CS M. Kurthalanathan
Section 68 of the companies act 2013 and Companies (Share capital and Debentures) Rules,2014 deals with the power of company to purchase its own securities.
Sources of Buy Back:
A company may purchase its own shares or other specified securities out of;
No buy-back of any kind of shares or other specified securities shall be made out of the proceeds of an earlier issue of the same kind of shares or same kind of other specified securities.
|“specified securities” includes employees’ stock option or other securities as may be notified by the Central Government from time to time. “free reserves” includes securities premium account.|
Special Resolution is not required- if;
(i) the buy-back is, ten per cent. or less of the total paid-up equity capital and free reserves of the company; and
(ii) such buy-back has been authorised by the Board by means of a resolution passed at its meeting;
In respect of the buy-back of equity shares in any financial year, the reference to twenty-five per cent. in this clause shall be construed with respect to its total paid-up equity capital in that financial year
The Central Government may, by order, notify a higher ratio of the debt to capital and free reserves for a class or classes of companies
No offer of buy-back under this sub-section shall be made within a period of one year reckoned from the date of the closure of the preceding offer of buy-back, if any.
The explanatory statement to be annexed to the notice of the general meeting pursuant to section 102 shall contain the following disclosures, namely:-
(i) that immediately following the date on which the general meeting is convened there shall be no grounds on which the company could be found unable to pay its debts;
(ii) as regards its prospects for the year immediately following that date, that, having regard to their intentions with respect to the management of the company’s business during that year and to the amount and character of the financial resources which will in their view be available to the company during that year, the company shall be able to meet its liabilities as and when they fall due and shall not be rendered insolvent within a period of one year from that date; and
(iii) the directors have taken into account the liabilities(including prospective and contingent liabilities), as if the company were being wound up under the provisions of the Companies Act, 2013
(i) they have inquired into the company’s state of affairs;
(ii) the amount of the permissible capital payment for the securities in question is in their view properly determined
iii) that the audited accounts on the basis of which calculation with reference to buy back is done is not more than six months old from the date of offer document and
iv) the Board of directors have formed the opinion as on reasonable grounds and that the company, having regard to its state of affairs, shall not be rendered insolvent within a period of one year from that date.
Every buy-back shall be completed within a period of one year from the date of passing of the special resolution, or as the case may be, the resolution passed by the Board.
Modes of Buy-Back:
The buy-back may be—
Letter of offer (LO):
The company which has been authorized by a special resolution shall, before the buy-back of shares, file with the Registrar of Companies a letter of offer in Form No. SH.8, along with the fee.
The letter of offer shall be dated and signed on behalf of the Board of directors of the company by not less than two directors of the company, one of whom shall be the managing director, where there is one.
Declaration of Solvency:
The company shall file with the Registrar, along with the letter of offer, and in case of a listed company with the Registrar and the Securities and Exchange Board, a declaration of solvency in Form No. SH.9 along with the fee and signed by at least two directors of the company, one of whom shall be the managing director, if any, and verified by an affidavit to the effect that the Board of Directors of the company 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 from the date of declaration adopted by the Board.
No declaration of solvency shall be filed with the Securities and Exchange Board by a company whose shares are not listed on any recognised stock exchange
Dispatch of LO to shareholders:
The letter of offer shall be dispatched to the shareholders or security holders immediately after filing the same with the Registrar of Companies but not later than twenty days from its filing with the Registrar of Companies.
Period of Buy- back:
The offer for buy-back shall remain open for a period of not less than fifteen days and not exceeding thirty days from the date of dispatch of the letter of offer.
In case the number of shares or other specified securities offered by the shareholders or security holders is more than the total number of shares or securities to be bought back by the company, the acceptance per shareholder shall be on proportionate basis out of the total shares offered for being bought back.
Verification of offer:
The company shall complete the verifications of the offers received within fifteen days from the date of closure of the offer and the shares or other securities lodged shall be deemed to be accepted unless a communication of rejection is made within twenty one days from the date of closure of the offer.
Open a Bank Account:
The company shall immediately after the date of closure of the offer, open a separate bank account and deposit therein, such sum, as would make up the entire sum due and payable as consideration for the shares tendered for buy-back in terms of these rules.
Payment to security holders:
The company shall-
(a) make payment of consideration in cash to those shareholders or security holders whose securities have been accepted; or
(b) return the share certificates to the shareholders or security holders whose securities have not been accepted at all or the balance of securities in case of part acceptance
Obligations of the Company:
The company shall ensure that—
Extinguishment of certificate:
Where a company buys back its own shares or other specified securities, it shall extinguish and physically destroy the shares or securities so bought back within seven days of the last date of completion of buy-back.
Where a company completes a buy-back of its shares or other specified securities under this section, it shall not make a further issue of the same kind of shares or other securities including allotment of new shares or other specified securities within a period of six months.
Register of shares or securities bought back:
The company, shall maintain a register of shares or other securities which have been bought-back in Form No. SH.10.
The register of shares or securities bought-back shall be maintained at the registered office of the company and shall be kept in the custody of the secretary of the company or any other person authorized by the board in this behalf.
The entries in the register shall be authenticated by the secretary of the company or by any other person authorized by the Board for the purpose
v Folio No/DP Id/client ID number or certificate number of securities bought back
v Name of last holder of securities
v Category to which they belong
v Date of Buy-back
v Number of securities bought back
v Mode of buy-back
v Nominal value of securities
v Price at which securities are bought back
v Date of payment
v Amount paid for bought back of securities
v Cumulative total of securities bought back
v Date of cancellation/extinguishment and physical destruction of securities bought back
v Reference to entry in ROM
v Remarks, if any
Filing of Return:
The company, after the completion of the buy-back , shall file with the Registrar, and in case of a listed company with the Registrar and the Securities and Exchange Board of India, a return in the Form No. SH.11 within 30 days of such completion along with the fee.
There shall be annexed to the return filed with the Registrar in Form No. SH.11, a certificate in Form No. SH.15 signed by two directors of the company including the managing director, if any, certifying that the buy-back of securities has been made in compliance with the provisions of the Act and the rules made there under.
No return shall be filed with the Securities and Exchange Board by a company whose shares are not listed on any recognised stock exchange.
|Company||Fine which shall not be less than Rs.1,00,000/- but which may extend to Rs3,00,000/-|
Buy back – Companies Act,1956 Vs Companies Act,2013
|1||The expression offer of buy back was defined as buyback by resolution of board of directors within the 10% limit.||It omits the definition of the expression offer of buy-back|
|2||Every buy-back to be completed within 12 months from the date of passing the special resolution or the Board resolution as the case may be.||It replaces the 12 months time limit with 1 year.|
|3||No offer of buy-back shall be made within a period of 365 days reckoned from the date of the preceding offer of buy-back.||It has changed the 365 days period to 1 year period .The period of 1 year under the 2013 act has to be reckoned from the date of the closure of the preceding offer of buy-back|
|4||Section 77A(5)(c) of the 1956 Act provides that the buy back may be from holders of odd lots of shares.||Section 68(5) of the 2013 Act omits this provision.|
The entire contents of this document have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation. Though utmost efforts has made to provide authentic information, it is suggested that to have better understanding kindly cross-check the relevant sections, rules under the Companies Act,2013