REPORT

ON

BUYBACK OF SHARES

SUBMITTED
TO
PROFESSOR PARADKA
MUMBAI EDUCATION TRUST
2007-2008

Prepared by
Dipock Mondal

ROHIT BANKA 6010

VIVEK BHIMRAJKA 6020
NEHA CHAWLA 6027

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SHUBHANKAR GUPTA 6057
VIJAY JAIN 6063
PALAK JERAJANI 6066
MOUSUMI MALLYA 6092
NIKITA SHAH 6161
RITU TANEJA 6179

ACKNOWLEDGEMENT

We would like to express thanks to MET for giving students of PGeMBA an opportunity
to make projects which truly checks their skills and management knowledge.

Our gratitude also to Mr. Paradkar for helping us articulate and understand the entire
research and documentation process involved in this project.

There are others, whose views, work and expertise made this work possible. Sheer weight
of numbers preludes our thanking them all. Those who did help know who they are and
have our everlasting gratitude.

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 TABLE OF CONTENTS

Serial No. Particulars Page No.

1. Meaning Of BuyBack 5
2. History Of BuyBack 6–7
3. Objective Of BuyBack 8 - 10
4. Advantages & Disadvantages Of BuyBack 11 - 13
5. Provisions & Conditions Of BuyBack 14 – 23
6. Methods Of BuyBack 24 – 26
7. BuyBack for Unlisted Companies 27 - 30
8. BuyBack for Listed Companies 31 - 33
9. Methods for BuyBack Under SEBI 34 – 44
10. Merchant Banker 45

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 11. Role of Merchant Banker in BuyBack 46-47
12. Valuation of Shares in BuyBack 48-49
13. Accounting for BuyBack 50-56
14. Effects of BuyBack 57-63
15. CASE : HINDUSTAN UNILEVER LTD 64-70
16. CASE : GLAXO SMITH KLINE 71-74
17. CASE : APPOLO 75-78
18. Unsuccessful BuyBack 79-90
19. CASE : Oracle & I-Flex 91-92
20. Innovation 93-94

MEANING OF BUYBACK OF SHARES

Definition1
A corporation's repurchase of stock or bonds it has issued. In the case of stocks, this
reduces the number of shares outstanding, giving each remaining shareholder a larger
percentage ownership of the company. This is usually considered a sign that the
company's management is optimistic about the future and believes that the current share
price is undervalued. Reasons for buybacks include putting unused cash to use, raising
earnings per share, increasing internal control of the company, and obtaining stock for
employee stock option plans or pension plans. When a company's shareholders vote to
authorize a buyback, they aren't obliged to actually undertake the buyback. also called
corporate repurchase.

Definition 2
A stock buyback, also known as a "share repurchase", is a company's buying back its
shares from the marketplace. You can think of a buyback as a company investing in itself,
or using its cash to buy its own shares. The idea is simple: because a company can’t act
as its own shareholder, repurchased shares are absorbed by the company, and the number
of outstanding shares on the market is reduced. When this happens, the relative

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ownership stake of each investor increases because there are fewer shares, or claims, on
the earnings of the company

Definition 3
Buyback is reverse of issue of shares by a company where it offers to take back its shares
owned by the investors at a specified price; this offer can be binding or optional to the
investors

Definition 4
The purchase of a long position by a company to offset a short position.

HISTORY OF BUYBACK OF SHARES IN INDIA

Prior to 1998 buybacks were not allowed in India. In the 1970’s period, if MNC’s wanted
to continue doing their business in India, they could do so only by diluting their
shareholding and getting listed on the exchange. They were thus forced to go public.

The buyback ordinance was introduced by the Government of India (GOI) on October
31, 1998. There was Insertion of new sections 77A, 77AA and 77B in the Companies
Law which allowed buyback. The major objective of the buyback ordinance was to
revive the capital markets and protect companies from hostile takeover bids.

The buy back of shares is governed by the Securities and Exchange Board of India's
(SEBI) Buy Back of Securities Regulation, 1998, and Securities and Exchange Board of
India's (SEBI) Substantial Acquisition of Shares and Takeover Regulations, 1997, and the
amended Companies Act 1956.

The ordinance was issued along with a set of conditions intended to prevent its misuse by
companies and protect the interests of investors. The buyback of shares was allowed only

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if the Articles of Association of the company permitted it to do so and after passing a
special resolution at a general meeting
It also allowed the promoters of a company to make an open offer (similar to an
acquisition of shares) to purchase the shares of its subsidiary. This allowed foreign
promoters to utilize their surplus funds and make an open offer to acquire a 100% stake
in their Indian subsidiaries.
Now that the norms have been altered and MNC’s were permitted to carry on their
business without any such compulsion, they would rather operate as wholly owned
subsidiaries without being listed on the bourses.

Several MNC’s like Philips India Limited, Cadbury India, Otis Elevators, Carrier Aircon,
Reckitt Benkiser etc. announced offers to buyback the shares of its Indian subsidiary
under SEBI (SAST). This provided a much needed exit option for shareholders in
depressed market conditions. However, critics of the buyback option claimed that large
multinationals had utilized the buyback option to repurchase the entire floating stock
from the market with the objective of delisting from the stock exchange and eliminating
an investment opportunity for investors.

Post the 11th September 2001 terror attacks in the USA, approximately 240 companies
have announced a buyback including the likes of GE, Oracle, Microsoft etc. In India too
there have been a lot of companies that have announced buybacks like Reliance
Industries, GE Shipping, Bombay Dyeing, Raymond etc.

Section 77A, 77AA, and 77B of Companies Act 1956

The amendment of the Companies Act, 1956 came into force on 31st day of October,
1998. There was Insertion of new sections 77A, 77AA and 77B

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 OBJECTIVE OF BUYBACK OF SHARES

Shares may be bought back by the company on account of one or more of the following
reasons

• Unused Cash: If they have huge cash reserves with not many new profitable
projects to invest in and if the company thinks the market price of its share is
undervalued. Eg. Bajaj Auto went on a massive buy back in 2000 and Reliance's
recent buyback. However, companies in emerging markets like India have growth
opportunities. Therefore applying this argument to these companies is not logical.
This argument is valid for MNCs, which already have adequate R&D budget and
presence across markets. Since their incremental growth potential limited, they
can buyback shares as a reward for their shareholders.

• Tax Gains Since dividends are taxed at higher rate than capital gains companies
prefer buyback to reward their investors instead of distributing cash dividends, as
capital gains tax is generally lower. At present, short-term capital gains are taxed
at 10% and long-term capital gains are not taxed.

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• Market perception By buying their shares at a price higher than prevailing
market price company signals that its share valuation should be higher. Eg: In
October 1987 stock prices in US started crashing. Expecting further fall many
companies like Citigroup, IBM et al have come out with buyback offers worth
billions of dollars at prices higher than the prevailing rates thus stemming the fall.

Recently the prices of RIL and REL have not fallen, as expected, despite the spat
between the promoters. This is mainly attributed to the buyback offer made at
higher prices.

• Exit option If a company wants to exit a particular country or wants to close the
company it can offer to buy back its shares that are trading in the market.

• Increase promoter's stake Some companies buyback stock to contain the

dilution in promoter holding, EPS and reduction in prices arising out of the
exercise of ESOPs issued to employees. Any such exercising leads to increase in
outstanding shares and to drop in prices. This also gives scope to takeover bids as
the share of promoters dilutes. Eg. Technology companies which have issued
ESOPs during dot-com boom in 2000-01 have to buyback after exercise of the
same. However the logic of buying back stock to protect from hostile takeovers
seem not logical. It may be noted that one of the risks of public listing is
welcoming hostile takeovers. This is one method of market disciplining the
management. Though this type of buyback is touted as protecting over-all
interests of the shareholders, it is true only when management is considered as
efficient and working in the interests of the shareholders.

• Escape monitoring of accounts and legal controls If a company wants to avoid

the regulations of the market regulator by delisting. They avoid any public

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 scrutiny of its books of accounts.

• Show rosier financials Companies try to use buyback method to show better
financial ratios. For eg. When a company uses its cash to buy stock, it reduces
outstanding shares and also the assets on the balance sheet (because cash is an
asset). Thus, return on assets (ROA) actually increases with reduction in assets,
and return on equity (ROE) increases as there is less outstanding equity. If the
company earnings are identical before and after the buyback earnings per share
(EPS) and the P/E ratio would look better even though earnings did not improve.
Since investors carefully scrutinize only EPS and P/E figures, an improvement
could jump-start the stock. For this strategy to work in the long term, the stock
should truly be undervalued.

Generally the intention for the buyback is a mix of any of the above reasons.

• Sometimes Governments nationalize the companies by taking over it and then

compensates the shareholders by buying back their shares at a predetermined
price. Eg. Reserve Bank of India in 1949 by buying back the shares.

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ADVANTAGES AND DISADVANTAGES OF BUYBACK OF
SHARES

• Increase confidence in management: It might enhance the confidence of its

investors on the company’s board of directors, as these investors know that
the directors are ever willing to return surplus cash if it’s not able to earn
above the company’s alternative investment or cost of capital.

• Enhances shareholders value: Generally, share buybacks are good for

shareholders. The laws of supply and demand would suggest that with fewer
shares on the market, the share price would tend to rise. Although the
company will see a fall in profits because it will no longer receive interest on
the cash, this is more than made up for by the reduction in the number of
shares.

