of the preceding offer of buy back. The Companies
Bill in this regards also provides that no offer of buy-back shall be made within a period of one year from
the date of closure of preceding offer of buy-back.28

3. MINIMUM BUY BACK LIMIT: The newly introduced sub regulation 3 of Regulation 14 of the new
regulations provides that atleast 50% of the amount set aside for buy-back shall be utilized for buying
back shares or other specified securities. There was no such limit prescribed in the existing regulations.
Further, the Companies Bill is also silent with respect to such limit.

4. PUBLIC ANNOUNCEMENT (PA): Regulation 15(d) of the said regulations provided that the PA shall
be made at least 7 days prior to the commencement of buy back. However, the new regulations has
modified the said regulation and provides that the PA shall be made within 7 working days from the date
of passing the resolution authorizing buy-back. It is to be noted that there is no such condition relating to
the same has been provided in the Companies Bill.

5. FILING OF COPY OF PA WITH SEBI: The regulations provided that copy of PA shall be filed with
SEBI within 2 days of making such announcement. The same has now been modified and the companies
shall now be required to ensure that copy of PA shall be filed with SEBI simultaneous with the issue of
public announcement.

6. SUBMISSION OF INFORMATION PERTAINING TO BUY-BACK: Regulation 15(i) in the

regulations provided that the company shall submit 29 the information pertaining to buy-back on daily basis
to Stock Exchange and publish the same in a national daily on a fortnightly basis. However, as per the

28Reference- Discussion paper on 'Proposed modifications to the existing framework for buy back
through open market purchase'

29 Mondaq -site
 amended regulation (i) of Regulation 15, the company shall be required to submit the information
regarding the shares or securities bought back to stock exchange on daily basis in specified form and the
stock exchange shall upload the same on its website. Further, newly inserted sub regulation (ia) of
Regulation 15 provides that the company shall upload the information regarding the shares or other
securities bought- back on its website on a daily basis.

7. PERIOD OF BUY BACK OFFER: The newly inserted sub regulation (k) of Regulation 15 provides
that the buy-back offer shall open not later than seven working days from the date of public
announcement and shall close within six months. No such condition was prescribed under the existing
regulations. However, the Companies Bill provides that the buy-back shall be required to be completed
within a period of 1 year from the date of passing of resolution authorizing buy- back.

8. BUYING BACK PHYSICAL SHARES/ SPECIFIED SECURITIES: Regulation 15A has been
inserted in the new regulation which deals with buy-back of physical shares or other specified securities. 30
Following are some of the key points:

i. a separate window shall be created by the stock exchange, which shall remain open during the buy-back
period, for buyback of shares or other specified securities in physical form.

ii. Before proceeding with buy-back, verification of the identity proof and address proof needs to undertaken
by the broker.

iii. the price at which the shares will be bought back shall be the volume weighted average price of the shares
or other specified securities bought-back, other than in the physical form, during the calendar week in
which such shares or other specified securities were received by the broker

No such conditions were prescribed in the earlier regulations. Neither there is any provision relating to same in
the Companies Bill.

9. ESCROW ACCOUNT: New Regulation 15B has been inserted which provides that before opening of
the buy-back offer, the company shall create an escrow account towards security and shall deposit 25 % of
the amount earmarked for the buy-back in such escrow account. No such condition was/is there either in
the regulations or Companies Bill

10. EXTINGUISHMENT OF CERTIFICATES: The newly inserted sub regulation 3 of Regulation 16

provides that the company shall be required to extinguish and physically destroy the security certificates
so bought back during the month in the presence of a Merchant Banker and the Statutory Auditor, on or
before 15th day of the succeeding month. Further, the company shall ensure that all the securities bought-
back are extinguished within seven days of the last date of completion of buyback. Earlier there was no

30 Reference paper by Singh & Associates

 such provision under the regulations. The Companies Bill however, provides that the certificates shall be
extinguished within 7 days of the last date of completion of buy-back.

11. RAISING OF FURTHER CAPITAL: As per the newly inserted Regulation 19(1)(f ), the company shall
not raise further capital for a period of 1 year from the closure of buy-back offer, except in discharge of its
subsisting obligations. However, as per the Companies Bill, a period of 6 months has be prescribed for the
purpose of raising further capital except by way of bonus issue or in discharge of its subsisting obligation.

The amendments made to the existing legal framework of Buy Back Regulations have been done considering the
overall interests of the various stakeholders. However, there are certain provisions in the new regulations which
are in conflict with the recently passed Companies Bill and will require some kind of clarification.31

SO BASICALLY, SEBI GUIDELINES FOR BUYBACK FOR SHARES (5 OTHER GUIDELINES)

SEBI guidelines for buyback for shares are as follows: (a) Notice of special resolution (b) Buying from
Members through Tender offer (c) Buyback through Stock Exchange.

(a) Notice of special resolution:

The notice of special resolution to be passed by the members should contain explanatory statement
giving details of the buy back deal as prescribed in Schedule I of SEBI Regulations. 32

(b) Buying from Members through Tender offer:

Under this method, the maximum price at which the company intends to buy back the shares should be
indicated in the notice of the general meeting. If the promoters intend to offer their shares for buy back,
details should be given in the notice of the general meeting. The company should make a public
announcement in at least one English National Daily, One Hindi National Daily and One regional
newspaper daily, all with wide circulation giving details prescribed in Scheduled II of SEBI Regulations.

The public announcement will mention the specified date for the purpose of determining the names of
shareholders to whom letters of offer shall be sent. Draft offer letter giving prescribed details should be
submitted to SEBI along-with prescribed fees, at least 21 days before dispatch of letters of offer to
shareholders. Offer for buy back will remain open for minimum 15 days and maximum 30 days.

Letters of offer should be sent to the members well in advance so as to reach them before the opening
date of the offer. If the acceptances by the shareholders are more than the number of shares offered to
them for repurchase, the actual buy back will be on proportionate basis. The company shall have to

31 Last Updated: 11 September 2013 Article by Megha Kapoor (Singh & Associates)

32 Reference taken from linkedIn account of ms.megha

open and maintain an escrow account with prescribed amount as deposit. Within 15 days of closure of
offer for buy back, payment should be made or regret letters should be sent to the shareholders.

(c) Buyback through Stock Exchange:

In case of buy back of shares through stock exchange route, special resolution of members should
prescribe maximum price at which shares can be bought and the buy backs shall not be made from
promoters or persons having control in the company. Such persons will not deal in shares in stock
exchanges when offer for buy back is open.

The company should appoint a merchant banker. Public announcement should be made at least 7
days prior to commencement of buy back. A copy of public announcement is to be filed with SEBI
along-with prescribed fee within 2 days of such announcement.

Companies buying back via stock exchange route must disclose purchases daily. Details of shares
purchased every day should be informed to the stock exchanges. Payment will be made as per rules of
trading in the stock exchanges.

Other Guidelines:

(a) The company will make true and full disclosure in the letter of offer and the public announcement.

(b) Bonus shares will not be announced when the buy- back offer is open.

(c) All payments will be made only by cash/cheque.

(d) Buy- back offer will not be withdrawn after public announcement.

(e) Locked-in-shares will not be bought back.

(f) The details regarding number of shares bought, price, total amount invested in buy back, details of
shareholders from whom more than 1% of the total shares were bought and the consequent change in
the capital structure