From Discontinuation to Re-instatement: SEBI Revamps India’s Buy-Back of Securities Regulations

From Discontinuation to Re-instatement: SEBI Revamps India’s Buy-Back of Securities Regulations

1. Introduction

On May 8, 2026, the Securities and Exchange Board of India (“SEBI”) published a Consultation Paper seeking public comments on proposals to revise and rationalize the SEBI (Buy-Back of Securities) Regulations, 2018 (the “Buy-Back Regulations”). This paper is the second in a closely-related series — the first, issued on April 2, 2026, focused specifically on the re-introduction of the open market buy-back method via the stock exchange route, which was discontinued effective April 1, 2025. The present paper goes significantly further, incorporating recommendations of the Primary Market Advisory Committee (“PMAC”) and SEBI’s own internal deliberations to address a range of structural gaps in the existing framework.

The proposals, taken together, represent the most consequential revision to India’s buy-back regulatory architecture in several years. They touch on investor communication, offer timelines, promoter trading restrictions, minimum public shareholding compliance, the gap between successive buy-back offers, and — most strikingly — the abolition of the mandatory Merchant Banker appointment requirement.

2. Background

The open market buy-back through the stock exchange was, until recently, a widely-used capital return mechanism for listed companies. It allowed issuers to repurchase shares in the secondary market over an extended period without the procedural complexity of a tender offer. However, following concerns about price manipulation and misuse, SEBI initiated a phased discontinuation in 2021-22, progressively reducing the maximum offer duration from six months to 66 working days, then to 22 working days, before fully discontinuing the method on April 1, 2025.

This left Indian-listed companies with only the tender offer route — a more expensive, formally structured process that involves appointment of a Merchant Banker, escrow creation, filing of a detailed letter of offer, and fixed pricing through a reverse book-building exercise. For smaller listed entities seeking modest capital returns, this route imposed disproportionate compliance costs. The gap became increasingly acute as the Finance Act, 2026 amended the Companies Act framework on the permissible interval between successive buy-back offers, creating further tension with the existing Regulation 4(vii) of the Buy-Back Regulations.

The cumulative effect was a framework that was operationally rigid, cost-heavy, and misaligned with post-2025 legislative changes — the precise gaps this Consultation Paper seeks to remedy.

3. Analysis of Key Proposals

3.1 Electronic Intimation to Shareholders

Currently, a public announcement of a buy-back offer must be made within two working days of the relevant board or shareholder resolution, and must be filed with SEBI and the stock exchanges. There is no separate requirement to directly notify individual shareholders.

SEBI now proposes to mandate that companies send an electronic intimation — along with a copy of the public announcement — to all shareholders on record as of the date of the public announcement, within one working day of such announcement. This is a targeted investor protection measure, aimed particularly at retail shareholders who may not routinely monitor stock exchange filings.

3.2 Offer Duration and Utilisation Milestones

PMAC recommended restoring the original six-month maximum offer window for open market buy-backs. SEBI has declined to follow this recommendation in full. SEBI’s view is that a six-month window risks rendering the buy-back commercially irrelevant given market movements over that period, and creates shareholder tracking difficulties.

SEBI’s counter-proposal is a maximum duration of 66 working days — the intermediate benchmark previously used during the phased wind-down — with no glide path. This duration, SEBI believes, balances issuer flexibility with execution discipline.

The existing requirement under Regulation 15(ii) — that at least 40% of the earmarked buy-back size must be deployed in the first half of the offer period — is proposed to be retained, notwithstanding PMAC’s suggestion to raise this to 50%. This retention is consistent with the shorter proposed timeline.

3.3 Abolition of Separate Trading Window

The separate trading window for open market buy-backs was created to identify investors eligible for preferential tax treatment on buy-back proceeds. Following the Finance Act, 2026 amendments — which eliminated the differential tax treatment for buy-back proceeds and aligned taxation with ordinary dividend or capital gains treatment — the rationale for the separate window has fallen away.

SEBI proposes to dispense with both the separate window and the disclosure requirement under Regulation 17(i) that displayed the company’s identity as the purchaser in real-time on the electronic screen. Buy-back transactions would henceforth be executed through the normal trading mechanism, anonymously and alongside other market participants.

This is a logical and overdue simplification. However, it does raise a surveillance concern: with the company identity no longer disclosed on-screen, regulators will need to rely on post-trade data and insider trading surveillance systems to detect any misuse of buy-back windows. Market participants will also lose the real-time signal that a company is actively buying in the market, which had previously functioned as an informal price support indicator.

