1.1 Notified with effect from 1st April 2014, sections 68, 69 and 70 of the Companies Act, 2013 (“the new act”) provide for the buy-back of securities in place of sections 77A, 77AA and 77B of the Companies Act, 1956 (“the old act”) respectively.

1.2 The Securities and Exchange Board of India (Buy-back of Securities) Regulations, 1998(“SEBI Buy-back Regulations”) (as amended from time to time) apply to buy-back of shares or other specified securities of a company listed on a stock exchange. Buy-back is not permitted for the purpose of delisting of a company’s shares or other specified securities from the stock exchange. SEBI Buy-back Regulations are dealt with separately.

1.3 In respect of private limited companies and unlisted public limited companies, buy-back of securities is governed by Rule 17 of the Companies (Share Capital and Debentures) Rules, 2014 (“Rules”) with effect from 1st April 2014 which replace the Private Limited Company and Unlisted Public Limited Company (Buy-back of Securities) Rules, 1999.

2. Permissible Securities

2.1 A company can buy-back the following securities

1. Own shares,
2. Other specified securities - includes employees’ stock options or other securities as may be notified

3. Methods of buy-back

3.1 The buy-back may be—

1. from the existing shareholders or security holders on a proportionate basis;
2. from the open market
3. by purchasing the securities issued to employees of the company pursuant to a scheme of stock option or sweat equity.

4. Modesof the Buy-back [Sec. 68(1)]

4.1 The buy-back is permitted out of:

1. Free reserves;
2. Securities premium account; or
3. Proceeds of the issue of any shares or other specified securities.

4.2 No buy-back is permitted out of the proceeds of earlier issue of the same kind of shares or other specified securities. [Proviso to sec. 68(1)]

5. Maximum Quantum of the Buy-back

5.1 25% or less of the aggregate of the paid-up capital and free reserves of the company. [Sec 68(2)(c)].

For the purpose of buy-back of equity shares in any financial year, 25% shall be construed with regards to total paid-up equity capital in that financial year.

6. Conditions of the Buy-back

6.1 The buy-back of securities under sub-section (1) of section 68 of the new act shall be subject to following conditions [Sec. 68(2)]:

1. It should be authorised by the Articles of Association of the Company.
2. A special resolution must be passed at the general meeting of the company.
   
   Special resolution is not required, provided [proviso to sec. 68(2)(b)]:
1. buy-back is 10% or less of the total paid-up equity capital and free reserves of the company; and
2. buy-back is authorised by a board resolution passed at its meeting.
3. The debt-equity ratio of the company, after buy-back is completed should not more than 2:1 [sec. 68(2)(d)].

• Equity includes paid-up capital and its free reserves
• Debt includes secured and unsecured debts owed by the company.

4. Buy-back of only fully paid-up shares and securities is permitted.
5. No offer of buy-back shall be made within a period of 1year reckoned from the date of the closure of the preceding offer of buy-back.
6. The company is not permitted to utilize any money borrowed from banks or financial institutions for the purposeof buying back its shares;

7. Notice for the Buy-back

The notice for general meeting pursuant to Sec. 102 of the new Act at which a special resolution u/s. 68(2)(b) is proposed to be passed is required to be accompanied by an explanatory statement giving full and complete details of buy-back. [S. 68(3) of the new act read with Rule 17(1) of the Rules].

8. Offer for the Buy-back and the Time-period

8.1 The letter of offer is required to be dispatched to the shareholders or security holders immediately after filing the same with the Registrar of Companies (Registrar) but not later than 21 days from its filing with the Registrar.

8.2 The period during which the offer for buy-back has to remain open should be not less than 15 days nor exceed 30 days from the date of dispatch of the letter of offer.

8.3 The acceptance per shareholder has to be on proportionate basis in case the number of shares or other specified securities offered by the shareholders or security holders exceeds the number of shares or securities to be bought back by the company.

8.4 The company shall complete the verifications of the offers received within 15 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 21 days from the date of closure of the offer.

8.5 The buy-back must be completed within 1year from the date of passing of a special resolution at the general meeting or a board resolution.

9. Opening of New Bank Account and payment of consideration

9.1 Immediately after the date of closure of the offer, the company is required to 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 the Rules.

9.2 The company, within 7 days of the expiry of 21 days from the date of closure of the offer, has to:

1. make payment of consideration in cash to those shareholders or security holders whose securities have been accepted; or
2. 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.

10. Extinguishment of certificate

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

9 11. Some of the Filings and Records

11.1 Form MGT 14: Resolutions for buy-back

Board, special resolutions authorizing buy-back of securities under section 68.

11.2 Form no. SH.8 – Letter of Offer

A duly signed letter of offer in Form No. SH. 8 has to be filed with the Registrar along with requisite fees. [Rule 17(2)].

11.3 Form no. SH.9 – Declaration of Solvency

A declaration of solvency duly signed and verified by an affidavit in Form No. SH. 9 along with requisite fees has to be filed 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 of India [Rule 17(3)].

11.4 Form No. Sh.10 – Register of Shares or other securities bought-back

The company is required to maintain a register of the shares or other securities which have been bought-back in Form No. SH. 10.

11.5 Form no. SH.11 – Return of the Buy-back

The Company, after the completion of the buy-back under these rules, is required to 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 requisite fees, within 30 days of such completion. Further, a certificate in Form No. SH.15 duly signed certifying that the buy-back of securitiesof the company has been made in compliance with the provisions of the new Act and the rules made thereunder is required to be annexed to the return filed with the Registrar in Form No. SH.11.

12. Compliances post Buy-back:

1. Shares and other securities so bought back to be extinguished and physically destroyed within 7 days of the last date of completion of buy-back
2. Further issue of same kind of shares or other securities cannot be made by the company for a period of 6months except for:
1. bonus issues, or
2. discharging subsisting obligations like conversion of warrants, stock option schemes, sweat equity or conversion of preference shares or debentures into equity shares.

13. Capital Redemption Reserve [Sec 69]

Where buy-back is out of free reserves or securities premium, an amount equal to the par value of the securities bought-back have to be transferred to the capital redemption reserve account with appropriate disclosures in the balance sheet.

14. Restrictions [Sec. 70]

Buy-back is not permitted:

1. through any subsidiary company,
2. through any investment company or group of investment companies, or
3. if the company has defaulted in repayment of deposit or interest thereon, in redemption of debentures or preference shares or in payment of dividend to any shareholder, or any term loan or interest payable thereon to any financial institution or banking company;

However the buy-back is not prohibited, if the default is remedied and a period of 3 years has lapsed after such default ceased to subsist;

4. if the company has not complied with the provisions of sections 92 (annual return), 123 (declaration of dividend), 127 (dividend declared but not paid) and 129 (financial statements) of the new act.

15. Consequence of Non-compliance [Sec.68 (11)]

The Company is liable for a fine not < ₹ 1 lakh but may extend to ₹ 3 lakh. Further, every officer of the company who is in default is punishable with imprisonment for a term which may extend to 3 years,or with fine not < ₹ 1 lakh but which may extend to ₹ 3 lakh, or both.

Back to Top