• Higher Share Price: Buying back stock means that the company earnings are
now split among fewer shares, meaning higher earnings per share (EPS).
Theoretically, higher earnings per share should command a higher stock price
which is great!

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• Reduce takeover chances: Buying back stock uses up excess cash. The
returns on excess cash in money market accounts can drag down overall
company performance. Cash rich companies are also very attractive takeover
targets. Buying back stock allows the company to earn a better return on
excess cash and keep itself from becoming a takeover target.

• Increase ROE: Buying back stock can increase the return on equity (ROE).
This effect is greater the more undervalued the shares are when they are
repurchased. If shares are undervalued, this may be the most profitable course
of action for the company.

• Psychological Effect: When a company purchases its own stock it is

essentially telling the market that they think that the company’s stock is
undervalued. This can have a psychological effect on the market.

• Buying back stock allows a company to pass on extra cash to shareholders

without raising the dividend. If the cash is temporary in nature it may prove
more beneficial to pass on value to shareholders through buybacks rather than
raising the dividend.

• Excellent Tool For Financial Reengineering: In the case of profit making,

high dividend-paying companies whose share prices are languishing,
buybacks can actually boost their bottom lines since dividends attract taxes. A
buyback and the subsequent neutralisation of shares, can reduce dividend
outflows, and if the opportunity cost of funds used is lower than the dividend
savings, the company can laugh all the way to the bank.

• Tax Implication: Exemption is available only if the shares are sold on a

recognised stock exchange and if securities transaction tax (STT) on the sale
has been paid. In a buyback scheme, neither does the sale take place on a

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 recognised exchange nor is the STT paid. So, you will have to pay income tax
on your long-term capital gain on the buyback after deducting the acquisition
cost of your shares plus the benefit of indexation from the year of purchase to
the year of buyback. On the resultant gain, the tax would be 20 per cent plus
the applicable surcharge, if any, plus 2 per cent education cess. You may also
work out the tax at 10 per cent of the gain without considering indexation.
Your tax liability will be limited to the lower of the two calculations.

• Stock buybacks also raise the demand for the stock on the open market. This
point is rather self explanatory as the company is competing against other
investors to purchase shares of its own stock.

Disadvantages:

• Sending Negative Signals: A buyback announcement can send a negative signal

in these situations. A typical example is the HP case: From November 1998
through October 2000, the computer giant Hewlett-Packard spent $8.2 billion to
buy back 128 million of its shares. The aim was to make opportunistic purchases
of HP stock at attractive prices—in other words, at prices they felt undervalued
the company. Instead of signaling a good operating prospects to the market, the
buyback signal was completely drowned out more powerful contradictory signals
about the company’s future which are an aborted acquisition, a protracted
business restructuring, slipping financial results, and a decay in the general
profitability of key markets. By last January, HP’s shares were trading at around
half the average $64 per share paid to repurchase the stock.

• Backfire: Buybacks can also backfire for a company competing in a high-growth

industry because they may be read as an admission that the company has few
important new opportunities on which to otherwise spend its money. In such
cases, long-term investors will respond to a buyback announcement by selling the
company’s shares.

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 • The share buyback scheme might become a big disadvantage to the company
when it pays too much for its own shares. Indeed, it is foolish to buy in an
overpriced market. Instead, the company should put the money into assets that can
be easily converted back into cash. This way, when the market swings the other
way and is trading below its true value, shares of the company can be bought back
at a discount, ensuring current shareholders receive maximum benefit. Strictly, a
company should repurchase its shares only when its stock is trading below its
expected value and when no better investment opportunities are available.

PROVISIONS / CONDITIONS RELATING TO BUYBACK.

The restrictions were imposed to restrict the companies from using the stock markets as
short term money provider apart from protecting interests of small investors.

Sec 77A: Power of a company to purchase its own securities.

Section 77A was introduced by the Companies (Amendment) Act, 1999, pursuant to the
report of the working group which was set up to suggest reforms to the Companies Act.
Section 77A(2) of the Companies Act, 1956:
1) Authorised by Articles of Association and a Special Resolution
2) Buyback should be equal to or less than 25%of the total paid up capital and free
reserves
3) Shares to be bought back should be fully paid up
4) Debt Equity ratio should not exceed 2:1 post buyback
5) Notice of meeting to the shareholders should have all the details necessary
6) Buyback of shares listed on any recognised stock exchange should be in accordance
with SEBI guidelines
7) Explanatory statement stating the following should be prepared-
a) A full and complete disclosure of all material facts;
b) The necessity for the buy-back;

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 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
8) A declaration of solvency has to be filed with SEBI and Registrar Of Companies
9) Completion of the buyback should be within 12 months
10) The shares bought back should be extinguished and physically destroyed;
11) The company should not make any further issue of securities within 2 years, except
bonus, conversion of warrants, etc.

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.

Prohibition of Buy Back :

A company shall not directly or indirectly purchase its own shares or other
specified securities –

1) through any subsidiary company including its own subsidiary companies; or

2) through any investment company or group of investment companies; or

According to it, a company limited by shares, and a company limited by guarantee and
having a share capital, shall not have the power to buy its own shares, unless the
consequent reduction of capital is effected and sanctioned in pursuance of sections 100 to
104 or of section 402. The section also prohibited giving of financial assistance to a
person for purchasing shares in companies except in certain situations i.e. lending by a
banking company, purchase of fully paid shares of its own or holding company if the
purchase is by the trustees for the benefit of the employees of the company or the grant of

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loans to employees to enable them purchase shares in the company or its holding
company. The main reason for this prohibition on trafficking in its own shares was to
prevent the company from influencing the market price of its shares by reducing the
floating stock to the prejudice of its creditors. Prior to introduction of section 77A the
only exceptions to the general principle that the company cannot buy its own shares were

a) purchase resulting in reduction of capital with the sanction of the court

under sections 100 to 104;
b) redemption of redeemable preference shares under section 80;
c) purchase under an order of court in a scheme of arrangement or
amalgamation under sections 391 to 394, subject to compliance with
sections 100 to 104 and
d) purchase under an order of Company Law Board to purchase shares of
minority shareholders under section 402(b).

Thus the company could purchase its shares prior to introduction of section 77A
provided the scheme or arrangement therefore had been sanctioned under sections
100 to 104. Section 100 does not prescribe the manner in which the reduction of
capital is to be effected. Nor is there any limitation on the power of court to
confirm the reduction except that it must be first satisfied that all the creditors
entitled to object to the reduction have consented or have been paid or secured.
{ Punjab Distilling Industries Ltd. v. CIT [1965] 35 Comp Cas 541 (SC);
Hindustan Commercial Bank Ltd. v. Hindustan General Electrical Corporation
[1960] 30 Comp Cas 367 (Cal).

Register of securities bought back :

After completion of buyback, a company shall maintain a register of the
securities/shares so bought and enter therein the following particulars
a. the consideration paid for the securities bought-back,
b. the date of cancellation of securities,
c. the date of extinguishing and physically destroying of securities and
d. such other particulars as may be prescribed

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 Where a company buys-back its own securities, it shall extinguish and physically
destroy the securities so bought-back within seven days of the last date of
completion of buy-back.

Penalty
If a company makes default in complying with the provisions the company or any
officer of the company who is in default shall be punishable with imprisonment
for a term which may extend to two years, or with fine which may extend to fifty
thousand rupees, or with both. The offences are, of course compoundable under
Section 621A of the Companies Act, 1956

Prior to Section 77A

Prior to the introduction of section 77A, the only manner in which a company could buy
back its shares was by following the procedure set out under sections 100 to 104 and
section 391 which required the calling of separate meetings of each class of shareholders
and creditors as well as (if required by the court) the drawing up of a list of creditors of
the company and obtaining of their consent to the scheme for reduction. The legislative
intention behind the introduction of section 77A is to provide an alternative method by
which a company may buy back up to 25 per cent. of its total paid up equity capital in
any financial year subject to compliance with sub-sections (2), (3) and (4). It does not
supplant or take away any part of the pre-existing jurisdiction of the company court to
sanction a scheme for such reduction under sections 100 to 104 and section 391.
The non obstinate clause in section 77A namely "notwithstanding anything contained in
this Act ..." only means that notwithstanding the provisions of section 77 and sections
100 to 104, the company can buy back its shares subject to compliance with the
conditions mentioned in that section without approaching the court under sections 100 to
104 or section 391. There is nothing in the provision of section 77A to indicate that the
jurisdiction of the court under section 391 or 394 has been taken away or substituted. It is

16
well settled that the exclusion of the jurisdiction of the court should not readily be
inferred; such exclusion should be explicitly or clearly implied. There is nothing in the
language of section 77 that gives rise to such an inference. We are, therefore, inclined to
hold that section 77A is merely an enabling provision and the court's powers under
sections 100 to 104 and section 391 are not in any way affected. The conditions provided
in section 77A are applicable only to buy-back of shares under section 77A.
The conditions applicable to sections 100 to 104 and section 391 cannot be imported into
or made applicable to a buy-back under section 77A. Similarly the conditions for a buy-
back under section 77A cannot be applied to a scheme under sections 100 to 104 and
section 391. The two operate in independent fields.
Sec77B: Prohibition for buyback in certain circumstances.

