Article explains Securities And Exchange Board Of India (Buy-Back Of Securities) Regulations, 2018, Conditions and requirements for buy-back of shares and specified securities, General compliance and filing requirements for buy-back, Disclosures, filing requirements and timelines for public announcement, Disclosures, filing requirements and timelines for draft letter of offer, Offer procedure, Buy Back Through tender offer, Buy Back Through Open Offer, Buy-back through stock exchange, Buy-back through book building, General Obligations-Obligations of the company for all buy-back procedure and Provisions Related To Buy Back Of Shares Under Companies Act, 2013.
Buy Back of Shares
Statutory Provisions
- A company may buy-back its shares by any one of the following methods:
a. from the existing share holders on a proportionate basis through the tender offer;
b. from the open market through—
i. Book building method
ii. stock exchange;
c. from odd-lot holders
| If the buy back amount during a F.Y. exceeds | Authority |
| upto 10% of the total paid-up equity capital and free reserves of the company. | Board resolution |
| upto 15% of the total paid-up equity capital and free reserves of the company from open market | Special resolution of Shareholders |
| Upto 25% of the aggregate of paid-up capital and free reserves of the company | Special resolution of Share holders |
- Every buy-back shall be completed within a period of one year from the date of passing of the special resolution at general meeting, or the resolution passed by the board of directors of the company, as the case may be.
- Where the buy-back is from open market either through the stock exchange or through book building, the resolution of board of directors/ shareholders resolution shall specify the maximum price at which the buy-back shall be made.
- The price for buy back of shares can also be at discount to Market Price/ Book value of shares.
- A company may undertake a buy-back of its own shares or other specified securities out of:
i. its free reserves;
ii. the securities premium account; or
iii. the proceeds of the issue of any shares or other specified securities
Provided that no such buy-back shall be made out of the proceeds of an earlier issue of the same kind of shares or same kind of other specified securities.
- For obtaining shareholder approval through postal ballot, it may take time of 60 days for obtaining shareholder approval.
- No insider shall deal in shares or other specified securities of the company on the basis of unpublished price sensitive information relating to buy-back of shares or other specified securities of the company.
- No company shall directly or indirectly purchase its own shares or other specified securities:
a. through any subsidiary company including its own subsidiary companies;
b. through any investment company or group of investment companies; or
- If a default is made by the Company in the repayment of deposits accepted, interest payment, redemption of preference shares or payment of dividend to any shareholder or repayment of any term loan or interest payable thereon to any financial institution or banking company
Provided that the buy-back is not prohibited, if the default is remedied and a period of three years has lapsed after such default ceased to subsist. Last default reported in JSL in the year 2016( the default was remedied in the year 2017).
Other Provisions
- Post buy back debt-equity ratio shall not be more than 2:1.
- Prior consent of the debenture trustees is also required for buy back of shares.
Statutory Provisions
| Criteria | Tender Offer | Stock Market | Book-Building |
| Meaning | Buy-back by a Letter of Offer to shareholders @ Fixed Price | Buy-back through the Stock Market @ market related prices but maximum price must be fixed | Buy-back through Bidding Process – bids are received from shareholders |
| Price | Fixed Price | Market related but maximum price must be fixed | Price at which Maximum Bids are received |
| Time for which Buy-back remains open | Min. 15 days Max. 30 days | 12 months from the date of Resolution u/s. 77A | Min. 15 days Max. 30 days |
| Escrow Account | 25% of consideration for a consideration up to Rs. 100 cr + 10% for excess | No Escrow | 25% of consideration for a consideration up to Rs. 100 cr + 10% for excess |
| Can Promoters participate in the buy-back | Yes | No | Yes |
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| SECURITIES AND EXCHANGE BOARD OF INDIA (BUY-BACK OF SECURITIES) REGULATIONS, 2018 | ||
| S. No. | Regulation No. | Description |
| 1 | 2(n) | small shareholder’ means a shareholder of a company, who holds shares or other specified securities whose market value, on the basis of closing price of shares or other specified securities, on the recognized stock exchange in which highest trading volume in respect of such securities, as on record date is not more than two lakh rupee |
| Conditions and requirements for buy-back of shares and specified securities: | ||
| 2 | 4(i) | The maximum limit of any buy-back shall be twenty-five per cent or less of the aggregate of paid-up capital and free reserves of the company.
