Procedure for buy back
a. Where a company proposes to buy back its shares, it shall, after passing of the special/Board resolution make a public announcement at least one English National Daily, one Hindi National daily and Regional Language Daily at the place where the registered office of the company is situated.
b. The public announcement shall specify a date, which shall be "specified date" for the purpose of determining the names of shareholders to whom the letter of offer has to be sent.
c. A public notice shall be given containing disclosures as specified in Schedule I of the SEBI regulations.
d. A draft letter of offer shall be filed with SEBI through a merchant Banker. The letter of offer shall then be dispatched to the members of the company.
e. A copy of the Board resolution authorising the buy back shall be filed with the SEBI and stock exchanges.
f. The date of opening of the offer shall not be earlier than seven days or later than 30 days after the specified date
g. The buy back offer shall remain open for a period of not less than 15 days and not more than 30 days.
h. A company opting for buy back through the public offer or tender offer shall open an escrow Account.
Filing of return with the Regulator
A Company shall, after the completion of the buy-back file with the Registrar and the Securities and Exchange Board of India, a return in form 4 C containing such particulars relating to the buy-back within thirty days of such completion.
No return shall be filed with the Securities and Exchange Board of India by an unlisted company.
Filing of letter of offer, etc. :- (1) The Company which has been authorised by a
special resolution shall, before the buy-back of shares, file with the Registrar of
Companies a draft letter of offer containing particulars specified in Schedule II.
(2) The Company shall file alongwith the letter of offer a declaration of solvency in Form
No. 4A, prescribed under the Companies (Central Government's ) General Rules and
Forms, 1956 and in accordance with provisions of sub-section (6) of section 77A of the
Companies Act, 1956.
Offer procedure
(1) The letter of offer shall be despatched immediately after filing
with Registrar of Companies but not later than 21 days from its filing with Registrar of
Companies.
(2) The Offer for buyback shall remain open to the members for a period not less than 15
days and not exceeding 30 days from the date of despatch of letter of offer.
(3) In case the number of shares offered by the shareholders is more than the total number
of shares to be bought back by the company, the acceptance per shareholder shall be on
proportionate basis.
(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 lodged shall be deemed to be accepted
unless a communication of rejection is made within 21 days from the closure of the
offer.
Resources of Buy Back
A Company can purchase its own shares from
(i) free reserves; Where a company purchases its own shares out of free reserves, then a sum equal to the nominal value of the share so purchased shall be transferred to the capital redemption reserve and details of such transfer shall be disclosed in the balance-sheet or
(ii) securities premium account; or
(iii) proceeds of any shares or other specified securities. A Company cannot buyback its shares or other specified securities out of the proceeds of an earlier issue of the same kind of shares or specified securities.
Conditions of Buy Back
(a) The buy-back is authorised by the Articles of association of the Company;
(b) A special resolution has been passed in the general meeting of the company authorising the buy-back. In the case of a listed company, this approval is required by means of a postal ballot. Also, the shares for buy back should be free from lock in period/non transferability.The buy back can be made by a Board resolution If the quantity of buyback is or less than ten percent of the paid up capital and free reserves;
(c) The buy-back is of less than twenty-five per cent of the total paid-up capital and fee reserves of the company and that the buy-back of equity shares in any financial year shall not exceed twenty-five per cent of its total paid-up equity capital in that financial year;
(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) There has been no default in any of the following
i. in repayment of deposit or interest payable thereon,
ii. redemption of debentures, or preference shares or
iii. payment of dividend, if declared, to all shareholders within the stipulated time of 30 days from the date of declaration of dividend or
iv. repayment of any term loan or interest payable thereon to any financial institution or bank;
(f) There has been no default in complying with the provisions of filing of Annual Return, Payment of Dividend, and form and contents of Annual Accounts;
(g) All the shares or other specified securities for buy-back are fully paid-up;
(h) The buy-back of the shares or other specified securities listed on any recognised stock exchange shall be in accordance with the regulations made by the Securities and Exchange Board of India in this behalf; and
(i) The buy-back in respect of shares or other specified securities of private and closely held companies is in accordance with the guidelines as may be prescribed.
Disclosures in the explanatory statement
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
Sources from where the shares will be purchased
The securities can be bought back from
(a) existing security-holders on a proportionate basis;
Buyback of shares may be made by a tender offer through a letter of offer from the holders of shares of the company or
(b) the open market through
(i). book building process;
(ii) stock exchanges or
(c) odd lots, that is to say, where the lot of securities of a public company, whose shares are listed on a recognized stock exchange, is smaller than such marketable lot, as may be specified by the stock exchange; or
(d) purchasing the securities issued to employees of the company pursuant to a scheme of stock option or sweat equity.
Payment to the shareholder :- (1) The Company shall immediately after the date of
closure of the offer open a special bank account and deposit therein, such sum, as would
make up the entire sum due and payable as consideration for the buy-back in terms of
these rules.
(2) The company shall within 7 days of the time specified in sub-rule (4) of rule 6 make
payment of consideration in cash or bank draft/pay order to those shareholders whose
offer has been accepted or return the share certificates to the shareholders forthwith.
CAclubindia