Section 77B of the Companies Act, 1956 :

1. Through any subsidiary company.

2. Through any investment company or group of investment companies.
3. Company is in default in repayment of deposit or interest, or redemption of
debenture or preference shares or
4. Company is in default in payment of dividend or repayment of any term loan
including interest to banks and FIs.

Section 77AA:
Transfer of certain sums to capital redemption reserve account.
The Securities and Exchange Board of India (Buy Back of Securities) Regulations, 1988
provide for the following:
1) Regulations cover only the listed securities of company.
2) Buy back is permitted through the tender offer mode from existing share holders on
proportionate basis and from odd lot holders. Buy back through the book-building
mode and purchases through stock exchange are allowed for open market
transactions.

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3) In the purchases made through the stock exchange, the details of purchases under the
buy back scheme shall be made available to the stock exchange on daily basis: the
details in turn shall be made available to public regularly.
4) Extensive disclosures need to be made in the Explanatory Statement to be annexed
for the notice for general meeting and the Letter of Offer.
5) Pre and post buy back holdings of promotors need to be disclosed carefully.
6) Buy back through negotiated deals, spot transactions or private arrangements is not
permitted.
7) To ensure strict compliance with the provisions of SEBI Regulations, merchant
banker has been made to be associated in every offer for buy back, wherein he has to
give a “due diligence” certificate.
8) To ensure timely completion of buy back process, the Regulations provide for time-
bound steps in every mode. Thus, except in cases of purchases through stock
exchange, an offer for buy back shall not remain open for more than 30 days.
9) To ensure security/safety, the company making the buy back offer has to open an
escrow account on the same lines as provided in the Takeover Regulations.

The Companies (Amendment) Ordinance (October 31, 1998 and January 7, 1999) allows
companies to buy back their own shares subject to regulations laid down by SEBI. The
new Sections (77A and 77B) in the Ordinance lay down the provisions/restrictions
concerning buy back of shares.
1) A company can finance its buy back out of (i) its free reserves or (ii) the securities
premium account or (iii) proceeds of an earlier issue other than fresh issue of shares
made specifically for buy back purposes.
2) A company is allowed buy back subject to the following conditions:—
(a) the buy back is authorised by its articles;
(b) a special resolution has been passed in general meeting of the company
authorising buy back;
(c) the buy back does not exceed 25 per cent of the total paid up capital and free
reserves of the company.

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 (d) debt-equity (including free reserves) ratio does not exceed to 2:1 after the
proposed buy back;
(e) all shares or other specified securities are fully paid- up; and
(f) the buy back is in accordance with SEBI regulations framed for this purpose.

Mandatory Disclosures
1) The notice for the meeting convened to pass special resolution on buy back must be
accompanied by an explanatory statement giving a full and complete disclosure of all
material facts, the necessity for buy back, class of securities to be purchased and the
amount to be invested under the buy back, and the time limit for completion of buy
back. A maximum time of one year from the date of passing of resolution has been
stipulated to complete the buy back.
2) A company is required to destroy the shares bought back within seven days of
completion of the buy back.
Further, it is prohibited from issuing fresh equities within two years of buy back,
except by way of bonus issue or discharge of its existing obligation of converting
warrants, preference shares, debentures, stock option schemes, etc. into equity shares.
3) A company which has defaulted on repayment of deposits, term loan, redemption of
debenture/preference share, etc. is not allowed to buy back shares. Buy back of shares
through subsidiary companies or investment companies is also prohibited.
Reforms Suggested in 2006
The Federation of Indian Chambers of Commerce and Industry (FICCI) and
Society of Indian Law Firms (SILF) Research Paper on Securities Market
Regulations has suggested wide-ranging measures to streamline the operation of
the SEBI Act, Regulations on buy-back of shares
On buyback of shares, the paper notes that buyback of shares can be done only
out of company's free reserves, securities premium account or proceeds of any
earlier issue specifically made for buyback purposes. Moreover, companies are
allowed to buyback their own shares upto 25 percent of the paid up capital and

19
 free-reserves. The crucial question, in the emerging global scenario where
companies have to consolidate and reposition themselves, is to examine whether
there should be any restriction at all for buyback of shares? If so, what percentage
of the paid up capital and free reserves should be allowed?

In case of buyback of shares, gains are subject to Capital Gains Tax because the
transaction is not through the exchange and there is no incidence of Securities
Transaction Tax (STT). It would be in fitness of things to exempt even the
buyback offers and put it on par with secondary market transactions.
The concept of targeted buyback, where an issuer may buyback shares from a
subset of shareholders on a preferential basis was examined by the Committee
constituted by the SEBI. The facility is used in some countries (a) effecting a
block repurchase from large shareholders (b) effecting purchases from employees
(c) thwarting takeover attempts. This concept is not yet addressed in Indian Law.
This has been provided for in certain countries like USA, Australia etc. The
Committee constituted in one of its recommendations has suggested that this
concept could come in the way of proper operation of a competitive market for
management control, which is an essential ingredient of the Capital Market.
Therefore, the Committee does not find this mechanism to be appropriate at this
stage.

Securities And Exchange Board Of India (Buy-Back Of Securities)

(Amendment) Regulations, 2007.
In exercise of powers conferred by sub-section (1) of section 30 of the Securities and
Exchange Board of India Act, 1992 (15 of 1992) read with clause (f) of sub-section
(2) of Section 77A of the Companies Act, 1956 (1 of 1956) the Board hereby makes
the following regulations to amend the Securities and Exchange Board of India (Buy-
Back of Securities) Regulations, 1998, namely:-

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 1. These Regulations may be called the Securities and Exchange Board of India
(Buy-Back of Securities) (Amendment) Regulations, 2007.
2. They shall come into force on the date of their publication in the Official Gazette.
3. In the Securities and Exchange Board of India (Buy-Back of Securities)
Regulations, 1998, in Schedule IV, for paragraph (1), the following paragraph
shall be substituted, namely:-

Every merchant banker shall while submitting the offer document or a copy of the public
announcement to the Board, pay fees as set out below:-

Offer size Fee (Rs.)

Less than or equal to one crore rupees. One lakh rupees (Rs. 1,00,000/-).

More than one crore rupees, but less than Two lakh rupees (Rs. 2,00,000/-).
or equal to five crore rupees.

More than five crore rupees, but less than Three lakh rupees (Rs. 3,00,000/-).
or equal to ten crore rupees.

More than ten crore rupees, but less than 0.5% of the offer size.
or equal to one thousand crore rupees.

More than one thousand crore rupees, but Five crore rupees (Rs. 5,00,00,000/-) plus
less than or equal to five thousand crore 0.125% of the portion of the offer size in
rupees. excess of one thousand crore rupees
(Rs.1000,00,00,000/-).

More than five thousand crore rupees. Ten crore rupees (Rs.10,00,00,000/-)."

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Tax Benefit
In many ways, a buyback is similar to a dividend because the company is distributing
money to shareholders. Traditionally, a major advantage that buybacks had over
dividends was that they were taxed at the lower capital-gains tax rate, whereas dividends
are taxed at ordinary income tax rates. However, with the passing of the Jobs and Growth
Tax Relief Reconciliation Act of 2003, the tax rate on dividends is now equivalent to the
rate on capital gains.

Tax Implications of Buyback of Shares.

1) According to section 46A of income tax buyback of shares is treated as ordinary sale
of shares by the shareholder.

2) The amount received less cost of acquisition is treated as capital gain in the year of
sale by the shareholder.

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 METHODS OF BUYBACK

There are a number of ways in which a company can return wealth to its shareholders.
Although stock price appreciation and dividends are the two most common ways of doing
this, there are other useful, and often overlooked, ways for companies to share their
wealth with investors.

Typically, the two ways of buyback are:

1. Tender Offer
Shareholders may be presented with a tender offer by the company to submit, or tender, a
portion or all of their shares within a certain time frame. The tender offer will stipulate
both the number of shares the company is looking to repurchase and the price range they
are willing to pay (almost always at a premium to the market price). When investors take
up the offer, they will state the number of shares they want to tender along with the price
they are willing to accept. Once the company has received all of the offers, it will find the
right mix to buy the shares at the lowest cost.

2. Open Market
The second alternative a company has is to buy shares on the open market, just like an
individual investor would, at the market price. It is important to note, however, that when
a company announces a buyback it is usually perceived by the market as a positive thing,
which often causes the share price to shoot up.

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3. Book-building process.
Companies can also use the book building process to buy back shares. The book building
process is a mechanism of price discovery which helps determine market price of
securities. If the book building option is used, a draft prospectus has to be filed with
SEBI. The prospectus should contain all the details of the offer, except the price at which
the securities will be offered (a price band is specified). The copy of the draft prospectus
is filed with SEBI and is circulated among institutional buyers by a leading merchant
banker acting as the book runner. Institutional investors specify the price as well as the
volume of shares they intend to buy. The book runner, on receiving the above
information, determines the price at which the offer is to be made to the public.

In both 1 & 3 promoters can participate in buyback and not in 2.

Other methods of buyback are

• Employee-share purchases – purchases of shares held by or for the benefit of current
or former employees of a company, including salaried directors, according to the
terms of an employee share scheme

• Odd-lot purchases – purchases by listed companies of small parcels of shares which

are not marketable on the stock exchange. Here 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

• Selective buy-backs – a buy-back that does not fall within any of the other categories,
such as the purchase of a particular member’s shares.