3.4 Freezing of Promoter Holdings During Buy-Back

Regulation 24(i)(e) already prohibits promoters and their associates from dealing in the company’s shares — on-market, off-market, or through inter-se transfers — between the date of the relevant resolution and the closing of the offer. This restriction applies to all buy-back methods.

SEBI now proposes to go further by mandating a freeze at the ISIN level for all such shares held by promoters and their associates during the buy-back period. The company would be required to instruct its depositories (NSDL/CDSL) to implement this freeze. An important carve-out is proposed: where the buy-back is being conducted through the tender offer route, the freeze would not prevent promoters from tendering their shares in that specific offer, subject to the additional tax imposed under the Finance Act, 2026.

This is a meaningful tightening of the existing framework. The existing prohibition was an obligations-based restriction; the new proposal converts it into a mechanical barrier by immobilising the shares in the demat account. This effectively removes any ambiguity or risk of inadvertent non-compliance. Promoters and group entities holding shares in nominee, trust, or complex holding structures should review their demat architecture to ensure depository instructions can be implemented cleanly.

3.5 Explicit Minimum Public Shareholding (MPS) Compliance Requirement

The MPS requirements — mandating a minimum 25% public float for most listed entities — are governed by the Securities Contracts (Regulation) Rules, 1957 and the SEBI LODR Regulations, 2015. The Buy-Back Regulations currently have no explicit cross-reference to MPS compliance, creating a risk that a company could announce and execute a buy-back that inadvertently pushes promoter holding above the permitted threshold.

SEBI proposes to insert an explicit provision requiring companies to ensure, before announcing any buy-back — whether through the open market or tender route — that the proposed buy-back will not result in a breach of MPS requirements. This codifies what was already an implied obligation but removes any ambiguity.

For foreign investors monitoring their stake alongside promoter groups, this change reinforces the need for pre-announcement cap table modelling.

3.6 Interval Between Successive Buy-Backs

Currently, Regulation 4(vii) prescribes a minimum one-year gap between the expiry of one buy-back and the announcement of the next. The Finance Act, 2026 has amended the Companies Act framework on this interval for unlisted companies, and there is now a mismatch between the two regimes as applied to listed entities.

SEBI proposes to align the Buy-Back Regulations with the Companies Act position on this interval — specifically, by cross-referencing the Companies Act standard applicable to unlisted companies. This ensures dynamic alignment: future amendments to the Companies Act interval would automatically apply to listed entities without requiring separate amendments to the Buy-Back Regulations.

3.7 Optional Appointment of Merchant Banker

This is the most structurally significant proposal in the Consultation Paper. Under the current framework, appointment of a registered Merchant Banker is mandatory for all buy-backs. The Merchant Banker performs a range of functions: filing the letter of offer, due diligence and compliance certification, oversight of escrow accounts, VWAP certification, and submission of the final report, among others.

SEBI proposes to dispense entirely with the mandatory Merchant Banker requirement. In its place, the various Merchant Banker functions would be redistributed as follows:

The rationale is sound for smaller issuers undertaking routine open market buy-backs: the costs of mandatory Merchant Banker engagement are disproportionate where the company already has robust in-house compliance infrastructure and statutory auditors. However, the redistribution of functions raises important practical questions about accountability and capacity. Secretarial Auditors are now expected to provide due diligence certification — a function that has historically required significant financial and market expertise. Stock exchanges are expected to manage escrow logistics. Whether these entities have the systems and risk appetite to absorb these responsibilities at scale will be tested in implementation.

4. Way Forward

The re-introduction of the open market buy-back route, with the 66-working-day cap, gives listed companies a meaningful additional tool for capital returns. For companies that previously had to resort to tender offers — with their attendant costs and timelines — this represents a genuine ease-of-doing-business improvement. The 40% first-half utilisation requirement is workable but will require active treasury management.

The abolition of the Merchant Banker requirement is bold but carries execution risk in the near term. Until stock exchanges and secretarial auditors develop standardised processes for their newly assigned functions, companies — particularly mid-cap and small-cap issuers — may find themselves navigating a transitional period of procedural ambiguity.

This Capital Markets update is intended for general guidance only and does not constitute legal advice. For more information, please reach out to Shubham Sharma at 2636@cnlu.ac.in.