W.r.t to the buy back of securities in a financial year, the reference of 25% shall be construed with the total paid-up equity capital for that financial year. |
| 3 | 4(ii) | The ratio of aggregate of secured and unsecured debt of the Company after buy back of shares shall not be more than twice the paid up capital and free reserves.
Provided that if a higher ratio of the debt to capital and free reserves for the company has been notified under the Companies Act, 2013, the same shall prevail. |
| 4 | 4(iii) | All shares or other specified securities for buy back shall be fully paid up |
| 5 | 4(iv)(C) | A company may buy-back its shares or other specified securities by any one of the following methods: a. from the existing share holders or other specified securities holders on a proportionate basis through the tender offer; b. from the open market through— i. Book building method ii. stock exchange; c. from odd-lot holders:No offer for buy back from open market shall be 15% or more of the paid up share capital and free reserves of the Company from the open market. |
| 6 | 4(vii) | A company shall not make any offer of buy-back within a period of one year reckoned from the date of expiry of buyback period of the preceding offer of buy-back, if any |
| 7 | 4(ix) | A company may undertake a buy-back of its own shares or other specified securities out of: i. its free reserves; ii. the securities premium account; or iii. the proceeds of the issue of any shares or other specified securities Provided that no such buy-back shall be made out of the proceeds of an earlier issue of the same kind of shares or same kind of other specified securities. |
| 8 | 4(x) | No company shall directly or indirectly purchase its own shares or other specified securities: a. through any subsidiary company including its own subsidiary companies; b. through any investment company or group of investment companies; or c. if a default is made by the Company in the repayment of deposits accepted, interest payment, redemption of preference shares or payment of dividend to any shareholder or repayment of any term loan or interest payable thereon to any financial institution or banking company Provided that the buy-back is not prohibited, if the default is remedied and a period of three years has lapsed after such default ceased to subsist. |
| General compliance and filing requirements for buy-back: | ||
| 9 | 5(i) | The provisions of Buy Back shall be authorised by the Articles of the Company |
| A special resolution has been passed at a general meeting of the Company authorising the buy back | ||
| Provided that nothing contained in this clause shall apply to a case where the buy-back is, ten per cent or less of the total paid-up equity capital and free reserves of the company; and such buy-back has been authorised by the board of directors by means of a resolution passed at its meeting | ||
| 10 | 5(ii) | Every buy-back shall be completed within a period of one year from the date of passing of the special resolution at general meeting, or the resolution passed by the board of directors of the company, as the case may be |
| 11 | 5(iii) | The company shall, after expiry of the buy-back period, file with the Registrar of Companies and the Board, a return containing such particulars relating to the buy-back within thirty days of such expiry |
| 12 | 5(iv) | Where special resolution is required to be passed, the content of the explanatory statement u/s. 102 of the Companies Act shall contain the following: a) Disclosures under Section 64 of the Companies Act, 2013- i. a full and complete disclosure of all material facts; ii. the necessity for the buy-back; iii. the class of shares or securities intended to be purchased under the buy-back; iv. the amount to be invested under the buy-back; and v. the time-limit for completion of buy-back. Other details as per Schedule I |
| 13 | 5(v) | A copy of the resolution passed at the general meeting under sub-section (2) of section 68 of the Companies Act shall be filed with the Board and the stock exchanges where the shares or other specified securities of the company are listed, within seven days from the date of passing of the resolution |
| 14 | 5(vi) | Where the buy-back is from open market either through the stock exchange or through book building, the resolution of board of directors shall specify the maximum price at which the buy-back shall be made:
Provided that where there is a requirement for the Special Resolution as specified in clause (b) of sub-regulation 1 of regulation 5 of these Regulations, the special resolution shall also specify the maximum price at which the buy-back shall be made |
| 15 | 5(vii) | A company, authorized by a resolution passed by the board of directors at its meeting to buy-back its shares or other specified securities under the proviso to clause (b) of sub-section (2) of section 68 of the Companies Act, shall file a copy of the resolution, with the Board and the stock exchanges, where the shares or other specified securities of the company are listed, within two working days of the date of the passing of the resolution |
| 16 | 5(viii) | No insider shall deal in shares or other specified securities of the company on the basis of unpublished price sensitive information relating to buy-back of shares or other specified securities of the company. |