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The best example of such a buyback in the Indian context was the buyback of shares
undertaken by the Great Eastern Shipping Company (GESCO) to protect itself from a
hostile takeover bid led by the A H Dalmia group. In October 2000, the A H Dalmia
group of Delhi made a hostile bid for a 45 per cent stake in the Great Eastern Shipping
Company (GESCO) at Rs. 27 a share. The price offered was less than half the book value
of the company. The offer and counter offers made by the A H Dalmia group and the
promoters of GESCO pushed up the bidding cost. The A H Dalmia group ultimately sold
its 10.5% stake (around 3 million shares) at Rs 54 per share for a consideration of Rs. 163
million before the year end. The A H Dalmia group had acquired the 10.5% stake in
Gesco at an average cost of Rs. 24 per share for a consideration of Rs. 72 million. Hence,
the A H Dalmia group was able to make a profit of Rs. 91 million through greenmail
transaction in less than 6 months.

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 BUYBACK FOR UNLISTED COMPANIES

The buyback of securities by Private Limited Company and Unlisted Public Limited
Company not listed on any recognized stock exchange comes under Private Limited
Company and Unlisted Public Limited Company (Buy-back of Securities) Rules, 1999.
These were passed by the Central Government on 6th July1999.
Methods
A company may buy-back its shares by either of the following methods:

• from the existing shareholders on a proportionate basis through private offers;

• By purchasing the securities issued to employees of the company pursuant to a
scheme of stock option or sweat equity.

Special resolution
A special resolution needs to be passed under sub-section (2) of section 77A of the
Companies Act, 1956 and the explanatory statement is to be annexed to the notice for the
general meeting containing all disclosures. The statement shall contain the date of the
Board meeting at which the proposal for buy back was approved, the necessity for the
buy-back; the class of security intended to be purchased under the buy-back; the method
to be adopted for the buy-back; the basis of arriving at the buy back price; the time limit
for the completion of buy-back; etc. It will also state that the BOD has checked that the
company would be able to pay all its debts.

Letter of offer

26
The Company, authorized by a special resolution, shall file with the Registrar of
Companies a draft letter of offer before the buy-back of shares. IT shall also declare
solvency in Form No. 4A.

Contents of Letter of Offer

Details of the offer including the total number and percentage of the total paid up capital
and free reserves proposed to be bought back and price;

• the proposed time table from opening of the offer till the extinguishment of
the certificates;
• disclosure of all material facts,
• The necessity for the buy back, process,
• brief information about the company; Audited Financial information for the
last 3 years Present capital structure (including the number of fully paid and
partly paid securities) and shareholding pattern;
• The capital structure including details of outstanding convertible instruments,
if any, post buy-back;
• The letter of offer shall contain pre and post buy-back debt equity ratios etc.

Dispatch LoF
The letter of offer shall be dispatched immediately after filing with Registrar of
Companies but not later than 21 days from it’s filing with Registrar of Companies

Buyback Period
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 dispatch of letter of offer.
Shares tenders exceeds limit
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.

27
Process Completion
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.
Payment to the shareholder
The Company shall immediately after the date of closure of the offer open a special bank
account and deposit therein, which would make up the entire sum due and payable as
consideration for the buy-back. After the 21 days the company shall within 7 days 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.

General obligations of the company

The company shall ensure that:

• The letter of offer shall contain true, factual and material information i.e. no
misleading information and state that the directors of the company accept the
responsibility for the information contained in such document;
• The company shall not issue any shares including by way of bonus till the date
of the closure of the offer under these rules;
• The company shall confirm in its offer the opening of separate bank account
and pay the consideration only by way of cash or Bank draft/pay order;
• The company shall not withdraw the offer once the draft letter of offer has
been filed with the Registrar of Companies; and
• The company shall not utilize any money borrowed from Banks/Financial
Institutions for the purpose of buying back its shares.

Return to be filed with Registrar

A company, after the completion of the buy-back under these rules, shall file with the
Registrar a return in the Form, the format of which is mentioned in the Rules.

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Extinguishment of Certificate
The company shall extinguish and physically destroy the share certificates so bought
back in the presence of the Company Secretary within 7 days from the date of acceptance
of the shares. The company shall furnish a verified certificate to the ROC certifying
compliance of these rules within 7 days of the extinguishment and destruction of the
certificates. The record of share certificates needs to be maintained

Register of shares
The company shall maintain a Register of shares bought back by the Company in the
Form mentioned in the Rules.
After all the requirements are fulfilled and document submitted to ROC the company can
proceed with the buyback. After the process is complete the company again has to file a
form with the ROC and thus the process will be completed.

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 BUYBACK FOR LISTED COMPANIES

The regulation is applicable to buyback of shares or other specified securities of a

company listed on a Stock Exchange. The buyback of shares can’t take place for
delisting of shares from the Stock Exchange.
When the company is buying back shares it can’t buy back through negotiated deals with
any person or through spot transactions or through any private arrangement.

Special Regulation

Incase the Offer size is greater than 25% of its Equity share capital & free reserves, the
company can go ahead with the buy back only if a special resolution is passed at the
general meeting. When the notice is being sent to the shareholders an Explanatory
Statement must be annexed to the notice containing various disclosures

The company can also company can go ahead with the buy back only if a special
resolution is through the postal ballot route as per The Companies (Passing of the
Resolution by Postal Ballot) Rules, 2001.
“Postal Ballot” includes voting by share holders by postal or electronic mode instead of
voting personally by presenting for transacting businesses in a general meeting of the
company,

Method for sending notice:

(a) The company may issue notices either,-
(i) Under Registered Post Acknowledgement Due; or
(ii) Under certificate of posting; and

(b) With an advertisement published in a leading English Newspaper and in one

vernacular Newspaper circulating in the State in which the registered office of the
company is situated, about having despatched the ballot papers.”

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Explanatory Statement
The company needs to make the following disclosures in the statement

1. The date of the Board meeting at which the proposal for buy back was approved
by the BOD.
2. The necessity for the buy back
3. The company may specify one reason to be adopted for buy-back so that the
shareholders authorize the BOD for the same.
4. The maximum amount required under the buy back and the sources of funds from
which the buy back would be financed.
5. The basis of arriving at the buy-back price.
6. The number of securities that the company proposes to buy back.
7.
a. The aggregate shareholding of the promoter and of the directors of the
promoters, as on the date of the notice convening the General Meeting.
b. Aggregate number of shares purchased or sold by such persons during a
period of six months preceding the date of the Board Meeting
c. The maximum and minimum price at which purchases and sales were
made along with the relevant dates.
8. Intention of the promoters and persons in control of the company to tender their
shares for buy-back indicating the number of shares and details of acquisition
with dates and price.
9. A confirmation that there are no defaults subsisting in repayment of deposits,
redemption of debentures or preference shares or repayment of term loans to any
financial institutions or banks.
10. A confirmation that the BOD has made a full enquiry into the affairs and
prospects of the company and are of the opinion-

31
 a. that there will be no grounds on which the company could be found unable
to pay its debts;

b. The company during that year, the company will be able to meet its
liabilities as and when they fall due and will not be rendered insolvent
within a period of one year from that General Meeting date ; and
c. In forming their opinion for the above purposes, the directors have taken
into account the liabilities as if the company were being wound up under
the provisions of the Companies Act, 1956

11. A report addressed to the BOD by the Company’s auditors stating that-
a. They have inquired into the company’s state of affairs;
b. The amount of the permissible capital payment for the securities is in their
view properly determined; and,
c. The Board of Directors have formed the opinion on reasonable grounds
and that the company will not be rendered insolvent within a period of
one-year from that date.

After the special resolution (requiring 2/3rd Majority) is passed the company can go ahead
with the buyback. This resolution needs to be filed with SEBI and the Stock Exchanges
where the shares/ securities are listed with seven days of passing such resolution.

Board Resolution

The Board will pass a resolution to buy back its shares. Before making the Public
Announcement the company shall give a public notice in at least one English national
daily, one Hindi national daily and a regional language daily, at the place where the
registered office of the company is situated. The Board of Directors shall give such
public notice, within 2 days of the passing of the resolution. The public notice shall
contain the disclosures as specified in the Explanatory Statement

32
A copy of the resolution, passed by the Board of Directors at its meeting authorizing buy
back of its shares shall be filed with SEBI and the stock exchanges, where the shares of
the company are listed, within two days of the date of the passing of the resolution.

The Board of Directors can now proceed ahead with the buy-back programme.

METHODS OF BUYBACK OF SHARES UNDER SEBI

REGULATIONS
A company may buyback its securities by any one of the following methods:’
1. From the existing Share and other specified securities on a proportionate basis
through the Tender offer;
2. From Open Market.
3. From Odd-Lot holders

TENDER OFFER

A tender offer is an invitation by the company, to its existing shareholder, to buy back its
securities. In a buyback by the Tender Offer method, the price and the size of the offer
i.e. the number of shares to be bought back, is pre- decided & fixed. The company makes
an open offer to all its shareholders to buy back its shares at a given price, usually a
premium to the current market price. A company may buyback its securities from its
shareholders on a proportionate basis.

