of the Companies Act, 1956 empowers a company to purchase itsown shares or other specified securities in certain cases. It has overriding effectson all other provisions contained in the Act. Now a company may purchase itsown shares or other specified securities (hereafter referred to as "buy-back") inthe manner provided in sections 77A, 77AA and 77B. Specified securities mayinclude employees' stock option or other securities as may be notified by theCentral Government.
SOURCES FROM WHICH BUY-BACK CAN BE MADE
As per provisions of Section 77A of the Act, the buy-back of shares andsecurities can be made out of:—(i) its free reserves, or (ii) the securities premium account, or (iii) the proceeds of any issue of shares or other specified securities other thanproceeds of an earlier issue of the same kind of shares or same kind of specifiedsecurities which are proposed to be bought back.No Buy-back of any kind of shares or other specified securities shall be made outof the proceeds of an earlier issue of the same kind of shares or same kind of other specified securities.
TERMS AND CONDITIONS FOR BUY-BACK OF SHARES
The following terms and conditions are required to be fulfilled by a company inorder to become eligible to buy-back its own securities:—(a) There must be a provision in the Articles of Association authorizing thecompany to buy-back its own shares, otherwise the Articles must beamended by a special resolution to incorporate a suitable provision.(b) A special resolution must also be passed in a general meeting of thecompany authorizing the Board of directors to buy-back the shares of thecompany or other specified securities.