| Buy Back Through tender offer | ||
| Disclosures, filing requirements and timelines for public announcement: | ||
| 17 | 7(i) | The company which has been authorized by a special resolution or a resolution passed by the board of directors, as the case may be, shall make a public announcement within two working days from the date of declaration of results of the postal ballot for special resolution/board of directors resolution in at least one English National Daily, one Hindi National Daily and one Regional language daily, all with wide circulation at the place where the Registered Office of the company is situated and the said public announcement shall contain all the material information as specified in Schedule II. |
| 18 | 7(ii) | A copy of the public announcement along with the soft copy, shall also be submitted to the Board, simultaneously, through a merchant banker |
| Disclosures, filing requirements and timelines for draft letter of offer: | ||
| 19 | 8(i) | The company shall within five working days of the public announcement file the following with the Board: |
| 20 | a | a draft letter of offer, along with a soft copy, containing disclosures as specified in Schedule III through a merchant banker who is not associated with the company |
| 21 | b | a declaration of solvency in specified form and in a manner provided in sub-section (6) of section 68 of the Companies Act. |
| 22 | c | fees specified in Schedule V. |
| 23 | 8(ii) | SEBI may provide its comments on the draft letter of offer not later than seven working days of the receipt of the draft letter of offer.
SEBI may prescribes changes to be carried out in the offer letter and the Company shall carryout such changes |
| Offer procedure: | ||
| 24 | 9(i) | A company making a buy-back offer shall announce a record date in the public announcement for the purpose of determining the entitlement and the names of the security holders, who are eligible to participate in the proposed buy-back offer. |
| 25 | 9(ii) | The letter of offer along with the tender form shall be dispatched to the securities holders who are eligible to participate in the buy-back offer as per sub regulation (i), not later than five working days from the receipt of communication of comments from the Board.
Explanation: (a) Letter of Offer may also be dispatched through electronic mode in accordance with the provisions of the Companies Act. (b) On receipt of a request from any shareholder to receive a copy of the letter of offer in physical form, the same shall be provided. (c) The aforesaid shall be disclosed in the letter of offer. |
| 26 | 9(v) | The date of the opening of the offer shall be not later than five working days from the date of dispatch of the letter of offer |
| 27 | 9(vi) | The offer for buy-back shall remain open for a period of ten working days. |
| 28 | 9(ix) | The shares proposed to be bought back shall be divided into two categories; (a) reserved category for small shareholders and (b) the general category for other shareholders, and the entitlement of a shareholder in each category shall be calculated accordingly.
‘Explanation: Holdings of multiple demat accounts would be clubbed together for identification of small shareholder if sequence of Permanent Account Number for all holders is matching. Similarly, in case of physical shareholders, if the sequence of names of joint holders is matching, holding under such folios should be clubbed together for identification of small shareholder.’ |
| 29 | 9(x) | After accepting the shares or other specified securities tendered on the basis of entitlement, shares or other specified securities left to be bought back, if any in one category shall first be accepted, in proportion to the shares or other specified securities tendered over and above their entitlement in the offer by securities holders in that category and thereafter from securities holders who have tendered over and above their entitlement in other category. |
| 30 | 9(xi) | Escrow account
a. The company shall, as and by way of security for performance of its obligations under the regulations, on or before the opening of the offer, deposit in an escrow account such sum as specified in clause (b); b. The escrow amount shall be payable in the following manner: (i) if the consideration payable does not exceed Rupees 100 crores; 25 per cent of the consideration payable; (ii) if the consideration payable exceeds Rupees 100 crores; 25 per cent upto Rupees 100 crores and 10 per cent thereafter. c. The escrow account referred to in this regulation shall consist of, (i) cash deposited with a scheduled commercial bank, or (ii) bank guarantee in favour of the merchant banker, or (iii) deposit of acceptable securities with appropriate margin, with the merchant banker, or (iv) a combination of (i), (ii) and (iii).Note: The cash component of the escrow account may be maintained in an interest bearing account, provided that the merchant banker ensures that the funds are available at the time of making payment to shareholders |
| d. Where the escrow account consists of deposit with a scheduled commercial bank, the company shall, while opening the account, empower the merchant banker to instruct the bank to make payment the amount lying to the credit of the escrow account, as provided in the regulations. | ||