Additional Disclosure
The Company is required to submit the following Additional Disclosures in the
Explanatory Statement annexed to the notice of the general meeting if its wants to
proceed with a tender offer.
• The maximum price at which the buy-back of shares/securities shall be made.
• Board of Directors of the company are being authorised at the general meeting to
determine the specific price at which the buy-back may be made at the
appropriate time

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 • If the promoter intends to offer their specified securities , if yes ,
 The quantum of shares proposed to be tendered;
 The details of their transactions and their holdings for the last six-months prior
to the passing of the special resolution for buy-back including information of
number of shares acquired, the price and the date of acquisition.
Public Announcements
The company which has shall before buyback of shares make a public announcement in
at least one English National Daily, one Hindi National Daily and a Regional language
newspaper.
Details of PA

• Disclaimer clause as may be prescribed by SEBI.

• Details of the offer including the total number and percentage of the total paid
up capital and free reserves proposed to be bought back and price.
• The proposed time table from opening of the offer till the extinguishment of
the certificates.
• The Specified date: This shall be the `specified date’ for the purpose of
determining the names of the shareholders to whom the letter of offer shall be
sent. The specified date shall not be earlier than thirty days and not later than
forty-two days from the date of the public announcement
• Authority for the offer of buy back.
• A full and complete disclosure of all material facts including the contents of
the explanatory statement
• The necessity for the buy back
• The process and methodology to be adopted for the buy back
• The maximum amount to be invested under the buy back
• The minimum and the maximum number of securities that the company
proposes to buy back sources of funds from which the buy back would be
made and the cost of financing the buy back.
• Brief information about the company.

34
 • Audited Financial information for the last 3 years
• Details of escrow account opened and the amount deposited therein.
• Listing details and stock market data;
• High, Low and average market prices of the securities of the company
proposed to be bought back, during the preceding three years;

i. Monthly high and low prices for the six months preceding the date of the PA;
ii. The Volume on the days when the high and low prices were recorded on the
relevant stock exchanges during the above period,
iii. The stock market data referred to above shall be shown separately for periods
marked by a change in capital structure from the date whne such changes take
place , (e.g. when the securities have become ex-rights or ex-bonus);
iv. The market price immediately after the date of the resolution of the Board of
directors approving the buy back; and
v. The volume of securities traded in each month during the six months preceding
the date of PA. Along with high, low and average prices of securities of the
company, details relating to volume of business transacted should also be stated
for respective periods.

• Present capital structure (including the number of fully paid and partly paid
securities) and shareholding pattern.
• The capital structure including details of outstanding convertible instruments, if
any post buy back.
• The aggregate shareholding of the promoter group and of the directors of the
promoters, where the promoter is a company shareholding of persons who are in
control of the company.
• The aggregate number of shares purchased or sold by such persons during a
period of twelve months preceding the date of the PA; the maximum and
minimum price at which purchases and sales referred were made along with the
relevant dates.

35
 • Management discussion and analysis on the likely impact of buy back on the
company’s earnings, public holdings, holdings of NRIs/FIIs etc., promoters
holdings and any change in management structure.
• The details of statutory approvals obtained.
• Collection and bidding centres.
• Name of Compliance officer and details of investors service centres.
• Other disclosures as may be specified by SEBI from time to time by way of
guidelines.
• The PA shall be dated and signed on behalf of the Board of Directors of the
company by its manager or secretary, if any, and by at least two directors of the
company one of whom shall be a managing director.

Filing draft-letter of offer

The Company within seven working days of the public announcement shall file with
SEBI a draft-letter of offer containing disclosures as specified in the regulations through
a merchant banker who is not associated with the company.

Disclosures of Letter of offer

• Disclaimer Clause prescribed by the board

• Details of the offer including the total number and percentage of the total paid
up capital and free reserves proposed to be bought back and price
• The proposed time table from opening of the offer till the extinguishment of
the certificates
• Specified Date
• Authority for the offer of buy-back
• A full and complete disclosure of all material facts including the contents of
the explanatory statement
• The necessity for the buy back

36
• The process to be adopted for the buy back.
• The maximum amount to be invested under Buy-Back
• The minimum and the maximum number of securities that the company
proposes cost of financing the buy-back
• Brief information about the company

• Audited Financial information for the last 3 years and the company and its
Directors shall ensure that the particulars (audited statement and un-audited
statement) contained therein shall not be more than 6 months old from the
date of the offer document together with financial ratios as may be specified
by the Board.
• Details of escrow account opened and the amount deposited therein.
• Listing details and stock market data;
o High, Low and average market prices of the securities of the company
proposed to be bought back, during the preceding three years;
o Monthly high and low prices for the six months preceding the date of
filing the draft letter of offer with the Board which shall be updated till the
date of the letter of offer.
o The number of securities traded on the days when the high and low prices
were recorded on the relevant stock exchanges during the period stated
above.
o The stock market data referred to above shall be shown separately for
periods marked by a change in capital structure, with such period
commencing from the date the concerned stock exchange recognises the
change in the capital structure. (e.g. when the securities have become ex-
rights or ex-bonus) ;
o the market price immediately after the date on which the resolution of the
Board of directors approving the buy back; and
o The volume of securities traded in each month during the six months
preceding the date of the offer document . Along with high, low and

37
 average prices of securities of the company, details relating to volume of
business transacted should also be stated for respective periods.
• Present capital structure (including the number of fully paid and
partly paid securities) and shareholding pattern
• The capital structure including details of outstanding convertible
instruments, if any, post buy-back
• The aggregate shareholding of the promoter group and of the
directors of the promoters, where the promoter is a company and of persons
who are in control of the company.
• The aggregate number of equity shares purchased or sold by such
persons during a period of twelve months preceding the date of the PA and
from the date of PA to the date of the letter of offer; the maximum and
minimum price at which purchases and sales referred to above were made
along with the relevant date.
• Management discussion and analysis on the likely impact of buy
back on the company's earnings, public holdings, holdings of Non Resident
Indians/Foreign Institutional Investors, etc., promoters holdings and any
change in management structure.
• Details of statutory approvals obtained;
• Collection and Bidding centers
• Name of Compliance officer and details of investors service
centres.
• (1) A declaration to be signed by at least two whole time directors
that there are no defaults subsisting in repayment of deposit.
Redemption of debentures or preference shares or repayment of a
term loans to any financial institutions or banks;
• (2) A declaration to be signed by at least two whole time directors,
one of whom shall be the managing director stating that the Board
of Directors has made a full enquiry into the affairs and prospects
of the company and that they have formed the opinion-

38
 (i) As regards its prospects for the year immediately following the date of
the letter of offer that, having regard to their intentions with respect to
the management of the company's business during the year and to the
amount and character of the financial resources which will in their
view be available to the company during that year, the company will
be able to meet its liabilities and will not be rendered insolvent within
a period of one year from the date;
(ii) In forming their opinion for the above purposes, the directors shall
take into account the liabilities as if the company were being wound up
under the provisions of the Companies Act, 1956 (including
prospective and contingent liabilities) .

• The declaration must in addition have annexed to it a report addressed to the

directors by the company's auditors stating that-
o They have inquired into the company's state of affairs, and
o The amount of permissible capital payment for the securities in question is
in their view properly determined; and
o They are not aware of anything to indicate that the opinion expressed by
the directors in the declaration as to any of the matters mentioned in the
declaration is unreasonable in all the circumstances.

• Such other disclosures as may be prescribed by SEBI from time to time.

• The offer document shall be dated and signed on behalf of Board of Directors of
the company by its manager or secretary, if any, and by alteast two directors (one
of whom is the managing director).

The draft letter of offer shall be accompanied with fees specified in the Regulations. The
Company shall also file a declaration of solvency in the form as may be prescribed, and
verified by an affidavit signed by at least two directors of the company, one of whom is
the Managing Director

39
Fee Structure
As per the amendment in the Act, as on 28th May 2007, every merchant banker shall
while submitting the offer document or a copy of the public announcement to the Board,
pay fees as set out below. The fees have to be paid by a pay order/ draft in the name of
“Securities and Exchange Board of India

Offer size Fee (Rs.)

Less than or equal to one crore rupees. One lakh rupees (Rs. 1,00,000/-).
More than one crore rupees, but less
Two lakh rupees (Rs. 2,00,000/-).
than or equal to five crore rupees.
More than five crore rupees, but less
Three lakh rupees (Rs. 3,00,000/-).
than or equal to ten crore rupees.
More than ten crore rupees, but less
than or equal to one thousand crore 0.5% of the offer size.
rupees.
Five crore rupees (Rs. 5,00,00,000/-)
More than one thousand crore rupees,
plus 0.125% of the portion of the offer
but less than or equal to five thousand
size in excess of one thousand crore
crore rupees.
rupees (Rs.1000,00,00,000/-).
More than five thousand crore rupees. Ten crore rupees (Rs.10,00,00,000/-).”

Modification of LoF
Within twenty-one days from the date of submission of the draft letter of offer, SEBI
specifies modifications, if any, in the draft letter of offer. The merchant banker and the

40
company shall carry out such modifications before the letter of offer is dispatched to the
shareholders.

Dispatch of Lof
The letter of offer shall be dispatched not earlier than twenty-one days from its
submission to the Board provided that if.

Offer Procedure

The offer for buy back shall remain open to the members for a period not less than fifteen
days and not exceeding thirty days. The date of the opening of the offer shall not be
earlier than seven days or later than thirty days after the specified date. The letter of offer
shall be sent to shareholders so as to reach them before the opening of the offer.

In case the number of shares offered by the share holders is more than the total number of
shares to be bought back by the company, the acceptances per share holder shall be equal
to the acceptances tendered by the share holders divided by the total acceptances received
and multiplied by the total number of shares to be bought back.

