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Buy back of shares

mehak (Assistant Manager-CS & Legal) (39 Points)

11 April 2016

Can a Company use exsisting Paid up share capital to Buy back equity shares of the Company?

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11 Replies

PARSHANT GARG (ca final) (28 Points)
Replied 11 April 2016

i think no

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Punith (Article assistant) (107 Points)
Replied 11 April 2016

No u cant buy back from existing share capital.

mehak (Assistant Manager-CS & Legal) (39 Points)
Replied 11 April 2016

Dear Ankit,

We have 75 lakh equity share capital as on date.

We issue 125 lakh Preference capital in year 2016.

Query 1-If my Company want to go for buy back of equity shares in the year 2018, can it use the proceeds raised from issue of Preference shares issued in year 2016 for the buy-back.

Query 2-In case my Company decides to buy back Preference share in the year 2018, can it use the proceeds of equity capital standing in the Balance sheet (75 lakhs)?

CS Arjun Rajagopal (B.com, ACS) (1056 Points)
Replied 11 April 2016

Originally posted by : mehak
	Dear Ankit, We have 75 lakh equity share capital as on date. We issue 125 lakh Preference capital in year 2016. Query 1-If my Company want to go for buy back of equity shares in the year 2018, can it use the proceeds raised from issue of Preference shares issued in year 2016 for the buy-back. Query 2-In case my Company decides to buy back Preference share in the year 2018, can it use the proceeds of equity capital standing in the Balance sheet (75 lakhs)?

Hi Mehak,

By reading proviso to clause c of subsection 1 Section 68 of the Companies Act, 2013 which is reproduced below my understanding is that :-

1. In case 1 you can buy back equity shares out of the proceeds of preference shares since the buy back is not made out of proceeds of same kind of shares.

2. In case 2 also you can buy back preference shares out of proceeeds of equity shares since the buy back is not made out of proceeds of same kind of shares.

SECTION 68(1)(C) PROVISO

Provided that no buy-back of any kind of shares or other specified securities shall be
made out of the proceeds of an earlier issue of the same kind of shares or same kind of other
specified securities.

Regards,

Arjun Rajagopal

sricharan podugu (nothing) (38 Points)
Replied 12 April 2016

Company may buy its shares from 3 sources 1)free reserves 2)the security premium account 3)the proceeds of any shares or other specified securities... comdition: 1)no buy back of any kind of shares or other specified securiries shall be made out of the proceeeds of an earlier issue of the same kind of shares or other specified securities.... 2) if buyback from free reservers , sum of equal to the nominal value of shares bough back shall be transfered to reserves account called CAPITAL REDUMPTION RESERVE...

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CS Ankur Srivastava (Company Secretary & Compliance Officer) (17853 Points)
Replied 14 April 2016

No....... this is not possible.

You may use fress proceeds or reserves of the Company.

CS Arjun Rajagopal (B.com, ACS) (1056 Points)
Replied 14 April 2016

Hello Ankur Sir,

Can u please interpret in detail what proviso to section 68(1)(c) detail about. My understanding is that no buy back of shares or securities can be made out of proceeds of earlier issue of same kind of shares or securities.

As per the original query of Mr. Punith what is the restriction in buy back of equity shares out of proceeds of earlier issue of preference shares and buy back of preference shares out of the proceeds of earlier issue of equity shares? since proviso to section 68(1)(c) says opposite to this.

If Iam wrong Iam ready to correct my mistake.

Regards,

Arjun Rajagopal

Jatin Bajaj (CS) (2930 Points)
Replied 19 April 2016

According to Section 68 (1), A Company can buy Back the shares either from the :

Fresh issue of shares, Free reserves or securities Premium Account

Prviso to section 68 (1), states that no buy back of shares shall be made out of the proceeds of an earlier issue.

CS Ankur Srivastava (Company Secretary & Compliance Officer) (17853 Points)
Replied 07 May 2016

Originally posted by : Arjun Rajagopal
	Hello Ankur Sir, Can u please interpret in detail what proviso to section 68(1)(c) detail about. My understanding is that no buy back of shares or securities can be made out of proceeds of earlier issue of same kind of shares or securities. As per the original query of Mr. Punith what is the restriction in buy back of equity shares out of proceeds of earlier issue of preference shares and buy back of preference shares out of the proceeds of earlier issue of equity shares? since proviso to section 68(1)(c) says opposite to this. If Iam wrong Iam ready to correct my mistake. Regards, Arjun Rajagopal

Dear Arjun,

Please read the proviso of section 68(1) along with the provisions of section 68(1) wherein it is clearly written that the Company can purchase its own shares out of:-

1. Free Reserves;

2. Securities Premium;

3. Procees of the issue of any shares or specified securities

It means that the Buy back has to be done out of any of the 3 means. This is given to ensure that hte Capital should not be Reduced due to Buy Back.

Thus, for buy back Free Reserves or securities premium account to be utilized or fresh issue to be made the proceeds of which may be utitilized for buy back.

However, it is further provided that no buy back of any kind of shares shall be made out of the proceeds of an earlier issue of the same kind of shares or specified securities.

Thus, fresh issue should not be made of the same kind of shares which are to be Bought Back.

Thus, specifically for this query, Existing Capital cannot be utilized for Buy Back, instead of, separte capital to be issued the proceed of which may be utilized for the Buy Back.

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CS Arjun Rajagopal (B.com, ACS) (1056 Points)
Replied 07 May 2016

Dear Ankur Sir,

Thanks for your clear and crisp reply. The matter is fully clarified. Once again thank you so much for the clarification.

Regards,

Arjun Rajagopal

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CS Ankur Srivastava (Company Secretary & Compliance Officer) (17853 Points)
Replied 09 May 2016

Originally posted by : Arjun Rajagopal
	Dear Ankur Sir, Thanks for your clear and crisp reply. The matter is fully clarified. Once again thank you so much for the clarification. Regards, Arjun Rajagopal