Buy back of shares - India

77A. Power of company to purchase its own shares

(1)Purchase its own shares or other specified securities out of-

(i) its free reserves; or

(ii) the securities premium account; or

(iii) the proceeds of any shares or other specified securities:

No buy-back shall be made out of the proceeds of an earlier issue of the same kind of specified securities issued in the last 1 year.

(2)(a) the buy-back should be authorised by its articles;

(b) a special resolution must be passed in general meeting of the company authorising the buy-back (not in the case where the buy-back is less than 10% of the total paid-up capital and free reserves of the company);
- a period of 365 days has elapsed from the last buy back.

(c) the buy-back should be less than 25% of the total paid-up capital and free reserves of the company:

Buy-back of equity shares in any financial year shall not exceed 25%of its total paid-up equity capital,

Eg. Equity share capital = Rs. 100

Preference share capital = Rs. 90

Free reserves = Rs. 10

Can the Company buyback Rs. 25 from equity?

Can the Company buyback Rs. 25 from preference?

Can the Company buyback Rs. 50 from preference?

Can the Company buyback Rs. 50 from equity?

Can the Company buyback Rs. 25 from equity and Rs. 25 from preference?

(d) the ratio of the debt owed by the company is not more than twice the capital and its free reserves after such buy-back.

(e) all the shares for buy-back must be fully paid-up;

(f) the buy-back of the shares or other specified securities listed on any recognised stock exchange should be in accordance with the regulations made by the Securities and Exchange Board of India in this behalf;

(3) The notice of the meeting at which special resolution is proposed to be passed shall be accompanied by an explanatory statement stating-

(a) a full and complete disclosure of all material facts;

(b) the necessity for the buy-back;

(c) the class of security intended to be purchased under the buy-back;

(d) the amount to be invested under the buy-back; and

(e) the time limit for completion of buy-back.

(4) Every buy-back shall be completed within 12 months from the date of passing the special/board resolution

(5) The buy-back may be-

(a)from the existing security holders on a proportionate basis; or

(b) from the open market; or

(c) from odd lots

(d) by purchasing the securities issued to employees.

(6) In case of listed companies, before making such buy-back company must

•
File with the Registrar and SEBI a “Declaration of Solvency”

•Board should have made a full inquiry that it is capable of meeting its liabilities and will not be rendered insolvent within a period of one year of the date of declaration

•Declaration to be signed by at least two directors of the company, one of whom shall be the managing director

(7) Extinguish and physically destroy the securities within seven days from the date of completion of buy-back.

(8) Company shall not make further issue of the same kind of shares within a period of 6 months except by way of bonus issue or conversion of warrants, stock option schemes, sweat equity or conversion of preference shares or debentures into equity shares.

(9) Company shall maintain a register of the securities so bought, the consideration paid for the securities bought-back, the date of cancellation of securities, the date of extinguishing and physically destroying of securities.

(10) Company shall, file with the Registrar and the SEBI, a return of buy-back within 30 days of such completion of buyback (only if company is listed)

IN THE NEXT POST I WILL WRITE ON CHECKLIST ON BYE BACK OF SHARES