The company shall complete the verifications of the offers received within fifteen days of
the closure of the offer and the shares lodged shall be deemed to be accepted unless a
communication of rejection is made within fifteen days from the closure of the offer.

Escrow Account

An Escrow account is the mechanism put in by SEBI to protect the share-holders and
give them security. The Company shall by way of security for performance of its
obligations, on or before the opening of the offer, deposit in an escrow account a sum as
specified below.

The escrow amount shall be payable in the following manner: -

41
 • If the consideration payable does not exceed Rs.100 crores - 25% of the
consideration payable;
• If the consideration payable exceeds Rs. 100 crores – 25% up to Rs. 100 crores
and 10% thereafter.

The escrow account shall consist of

• Cash deposited with a scheduled commercial bank or;
• Bank guarantee in favor of the merchant banker; or
• Deposit of acceptable securities with appropriate margin, with the merchant
banker, or
• A combination of above mentioned three points.

The bank guarantee is in favour of the merchant banker and in case of commercial bank
he has the power to instruct the bank to issue a bankers cheque or demand draft for the
amount lying to credit of the escrow account.

The Board in the interest of the shareholders may in case of non-fulfilment of obligations
under the regulations by the company forfeit the escrow account either in full or in part.
The amount forfeited may be distributed pro rata amongst the share holders who accepted
the offer and balance, if any, shall be utilised for investor protection.

Payment to Shareholders

The company shall immediately after the date of closure of the offer open a special
account with a bankers and deposit therein, such sum as would, together with the amount
lying in the escrow account make-up the entire sum due and payable as consideration for
buyback and for this purpose, may transfer the funds from the escrow account.

The company shall within seven days of time make payment of consideration in cash to
those Shareholders whose offer has been accepted or return the Share certificates to the
security holders.

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Extinguishments of Certificate

The company shall extinguish and physically destroy the security certificates so bought
back in the presence of a Registrar or the Merchant Banker, and the Statutory Auditor
within seven days from the date of acceptance of the securities.

The securities offered for buyback if already dematerialized shall be extinguished and
destroyed in the manner specified under Securities and Exchange Board of India
(Depositories and Participants) Regulations, 1996 and the byelaws framed there under.

The company shall furnish a certificate to the Board duly verified by

• The registrar and whenever there is no registrar through the merchant banker;
• Two whole-time Directors including the Managing Director and;
• The statutory auditor of the company, and certifying compliance within seven
days of extinguishment and destruction of the certificates.

The particulars of the Share certificates extinguished and destroyed shall be furnished to
the stock exchanges where the shares of the company are listed, within seven days of
extinguishments and destruction of the certificates.

The company shall maintain a record of the Share certificates, which have been cancelled
and destroyed.

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 MERCHANT BANKER

A merchant banker, according to SEBI (Merchant Bankers) Regulations, 1992 “is a

person who is engaged in the business of issue management either by making
arrangements regarding selling, buying or subscribing to securities as manager,
consultant, advisor or rendering corporate advisory services in relation to such issue
management”.
Merchant bankers render services to meet the needs of trade, industry and also investors
by performing as intermediary, consultant and a liaison.
Merchant banking is a service oriented industry specializing in investment and financial
decision making, assisting in making corporate strategies, assessing capital needs and
helping in procuring the equity and debt funds for corporate sectors and ultimately
helping in establishing favourable economic environment.

44
 ROLE OF MERCHANT BANKER IN A BUY BACK

 Public Announcements: To ensure that the public announcement has been made
in compliance with the Regulations & the offer has been duly filed.

 Escrow Account: Escrow account is the trust account established by a broker/

promoter / others under the provisions of the license law for the purpose of
holding funds on behalf of the broker’s principal or some other person until the
consummation or termination of a transaction.
The provisions relating to Escrow Account, as per the regulations, has been made.
Ensuring release of balance Escrow amount deposited with the bank. The escrow
account shall consist of:
o Cash deposited with a scheduled commercial bank or;
o Bank guarantee in favor of the merchant banker; or

45
 o Deposit of acceptable securities with appropriate margin, with the
merchant banker, or
o A combination of above mentioned three points.
Escrow Account can be payable in following manner:
o If the consideration payable does not exceed Rs.100 crores - 25% of the
consideration payable.
o If the consideration payable exceeds Rs. 100 crores 25% + 10% thereafter.
On completion of the buyback obligation by the company, the merchant banker has to
inform the bank for release of securities from the escrow account.

 Due diligence certificate: the merchant bankers would be required to give `due
diligence' certificate which certifies that all the documents of the company with
respect to or any dispute cases of patents, collaboration, etc are clean. The
disclosures and the legal requirements are in line with the guidelines.

 Price fixation: in case of book building method used, s determined by BRLM in

consultation with the acquirer or promoter of the company after the offer closing
date in accordance with the SEBI guidelines.

 Compliance with regulations: The merchant banker shall ensure compliance of

section 77A and section 77B of the Companies Act, and other laws or rules as
may be applicable

 Extinguishing of certificates: Ensuring that the certificates of the bought back

shares are destroyed as per the guidelines of SEBI

 Report to the SEBI: The merchant banker shall send a final report to the Board
within 15 days from the date of closure of the buy-back offer.

 Letter of Offer:

46
 o The purpose of this standard letter of offer for Buy Back of equity is to
provide the requisite information about the offerer so as to enable the
shareholders to make an informed decision of either remaining the
shareholders of the offerer or to exit from the offerer company. Care shall be
taken by the Merchant Banker (MB) to ensure that the Letter of Offer may not
be technical in legal or financial jargons, but it shall be presented in simple,
clear, concise and easily understandable language.
o This standard Letter of Offer enumerates the minimum disclosure
requirements to be contained in the Letter of Offer for the Buy Back of equity.
The Merchant Banker/ offerer is free to add any other disclosure(s) which in
his opinion is material for the shareholders, provided such disclosure(s) is not
presented in an incomplete, inaccurate or misleading manner and is made in
accordance with the Regulations.

VALUATION OF BUYBACK OF SHARES

There are two ways companies determine the buyback price.

• They use the average closing price (which is a weighted average for volume) for a
period immediately before to the buyback announcement. Based on the trend and
value a buyback price is decided

• Shareholders are invited to sell some or all of their shares within a set price range.
The low point of the range is at a discount to the market price, while the top of the
price range is set at a premium to the market price. Investors are given more say
in the buyback price than in the above arrangement. Still this method is rarely
used. Generally, the price is fixed at a mark up over and above the average price
of the last 12-18 months.

47
Illustration Glaxo SmithKline:

The equity shares of the Company are proposed to be bought back at a price of Rs. 370/-
(Rupees Three hundred seventy only) per equity share in terms of the above resolution,
which allows for the buy-back of the equity shares of the Company at a price not
exceeding Rs. 370/- per share. This price has been arrived at after taking into
consideration factors such as the book value, earnings per share, return on net worth, the
market price of the Shares as on the date of the intimation of the date of the Board
Meeting for considering the buy-back to the Stock Exchanges, overall trend in prices of
the Company's Shares and the possible impact of the buy-back on the Company's
earnings per share. The buy-back price as proposed above, while providing an option to
the Shareholders to sell their Shares at a premium over the current market price, will
ensure that the growth of the Company is not impaired in any way and that the value of
the Shares after the buy-back for the continuing Shareholders is preserved.

Rs. Per share

48
 ACCOUNTING FOR BUYBACK

The key issues to be looked at with respect to the accounting are related to the following
questions.

● How will surplus of price paid over face value of shares bought back be accounted for?
Will the excess of such price paid over book value be written off in profit and loss
account?

● What would happen if the price bid for buyback is lower than the book value?

● Will the appropriate portion of the free reserves be frozen by way of transfer to capital

reserves restricting any use except issue of bonus shares?

49
● How would the expenses incidental to buyback, e.g. fees of advocate and merchant
bankers, legal expenses, costs of paper announcements and printing of offer letters etc.,
be treated in books of accounts?

Before examining the above issues in Indian context, there is a need to see what the law
provides. The legal provisions on buyback, as inserted by the Companies (Amendment)
Act, 1999, do not expressly deal with the accounting aspects of buyback thereby giving
total freedom to the Indian companies to treat the buyback transactions as they think fit.
As the law is silent, the acceptable accounting treatment of the buyback transactions may
be determined by applying authoritative accounting principles to the form and substance
of the transactions. Sub-section (7) of Section 77A of the Companies (Amendment) Act,
1999 requires the securities bought back to be extinguished and physically destroyed
within seven days of the last date of completion of buyback. This makes it clear that there
is a time gap between the buyback of shares and their reduction from the share capital
consequent upon the cancellation and physical destruction of such shares.

Accordingly, the entries in the accounting books for the cancellation of the shares bought
back by way of reduction from the share capital would be passed on a date subsequent to
the purchase of such shares.

According to Section 77A(1), buyback can be financed out of free reserves or securities
premium account or the proceeds of any shares or other specified securities not of the

same kind as those bought back. Further, Section 77AA of the Act states that where
buyback is done out of free reserves or securities premium account, a sum equivalent to
the nominal value of the shares repurchased shall be transferred to the Capital

Redemption Reserve Account on the same line as is done in case of redemption of

preference shares out of distributive profits under Section 80(1)(d) of the Companies Act,

50
1956. Such a transfer of profit becomes necessary to prevent capital erosion and hence to
ensure that the interests of the creditors, debenture-holders and financial institutions are
not adversely affected on account of buyback.

