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Permissible Securities for buy-back [Sec.68(1)]
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- Own shares
- Other specified securities includes employees’ stock options or other securities as may be notified
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Methods of buy-back [Sec.68(5)]
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- From the existing share / security holders on a proportionate basis
- From the open market
- By purchasing the securities issued to employees of the company pursuant to a scheme of stock option or sweat equity
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Restrictions [Sec. 70]
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Buy-back not permitted:
- Through any subsidiary company,
- Through any investment company or group of investment companies, or
- 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;
UNLESS the default is remedied and 3 years has lapsed after such default ceased to subsist;
- 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)
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Modes of the Buy-back [Sec. 68(1), 69]
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out of: |
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1Free reserves Where buy-back is out of free reserves or securities premium - an amount equal to the par value of the securities bought-back to be transferred to the capital redemption reserve account with appropriate disclosures in the balance sheet
Capital redemption reserve can be utilised for issue of fully paid bonus shares
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Securities premium account |
Proceeds of the issue of any shares or other specified securities Not out of the proceeds of earlier issue of the same kind of shares or other specified securities.
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Maximum Quantum of the Buy-back [Sec 68(2)(c)]
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25% or less of the aggregate of the paid-up capital and free reserves of the company
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.
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Conditions of the Buy-back [Sec. 68(2)]
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- Authority
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Authorised by the Articles of Association of the Company
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- Further Authority
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Buy-back as a % of [total paid-up equity capital + free reserves (incl. securities premium account) of the company]
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≤ 10% - board resolution passed at its meeting
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Otherwise [i.e. > 10% but ≤ 25% - special resolution passed at the general meeting
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- Debt-equity ratio
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After buy-back is completed, [secured + unsecured debts owed] : [paid-up capital + free reserves (incl. securities premium account)], should not be > 2:1
- Higher debt-equity ratio (6:1) for companies carrying on NBFI / Housing finance activities
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- Fully paid-up securities
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Buy-back of only fully paid-up shares and securities is permitted
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- Borrowed funds [R.17(10)(d)]
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Not permitted to utilise any money borrowed from banks or financial institutions for buying back its shares.
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Withdrawal of buy-back offer
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Not permissible once the company has announced the offer to the shareholders
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Extinguishment of Certificate
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Company shall extinguish and physically destroy the shares or securities so bought back within seven days of the last date of completion of buy-back.
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Completion of buy-back [Sec. 68(4)]
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within 1 year from the date of passing of a special resolution at the general meeting or a board resolution, as the case may be
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Subsequent buy-back
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No offer of buy-back shall be made within a period of 1 year reckoned from the date of the closure of the preceding offer of buy-back.
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Issue of same kind of shares or other securities
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Not permitted for 6 months except for:
- Bonus issues, or
- Discharging subsisting obligations like conversion of warrants, stock option schemes, sweat equity or conversion of preference shares or debentures into equity shares.
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Some of the Filings and Records
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- Form MGT 14: Resolutions for buy-back
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Board resolution (in case of a public limited company), Special resolution authorizing buy-back of securities under section 68 to be filed with RoC
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- Form No. SH.8 – Letter of Offer
[Rule 17(2)]
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A duly signed letter of offer to be filed with RoC.
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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- Form No. SH.9 – Declaration of Solvency
[Rule 17(3)]
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A declaration of solvency duly signed and verified by an affidavit to be filed along with the letter of offer, with –
- RoC and SEBI è in case of a listed company
- RoC - in case of other companies
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- Form No. SH.10 – Register of Shares or other securities bought-back
[Sec. 68(9) & Rule 17(12)]
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The company required maintain a register of the shares / other securities bought-back
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.
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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- Form No. SH.11 – Return of the Buy-back [Sec.68(10) & Rule 17(13)]
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The Company, after the completion of the buy-back, required to file -
- A return in the Form No. SH.11, within 30 days of such completion
- A certificate in Form No. SH.15 annexed to Form No. SH.11, duly signed certifying that the buy-back of securities of the company has been made in compliance with the provisions of the Co Act 2013 and the rules made thereunder
- With RoC and SEBI è in case of a listed company
- With RoC è in case of other companies
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Consequence of Non-compliance
[Sec.68 (11)]
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- Company: a Fine not < ₹ 1 lakh but may extend to ₹ 3 lakh
- Every officer of the company who is in default: imprisonment upto 3 years, or with fine not < ₹ 1 lakh but which may extend to ₹ 3 lakh, or both
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