| e. Where the escrow account consists of a bank guarantee, such bank guarantee shall be in favour of the merchant banker and shall be valid until thirty days after the expiry of buyback period. | ||
| f. The company shall, in case the escrow account consists of securities, empower the merchant banker to realise the value of such escrow account by sale or otherwise and if there is any deficit on realisation of the value of the securities, the merchant banker shall be liable to make good any such deficit. | ||
| g. In case the escrow account consists of bank guarantee or approved securities, these shall not be returned by the merchant banker till completion of all obligations under the regulations. | ||
| h. Where the escrow account consists of bank guarantee or deposit of approved securities, the company shall also deposit with the bank in cash a sum of at least one per cent of the total consideration payable, as and by way of security for fulfillment of the obligations under the regulations by the company. | ||
| i. On payment of consideration to all the securities holders who have accepted the offer and after completion of all formalities of buy-back, the amount, guarantee and securities in the escrow, if any, shall be released to the company. | ||
| j. The Board in the interest of the securities holders may in case of non fulfillment of obligations under the regulations by the company forfeit the escrow account either in full or in part. | ||
| 31 | 9(xii) | The amount forfeited under clause (j) may be distributed prorata amongst the securities holders who accepted the offer and balance, if any, shall be utilized for investor protection. |
| 32 | 11(i) | The company shall extinguish and physically destroy the securities certificates so bought back in the presence of a registrar to issue or the Merchant Banker and the Statutory Auditor within fifteen days of the date of acceptance of the shares or other specified securities
Provided that the company shall ensure that all the securities bought-back are extinguished within seven days of expiry of buy-back period |
| 33 | 11(iii) | The company shall, furnish a certificate to the SEBI certifying compliance as specified in sub-regulation (i) above, and duly certified and verified by:
a) the registrar and whenever there is no registrar, by the merchant banker; b) two directors of the company, one of whom shall be a managing director, where there is one; and c) the statutory auditor of the company,This certificate shall be furnished to the SEBI within seven days of extinguishment and destruction of the certificates. |
| 34 | 11(iv) | The company shall furnish the particulars of the securities certificates extinguished and destroyed under sub-regulation (i), to the stock exchanges where the shares of the company are listed within seven days of extinguishment and destruction of the certificates. |
| 35 | 11(v) | Where a company buys back its shares or other specified securities under these regulations, it shall maintain a register of the shares or securities so bought, the consideration paid for the shares or securities bought back, the date of cancellation of shares or securities, the date of extinguishing and physically destroying the shares or securities and such other particulars as may be prescribed in sub-section (9) of section 68 of the Companies Act. |
| Buy Back Through Open Offer | ||
| 36 | 14 | The buy-back of shares or other specified securities from the open market may be in any one of the following methods:
(a) through stock exchange, (b) book-building process. |
| 37 | 15 | The company shall ensure that at least fifty per cent of the amount earmarked for buy-back, as specified in the resolution of the board of directors or the special resolution, as the case may be, is utilized for buying-back shares or other specified securities |
| Buy-back through stock exchange | ||
| 38 | 16(i) | The buy-back shall be made only on stock exchanges having nationwide trading terminals |
| 39 | 16(ii) | The buy-back of the shares or other specified securities through the stock exchange shall not be made from the promoters or persons in control of the company |
| 40 | 16(iii) | The buy-back of shares or other specified securities shall be made only through the order matching mechanism except ‘all or none’ order matching system; |
| 41 | 16(iv) | Disclosures, filing requirements and timelines of public announcement: |
| 42 | a | The company shall appoint a merchant banker and make a public announcement as referred to in regulation 7 pertaining to tender offer; |
| 43 | b | The public announcement shall be made within two working days from the date of passing the board of directors resolution or date of declaration of results of the postal ballot for special resolution, as relevant and shall contain disclosures as specified in Schedule IV; |
| 44 | c | Simultaneously with the issue of such public announcement, the company shall file a copy of the public announcement with the SEBI along with the fees specified in Schedule V; |
| 45 | d | The public announcement shall also contain disclosures regarding details of the brokers and stock exchanges through which the buy-back of shares or other specified securities would be made; |