That is, in so far as the use of funds accumulated through plough back of profit, there is
reduction in net worth of the company as no further issue of capital is made. Hence, to

maintain sanctity of the capital structure of the business and to prevent capital reduction,
it is provided that there should be a transfer to capital redemption reserve that can be
utilized only for issue of fully paid bonus shares. It may also be noted that the
requirement to make a transfer to the capital redemption reserve do not apply when
buyback is funded from the proceeds of any share issue because the company’s
distributable reserves and the aggregate value of the paid-up capital remain intact in

this case as the new kind of securities simply replaces those which are bought back.

The third key accounting issue relates to the excess amount paid on buyback over and
above the nominal value of the shares bought back. For instance, if an Rs.10 share is
bought back for Rs.15, how should the excess amount of Rs.5 per share paid on buyback
be accounted for by the company? Should such premium of Rs.5 per share be debited to
the profit and loss account of the current year as revenue expenditure or should it be
debited to free reserves/ securities premium account as capital expenditure?

There being no clear-cut guidelines nor any accounting standard issued by the Institute of
Chartered Accountants of India (ICAI) in the context of payment of premium on
buyback, varying treatment may be found in practice. But, logically, there is no doubt
that the entire Rs.15 payment per share on buyback (in the above example) is capital
expenditure and no part of it is in the nature of capital payment. Thus, any premium paid

51
on buyback should be adjusted against free reserves i.e., against balance of general
reserves or accumulated profit and loss balance or any other free reserve or against
securities premium account. But, as a matter of prudence, such discount benefit earned by
a company in the event of buyback should be treated as a capital gain and credited to
capital reserve not available for distribution as dividend. As there are currently no
accounting standard dealing with the accounting treatment of incidental expenses
incurred for buyback of shares, there arises a number of critical questions relating to
accounting treatment of such expenses:

● Should these expenses be set off against the current Profit and Loss Account of the
company as revenue items? Or

● Should these expenses be treated as capital expenses and hence debited to Free
Reserves as they represent the related costs of buyback? Or

● Should the expenditure be capitalized and amortised over a definite period of time and
hence carried forward in the Balance Sheet as a deferred revenue expenditure till it is
fully written off?

Although the treatment of the buyback expenses as revenue expenses may reduce the
current earnings of the company, yet it may be justified on the ground that these

expenses are incurred during the current period and should be matched against the
revenues of that period. Moreover, such a treatment would also help the company

in claiming these expenses as deductions while computing taxable income.

Since the buyback expenses are not exactly of capital nature, treating the expenses as
deferred revenue expenditure and capitalizing and amortising them over a definite period
may be more justified because the purpose for which such expenses are incurred is likely
to benefit the company for a sizeable length of time. Further, such a treatment would still
make it possible for the company to claim the entire expenditure as deduction against
taxable profits. Thus, in the absence of any stipulation regarding the accounting treatment

52
of such incidental buyback expenses, treating the related expenditure as deferred revenue
expenditure would perhaps be the best accounting method because the benefit of buyback
is expected to accrue over a long span time in future.

In the light of the above discussions and in view of the fact that there is no accounting
standard in the U.S. or in the U.K. to guide such transactions, the accounting entries

for buyback transaction have been developed in the following section.

Accounting entries

Since reissue for treasury operations of the shares bought back is not permitted under the
existing Indian statutory framework, the following journal entries may be passed in the
account books chronologically to record buyback of shares and its cancellation:-

(i) In case investments are sold for buying back own shares:

Bank Account Dr. (with the amount realized)

To Investment Account (with the book-value)

[The difference, if any, between the sale-proceeds and book-value of such investments,
will be either credited to ‘Profit On Sale of Investment Account’ or debited to ‘Loss on
Sale of Investment Account’, which in turn will be transferred to ‘Profit and Loss

53
Account’.] Note: Generally free reserves are invested in the assets/ investments of the
company. So to utilize free reserves for buyback purposes, assets/ investments must be
realized first.

(ii) In case the proceeds of fresh issue are used for buyback purpose, then on fresh
issue:

Bank Account Dr. (with the issue proceeds)

To Debentures/ Other Securities Account (with the nominal value)

To Securities Premium Account

(with the premium received on such shares, if any)

(iii) For buying back of shares/ specified securities:

Shareholders’ / Security holders’ Account Dr.

To Bank Account (with the amount paid on buyback

OTHER ISSUES IN ACCOUNTING

Another issue relates to accounting treatment of the discount earned on buyback.

Should the discount amount be credited to the profit and loss account of the current

year as a revenue gain or should it be credited to reserves treating it as a capital

gain? If it is credited to reserves, should such reserves be capital reserve or reserves

available for distribution as dividend? Once again, there being no legal requirement,

nor any accounting standard issued by ICAI on the treatment of such discount, varying

treatments are likely to be found in practice.

54
Share Capital/ Specified Security Account Dr. (with the nominal value of security bought
back)

Free Reserves/Securities Premium Account Dr.(with the excess amount i.e., premium
paid over nominal value)

To Shareholders’/ Security holders’ Account (with the amount paid)

(v) In case the shares/specified securities are bought back at a discount:-

Share Capital/ Specified Security Account Dr. (with the nominal value)

To Shareholders’/Security holders’ Account (with the amount paid)

To Capital Reserve Account (with the amount of discount on buyback)

(vi) For transfer of nominal value of shares purchased out of free reserves/securities
premium account to capital redemption reserve account:

Free Reserve Account Dr.

Securities Premium Account Dr.

To Capital Redemption Reserve Account (with the nominal value of securities

bought back)

(vii): For expenses incurred on buyback of shares

Buyback Expenses Account Dr.

To Bank Account (with the amount of such incidental expenses incurred on

buyback)

55
(viii) For writing-off buyback expenses against profit and loss account:

Profit and Loss Account Dr.

To Buyback Expenses Account (to the extent the expenses are written-off

EFFECTS OF BUYBACK OF SHARES

This can be broadly divided into two parts i.e.

• Effects on the Company
• Effects on the Shareholders

Effects On The Company

1. SHAREHOLDING PATTERN CHANGES

Company: A Ltd Price

Total no of shares 150
Face Value 10
Equity Capital 1500
Buyback of equity shares 25
Max offer price 15

56
SHARE HOLDING PATTERN OF COMPANY A
LTD
Pre
Particulars Buyback Post Buyback
case1 case 2 case 3
Promoters ( no of shares) 50 50 42 31
Non promoters (No of shares) 100 75 83 94

SHAREHOLDING PATTERN IN
%TERM
Pre
Particulars Buyback Post Buyback
case1 case 2 case 3
Promoters ( no of shares) 33.33% 40% 33.33% 25%
Non promoters (No of
shares) 66.67% 60% 66.67% 75%

ASSUMPTIONS

CASE 1: the original proportion of promoters and non promoters share in the total equity
capital was 33.33% and 66.67%. We are assuming that there is a 100% buyback of 25 shares
which the company has proposed to make. Therefore all the shares that are proposed to be
bought are bought from the no promoters group and nothing has been offered by promoters.
Thus the proportion of promoters share in the total equity capital increases from 33.33% to
40%.

CASE 2: Here the company decides to keep the shareholding same as before i.e. promoters
33.33% and Non promoters 66.67%. As the company has offered to buyback 25 shares, to
maintain the same shareholding pattern promoters has to offer 8 shares of their own and the
rest would be the net offer to the public i.e. 17 shares.
CASE 3: in this case the company decides to bring down the promoters shares in the

57
company’s equity share capital to 25%. That means promoters have to offer 19 shares and net
offer to the public would be only 6 shares.

Therefore we can say that depending on the policy of the company the shareholding
pattern of the company changes. Promoters share can increase decrease or remain the
same.
2. IMPROVEMENT IN THE FINANCIAL RATIOS OF THE COMPANY

When a company decides to go for buyback it has a huge impact on the financial ratios of
the company. The impact is more on the positive side.

There are four majors Ratios which gets impacted due to buyback. They are as follows:

Return on Assets: ROA = Net Income / Total Assets

Return on Equity: ROE = Net Income / Shareholder’s Equity
Earning per Share: EPS = profit after tax / number of shares
Price Earning Ratio: P/E ratio = market value of share / EPS

58
Example:
Company B Ltd,

Pre Post
Particulars Buyback Buyback
Cash 1000 625
Assets 10000 9625
Earnings 1500 1500
Outstanding
Shares 150 125
Equity share 1500 1250
Reserves 200 75
Shareholders
Equity 1700 1325
Market Share
Price 10 15
Financial Ratios
Return on Assets (ROA) 0.15 0.16
Return on Equity (ROE) 0.88 1.13
Earning per share (EPS) 10 12
Price-Earning Ratio (P/E) 1 1.25

Explanation

59
Return on Assets: We can see that ROA has increased after buyback. The reason behind
this increase is that there is a reduction in the total assets. Total assets have gone down
from Rs.10, 000 to Rs.9625, income remaining same.

Return on Equity: It has also increased from 0.88% to 1.13%. This is due to decrease in
the shareholder’s equity, which has gone down from Rs.1500 to Rs.1250.

Earning Per Share:It has also increased from Rs.10 to Rs.12. The reason behind the
increase of EPS is that the numbers of shares have reduced from 150 to 125, causing EPS
ratio to increase.

