A company can buy-back securities u/s. 77A. The following regulations and rules are relevant :
a. 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.
b. Private Limited Company and Unlisted Public Limited Company (Buy-back of Securities) Rules, 1999 (21 SCL (St.) 109).
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.
U/s. 77A, the following conditions have to be satisfied:
a. Authorisation under Articles for buy-back.
b. Special resolution in General Meeting except as under:
i. buy-back is less than 10% of paid-up capital and free reserves; and
ii. such buy-back is authorized by a Board Resolution.
c. 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.
d. Debt equity ratio post buy-back not to exceed 2:1. Debt includes secured and unsecured debts.
e. Securities under buy-back are fully paid-up.
f. Securities under buy-back should be in accordance with applicable regulations as listed at 1(a) / (b) above.
g. 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.
h. The notice for special resolution should contain prescribed particulars giving full and complete disclosure of buy-back.
i. 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.
j. 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.
k. 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.
l. 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.
m. Register of buy-back to be maintained in Form No. 4B detailing consideration paid for buy-back, date of cancellation and other similar information.
n. Return to be filed with ROC and SEBI on completion of buy-back within 30 days containing particulars as contained in Form No. 4C.
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).
U/s. 77B, the buy-back of Securities cannot be done
a. through any subsidiary company,
b. through any investment company or group of investment companies,
c. 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,
d. if a company has not complied with provisions of sub-sections 159, 207 and 211.
Methods of buy-back
a. Proportionate method from existing security holders.
b. Open market method.
c. Odd lot purchase.
d. Securities buy-back from employees who were issued securities under scheme of stock option or sweat equity.
Default in compliance with provisions relating to buy-back would lead to two years imprisonment or a fine of ` 50,000/- or both to every person connected with the default.
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:
Less than or equal to ten crore rupees
One lakh rupees (` 1,00,000/-)
More than ten crore rupees, but less than or equal to one thousand crore rupees
0.125% of the offer size
More than one thousand crore rupees, but less than or equal to five thousand crore rupees
One crore twenty five lakh rupees (` 1,25,00,000/-) plus 0.03125 per cent of the portion of the offer size in excess of one
thousand crore rupees (` 1000,00,00,000/-)
re than five thousand crore rupees.
A flat charge of three crore rupees
(Note: The above fee table was substituted vide amendment regulations dated 31st March, 2008.)