| Note: In case of the buy-back from open market, no draft letter of offer/ letter of offer is required to be filed with the Board | ||
| 46 | 17 (i) | The identity of the company as a purchaser shall appear on the electronic screen when the order is placed |
| 47 | 17(ii) | The buy-back offer shall open not later than seven working days from the date of public announcement and shall close within six months from the date of opening of the offer |
| 48 | 18(i) | The company shall submit the information regarding the shares or other specified securities bought-back, to the stock exchange on a daily basis in such form as may be specified by the SEBI and the stock exchange shall upload the same on its official website immediately |
| 49 | 18(ii) | The company shall upload the information regarding the shares or other specified securities bought-back on its website on a daily basis |
| 50 | 19 | A company may buy-back its shares or other specified securities in physical form in the open market through stock exchange by following the procedure as provided here under: |
| 51 | i. | A separate window shall be created by the stock exchange, which shall remain open during the period of buy-back, for buy-back of shares or other specified securities in physical form. |
| 52 | ii. | The company shall buy-back shares or other specified securities from eligible shareholders holding physical shares through the separate window specified in sub-regulation (i), only after verification of the identity proof and address proof by the broker. |
| 53 | iii. | The price at which the shares or other specified securities are 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: |
| 54 | 20(i) | The company shall, before opening of the offer, create an escrow account towards security for performance of its obligations under these regulations, and deposit in escrow account 25 per cent of the amount earmarked for the buy-back as specified in the resolution of the board of directors or the special resolution, as the case may be. |
| 55 | 20(ii) | The escrow account referred to in sub-regulation (i) may be in the form of,—
a) cash deposited with any scheduled commercial bank; or b) bank guarantee issued in favor of the merchant banker by any scheduled commercial bank.Explanation: The cash component of the escrow account may be maintained in terms of Explanation to clause (c) of sub-regulation (xi) of regulation 9. |
| 56 | 20(iii) | For such part of the escrow account as is in the form of a cash deposit with a scheduled commercial bank, the company shall while opening the account, empower the merchant banker to instruct the bank to make payment of the amounts lying to the credit of the escrow account, to meet the obligations arising out of the buy-back. |
| 57 | 20(iv) | For such part of the escrow account as is in the form of a bank guarantee
a. the same shall be in favor of the merchant banker and shall be kept valid for a period of thirty days after the expiry of buyback period of the offer or till the completion of all obligations under these regulations, whichever is later. b. the same shall not be returned by the merchant banker till completion of all obligations under the regulations. |
| 58 | 20(v) | Where part of the escrow account is in the form of a bank guarantee, the company shall deposit with a scheduled commercial bank, in cash, a sum of at least 2.5 per cent of the total amount earmarked for buy-back as specified in the resolution of the board of directors or the special resolution, as the case may be, as and by way of security for fulfillment of the obligations under the regulations by the company. |
| 59 | 20(vi) | The escrow amount may be released for making payment to the shareholders subject to at least 2.5 per cent of the amount earmarked for buy-back as specified in the resolution of the board of directors or the special resolution, as the case may be, remaining in the escrow account at all points of time. |
| 60 | 20(vii) | On fulfilling the obligation specified in regulation 15, the amount and the guarantee remaining in the escrow account, if any, shall be released to the company |
| 61 | 21(i) | Subject to the provisions of sub-regulation (ii) and (iii), the provisions of regulation 11 pertaining to the extinguishment of certificates for tender offers shall apply for extinguishment of certificates under this Chapter. |
| 62 | 21(ii) | The company shall complete the verification of acceptances within fifteen days of the payout |
| 63 | 21(iii) | The company shall extinguish and physically destroy the securities certificates so bought back during the month in the presence of a Merchant Banker and the Statutory Auditor, on or before the fifteenth day of the succeeding month:
Provided that the company shall ensure that all the securities bought-back are extinguished within seven days of expiry of buy-back period. |
| Buy-back through book building | ||
| 64 | 22(i) | The Special resolution or the board of directors resolution, as the case may be, shall be passed in accordance with regulation 5. |
