Company Law

Power to purchase its own shares (i.e. buy-back of securities) [S. 68, R. 17]

1.

Permissible Securities for buy-back[S. 68(1)]
  • Own shares
  • Other specified securities; includes employees’ stock options or other securities as may be notified – none as of now

2.

Methods of buy-back [S. 68(5)]
  • From the existing share/security holders on a proportionate basis
  • From the open market
  • By purchasing the securities issued to employees of the Co pursuant to a scheme of stock option or sweat equity

3.

Restrictions [S. 70]

Buy-back not permitted:

  • Through any subsidiary Co,
  • Through any investment Co or group of investment Co, or
  • If the Co has defaulted in repayment of deposit or interest thereon, in redemption of debentures or preference shares or in payment of dividend to any SH, or any term loan or interest payable thereon to any FI or banking co;
    • UNLESS the default is remedied and 3 years has lapsed after such default ceased to subsist;
  • If the Co has not complied with the provisions of Ss. 92 (annual return), 123(declaration of dividend), 127 (dividend declared but not paid) and 129(financial statements)

Buy-back of own shares or other specified securities

4.

Out of [S. 68(1)]
  • its free reserves;
  • the securities premium account; or
  • the proceeds of the issue of any shares or other specified securities, not being proceeds of an earlier issue of the same kind of shares or same kind of other specified securities

5.

Conditions: [S. 68(2)]
  • authorised by its articles;

a Spl Reso has been passed at a GM of the Co authorising the buy-back↓

such buy-back has been authorised by the Board resolution passed at its meeting↓

buy-back is (>10%, and) <25% of (paid-up capital + free reserves of the Co)

buy-back is < 10% of (paid-up capital + free reserves of the Co)
  • buy-back is < 25% of (paid-up capital + free reserves of the Co)
  • buy-back of equity shares (in number) in any FY≤ 25% of its total paid-up equity capital in that FY;
  • the ratio of (secured + unsecured debts owed by the Co after buy-back) is NOT > 2 * (the paid-up capital + free reserves) i.e. Debt -Equity ratio is NOT > 2:1:
    • Higher debt-equity ratio (6:1) for Co carrying on NBFI/Housing finance activities
  • all shares/other specified securities for buy-back are fully paid-up;
  • Not permitted to utilise any money borrowed from banks or financial institutionsfor buying back its shares;
  • buy-back of listed shares or other specified securities is in accordance with the relevant SEBI regulations ; and
  • buy-back offer shall NOT be made within 1 year from the date of the closure of the preceding offer of buy-back, if any.

6.

Disclosures on GM notice [S. 68(3)]

Notice of GM at which the Spl Reso is proposed to be passed for buy-back shall be accompanied by an explanatory statement giving specified disclosures.

7.

Withdrawal of buy-back offer 
[R. 17(10)(d)]

Not permissible once the Co has announced the offer to the SH

8.

Completion of buy-back [S. 68(4)]

Buy-back shall be completed within 1 year from the date of passing the relevant resolution

9.

Declaration of solvency [S. 68(6)]

Before making such buy-back, file a declaration of solvency signed by at least 2 directors of the Co, one of whom shall be MD, if any, verified by an affidavit (formed an opinion that the Co will not be rendered insolvent within a period of 1 year)

10.

Extinguish the shares/securities bought-back [S. 68(7)]

extinguish and physically destroy the shares or securities so bought back within 7 days of the last date of completion of buy-back

11.

Subsequent buy-back [Proviso to 
S. 68(2)(g)]

Not to be made within a period of 1 year reckoned from the date of the closure of the preceding offer of buy-back

12.

Restriction of further issue of same kind of shares or other securities bought-back [S. 68(8)]

Co not to make a further issue of the same kind of shares or other securities including rights issue (u/s. 62(1)(a)) within 6 months of completion of buy-back except

  • a bonus issue, or
  • in the discharge of subsisting obligations such as conversion of warrants, stock option schemes, sweat equity or conversion of preference shares or debentures into equity shares

13.

Some of the Filings and Records
  1. MGT 14 – Resolutions for buy-back
  2. SH 8 – Letter of Offer [R. 17(2)]
  3. SH 9 – Declaration of Solvency [R. 17(3)]
  4. SH 10 – Register of Shares or other securities bought-back [S. 68(9) & R. 17(12)]
  5. SH 11 – Return of the Buy-back [S. 68(10) & R.17(13)]

Broad overview of buy-back procedure of unlisted shares or securities