| 65 | 22(ii) | Disclosures, filing requirements and timelines for public announcement: (a) The company shall appoint a merchant banker and make a public announcement as referred to in regulation 7. (b) The disclosures in the public announcement shall also be in accordance with Schedule II (c)The public announcement shall be made at least seven days prior to the commencement of buy-back |
| 66 | 22(iii) | Subject to the provisions of clause (a) and clause (b) of this sub-regulation, the provisions of sub-regulation (xi) of regulation 9 shall apply:
(a) The deposit in the escrow account shall be made before the date of the public announcement. (b) The amount to be deposited in the escrow account shall be determined with reference to the maximum price as specified in the public announcement. Explanation: The cash component of the escrow account may be maintained in terms of the Explanation to clause (c) of sub-regulation (xi) of regulation 9. |
| 67 | 22(iv) | A copy of the public announcement shall be filed with the SEBI within two days of such announcement along with the fees as specified in Schedule V. |
| 68 | 22(v) | The public announcement shall also contain the detailed methodology of the book-building process, the manner of acceptance, the format of acceptance to be sent by the securities holders pursuant to the public announcement and the details of bidding centers. |
| 69 | 22(vi) | The book-building process shall be made through an electronically linked transparent facility |
| 70 | 22(vii) | The number of bidding centers shall not be less than thirty and there shall be at least one electronically linked computer terminal at all the bidding centers |
| 71 | 22(viii) | The offer for buy-back shall remain open to the securities holders for a period not less than fifteen days and not exceeding thirty days. |
| 72 | 22(ix) | The merchant banker and the company shall determine the buy-back price based on the acceptances received. |
| 73 | 22(x) | The final buy-back price, which shall be the highest price accepted shall be paid to all holders whose shares or other specified securities have been accepted for buy-back. |
| 74 | 22(xi) | The provisions of sub-regulation (ii) of regulation 10 pertaining to verification of acceptances and the provisions of regulation 10 pertaining to opening of special account and payment of consideration shall be applicable mutatis mutandis. |
| 75 | 23 | The provisions pertaining to extinguishment of certificates for tender offer shall be applicable mutatis mutandis to the buy-back through book building. |
| GENERAL OBLIGATIONS-Obligations of the company for all buy-back procedure: | ||
| 76 | 24 (i) | The company shall ensure that- |
| 77 | b | the company shall not issue any shares or other specified securities including by way of bonus till the date of expiry of buyback period for the offer made under these regulations; |
| 78 | c | the company shall pay the consideration only by way of cash; |
| 79 | d | the company shall not withdraw the offer to buy-back after the draft letter of offer is filed with the Board or public announcement of the offer to buy-back is made |
| 80 | e | the promoter(s) or his/their associates shall not deal in the shares or other specified securities of the company in the stock exchange or off-market, including inter- se transfer of shares among the promoters during the period from the date of passing the resolution of the board of directors or the special resolution, as the case may be, till the closing of the offer. |
| 81 | f | the company shall not raise further capital for a period of one year from the expiry of buyback period, except in discharge of its subsisting obligations. |
| 82 | 24(ii) | No public announcement of buy-back shall be made during the pendency of any scheme of amalgamation or compromise or arrangement pursuant to the provisions of the Companies Act. |
| 83 | 24(iii) | The company shall nominate a compliance officer and investors service center for compliance with the buy-back regulations and to redress the grievances of the investors. |
| 84 | 24(iv) | The particulars of the security certificates extinguished and destroyed shall be furnished by the company to the stock exchanges where the shares or other specified securities of the company are listed within seven days of extinguishment and destruction of the certificates |
| 85 | 24(v) | The company shall not buy-back the locked-in shares or other specified securities and non-transferable shares or other specified securities till the pendency of the lock-in or till the shares or other specified securities become transferable. |
| 86 | 24(vi) | The company shall within two days of expiry of buy-back period issue a public advertisement in a national daily, inter alia, disclosing: a) number of shares or other specified securities bought; b) price at which the shares or other specified securities bought; c) total amount invested in the buy-back; d) details of the securities holders from whom shares or other specified securities exceeding one per cent of total shares or other specified securities were bought back; and e) the consequent changes in the capital structure and the shareholding pattern after and before the buy-back. |
| PROVISIONS RELATED TO BUY BACK OF SHARES UNDER COMPANIES ACT, 2013 | ||
| S. No. | Section | Description |
| 1 | 68(6) | Where a company proposes to buy-back its own shares or other specified securities under this section in pursuance of a special resolution, it shall before making such buy-back, file with the Registrar and the Securities and Exchange Board, a declaration of solvency signed by at least two directors of the company, one of whom shall be the managing director, if any, in such form in Form SH-9 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 |
| 2 | Buy-back of Shares or Other Securities Rule | (1) The explanatory statement to be annexed to the notice of the general meeting pursuant to section 102 shall contain the following disclosures, namely:- |
| (a) the date of the board meeting at which the proposal for buy-back was approved by the board of directors of the company; | ||
| (b) the objective of the buy-back; | ||
| (c) the class of shares or other securities intended to be purchased under the buy-back; | ||
| (d) the number of securities that the company proposes to buy-back; | ||
| (e) the method to be adopted for the buy-back; | ||
| (f) the price at which the buy-back of shares or other securities shall be made; | ||
| (g) the basis of arriving at the buy-back price; | ||
| (h) the maximum amount to be paid for the buy-back and the sources of funds from which the buy-back would be financed; | ||
| (i) the time-limit for the completion of buy-back; | ||
| (j) (i) the aggregate shareholding of the promoters and of the directors of the promoter, where the promoter is a company and of the directors and key managerial personnel as on the date of the notice convening the general meeting; | ||
| (ii) the aggregate number of equity shares purchased or sold by persons mentioned in sub-clause (i) during a period of twelve months preceding the date of the board meeting at which the buy-back was approved and from that date till the date of notice convening the general meeting; | ||
| (iii) the maximum and minimum price at which purchases and sales referred to in sub-clause (ii) were made along with the relevant date; | ||
| (k) if the persons mentioned in sub-clause (i) of clause (j) intend to tender their shares for buy-back – | ||
| (i) the quantum of shares proposed to be tendered; | ||
| (iii) the details of their transactions and their holdings for the last twelve months prior to the date of the board meeting at which the buy-back was approved including information of number of shares acquired, the price and the date of acquisition; | ||
| (l) a confirmation that there are no defaults subsisting in repayment of deposits, interest payment thereon, redemption of debentures or payment of interest thereon or redemption of preference shares or payment of dividend due to any shareholder, or repayment of any term loans or interest payable thereon to any financial institution or banking company; | ||
| (m) a confirmation that the Board of directors have made a full enquiry into the affairs and prospects of the company and that they have formed the opinion- | ||
| (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 | ||
| (n) a report addressed to the Board of directors by the company’s auditors stating that- | ||
| (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 | ||
| Provided that where the audited accounts are more than six months old, the calculations with reference to buy back shall be on the basis of un-audited accounts not older than six months from the date of offer document which are subjected to limited review by the auditors of the company.” | ||
| (iv) the Board of directors have formed the opinion as specified in clause (m) 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. | ||
| 2) 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:
Provided that such 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. |
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| 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 as specified in the said Form. | ||
| (4) 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. | ||
| (12)(a) The company, shall maintain a register of shares or other securities which have been bought-back in Form No. SH.10. (b) 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. (c) 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. |
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| (13)The company, after the completion of the buy-back under these rules, 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 along with the fee | ||
| (14)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 thereunder. | ||
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Thanks for your exhaustive article on Buyback.
Only one question which I have tried to interpret by an example – My interpretation of Regulation 9(x) SEBI (Buy-Back Of Securities) Regulations, 2018 is that shares are grouped under small shareholders category and general category. Example – In small shareholders category the buy- back request is 1000 shares but their total entitlement is 600. So first meet up 600 in the small shareholders category. Next meet up the buy-back request of the general category. After that, the 400 additional buy-back request of the small shareholders category is to be met from surplus of the general category (if any) in the proportion to the shares tendered over their entitlement by the small shareholders. Please confirm whether this is the right interpretation.
T. Roy