Price – Earning Ratio: Here market value of the share has increased from Rs.10 to
Rs.15, which is a 50% hike in the price. On the other hand EPS has also increased from
10 to 12, which is a 20% hike. Since the overall increase in the market value of the share
is much more than the increase of EPS. Therefore we can see an increase in the price-
earning ratio.

60
Effects On The Shareholder

Tax Benefits: When a company has surplus cash, they can either pay it off as dividend or
buy back shares. When a company pays dividend they are entitled to pay tax at the rate of
15%. This cost has to be born by shareholders, who receive less cash then what is
declared.

Therefore by Buying back shares, company gives surplus cash to the shareholder and
saves tax for the shareholders.

Example: A company has surplus cash of Rs.150 crore and if they declare Rs.150 crore
as dividend then company has to pay tax of Rs.22.5 crore. So the net amount which
would be received by the shareholder would be Rs.127.5 crore.

If a company decides to go for buyback of shares then the entire amount of Rs.150 crore
is received by the shareholder. Thus shareholders save tax of Rs.22.5 crore, which they
would have incurred, if the company would have given them surplus cash by way of
dividend.

Higher Proportion of share: When a company goes for buyback, number of shares
outstanding reduces. That means proportion of an individual investor increases.

This can be explained with the help of an example:

A company which has 1000 outstanding shares goes for buyback of 250 shares. So after
100% buyback, company would have 750 shares outstanding.

61
If an individual investor has 50 shares then its proportional share in the company’s total
paid up equity share capital would be 5% before buyback and after buyback it would be
6.67%. Thus there is an increase in his/her proportional share.

Higher Share Price: One of the reasons why a company goes for a buyback is that they
think that their shares are undervalued. That is why they buyback share at a premium or
at a price that they think it should command in the market.

For example a company market price of the share is Rs.500 and company believes that
the price of their share should be at Rs.600 based of their fundamental and technical
analysis.

Therefore company buys back share at Rs.600 from the market and thus increasing the
market value of the share from Rs.500 to Rs.600.

62
 CASE STUDY ON HINDUSTAN UNILEVER LIMITED

About Hindustan Unilever Limited

Hindustan Unilever Limited (HUL) is India's largest Fast Moving Consumer Goods
Company, touching the lives of two out of three Indians. HUL’s mission is to “add
vitality to life” through its presence in over 20 distinct categories in Home & Personal
Care Products and Foods & Beverages. The company meets everyday needs for
nutrition, hygiene, and personal care, with brands that help people feel good, look good
and get more out of life.

Other relevant information about the company

1) Beginnings: The company's journey in India started with Sunlight soap in 1888. With
it, began an era of marketing branded Fast Moving Consumer Goods (FMCG) in India.
Sunlight was followed soon after by Lifebuoy in 1895 and other famous brands like
Pears, Lux and Vim.

2) Corporate History: The company's corporate existence came into being with the
establishment of Hindustan Vanaspati Manufacturing Company. This was followed by
Lever Brothers India Limited in 1933 and United Traders Limited in 1935. These three
companies merged to form Hindustan Lever Limited in November 1956. The company
was renamed as Hindustan Unilever Limited in June 2007.

3) Listing: The company created history when it was listed in the Bombay, Kolkata, and
Madras Stock Exchanges in 1956 and offered 10% of its equity to Indian shareholders.

63
The company became the first foreign subsidiary company in India to offer equity to the
Indian public. Today, HUL is listed in the Bombay Stock Exchange and the National
Stock Exchange.

4) Shareholding: HUL’s parent Company, Unilever holds 51.42% of its equity, while
17.50% is owned by Resident Individuals, 12.32% by Foreign Institutional Investors,
12.93% by Insurance companies and Financial Institutions and the rest by Mutual
Funds, Private Corporate Bodies, and NRI OCB. Today, the company has 410,000
resident shareholders.

Offer
Hindustan Unilever Limited has decided to go for buyback of shares at its meeting held
on 29th July, 2007. The company proposes to buyback shares at a price not exceeding
Rs 230 a share and up to an aggregate amount of Rs 630 crore that is less that 25% of the
total paid-up capital and free reserves of the company as per the audited balance sheet
as on Dec. 31, 2006.
The maximum price is at a premium of 17% over the closing price of the Company’s
share as on 27th July 2007. The average closing price of HUL share in the BSE for the last
six months is Rs 196.

HUL net worth as on December 2006 stood close to Rs 2,724 crore, so 25% of that would
be about Rs 681 crore. When this news was announced, the maximum number of shares
that HUL could have bought was 3.5 crore on its total equity base of 221 crore shares
outstanding. So in terms of equity value, HUL's buy-back is not substantial and more of
probably a sentiment booster for the stock.
Reason

The Unilever management feels the stock is undervalued and they believe in the
prospects of the Indian FMCG story. Which is why they may be willing to buy-back
some of their own stock to create wealth for shareholders

64
The buyback is proposed to effectively utilize the surplus cash and make the balance
sheet leaner and more efficient to improve returns.

Financials of the company (Pre and Post Buyback):

Post Buyback Assumption: 100% buyback happens at the maximum price quoted by the
company Rs 230 per share.

65
BALANCE SHEET AS ON 31ST DECEMBER
Rs in Crore
2007
SOURCES OF FUNDS 2006 2006 (E) 2007(E)

Equity share capital 220.68 217.94

Reserves 2502.14 1874.88
Secured loans 37.13 37.13
Unsecured Loans 35.47 35.47
2796.09 2166.09
APPLICATION OF
FUNDS

Net Block 1400.75 1400.75

1778.3
Current Assets 2408.33 3
1146.7
Loans & Advances 1146.75 5

3362.5
Current Liabilites 3362.51 1
1321.4
Provision 1321.42 2
-
Net Current assets -1128.85 1758.85

Investments 2413.93 2413.93

Capital work in progress 110.26 110.26

2796.09 2166.09

66
DATA
2006 2007(E)
2796.0
Total Assets 9 2166.09
Net 2722.8
Worth 2 2092.82
No of Shares 221 218
Mrkt price of
share 216 230
PAT 1855 1855
Assuming PAT to remain the same in the year
2007

KEY FINANCIAL RATIOS (31st DECEMBER)

2006 2007(E)
Return on
Assets 0.66 0.86
Return on
Equity 0.68 0.89
Earning per
Share 8.39 8.51
Price-earning
Ratio 25.73 27.03

COMPARISON:

Effects on the company

67
ROA: Company’s ROA in the year 2006 was 0.66 and in year 2007 it will become 0.86.
This is due to reduction in the total assets which goes down from Rs 2796.09 crore to Rs
2166.09 crore as the cash is reduced by Rs 630 crore for buying back shares @ Rs 230
each.

ROE: Company’s ROE has increased from 0.68 in 2006 to 0.89 in 2007. reason behind
this is that total net worth of the company has gone down from Rs 2722.82 crore in 2006
to Rs 2092.82 crore in 2007.

EPS: Company’s EPS has increased from 8.39 in 2006 to 8.51 in 2007. Reason behind
this is that total number of share outstanding has reduced from Rs 220.68 crore in 2006 to
Rs 217.94 crore in 2007.

P/E Ratio: Company’s P/E Ratio has increased from 25.73 in 2006 to 27.03 in 2007.
Reason behind this is that the market price of the share has increased from Rs 216/ share
in 2006 to Rs 230/ share in 2007.

Promoters share: Its share in the company was 50.37% during the year 2006 when
number of shares was 221 crore. After buyback number of shares outstanding has
reduced to 218 crore shares. Thus increasing promoters share to 51.06%.

Effects on the Shareholder

68
Tax Benefits: If company would have given Rs 630 crore as dividend, then it would have
attracted dividend tax @ 15% i.e. Rs 94.5 crore. This tax cost would have been born by
the investor causing net cash in hand to reduce to Rs 535.5 crore. Thus by buyback
method company saves tax for the shareholders.

Higher Share price: Usually a company buy backs share at a premium from the public
thus increasing it market price. When HUL offered to buyback shares at Rs 230 each
when share was trading at Rs 196. this lead to an increase in the market price of the share.

BUY BACK OF GLAXOSMITHKLINE CONSUMER HEALTH

CARE LIMITED:

69
About the company:
GlaxoSmithKline Consumer Healthcare Ltd. was incorporated in India on October 30,
1958 with the name Hindustan Milk food Manufacturers Private Limited. The Company
was promoted by Horlicks Limited of Buckinghamshire, UK primarily to manufacture
and sell malted food under the brand name of ‘Horlicks’. The world-wide interests of
Horlicks Limited were purchased by Beecham Group Limited of UK in 1969.
Beecham (India) Private Limited merged with Hindustan Milk food Manufacturers
Limited in January, 1979. Consequently the name of the Company was changed to HMM
Limited on March 1, 1979. Subsequently, the name of the Company was changed to:
Smith Kline Beecham Consumer Brands Limited on September 16, 1991;
Smith Kline Beecham Consumer Healthcare Limited on March 29, 1994; and
GlaxoSmithKline Consumer Healthcare Limited on April 23, 2002.

Present Operations
The products manufactured by the Company are sold under various brand namely –
• Horlicks, Boost, Junior Horlicks, Horlicks Biscuits, Mother’s Horlicks, Viva,
Maltova and Gopika Ghee. The Company also markets certain OTC brands,
namely Eno Fruit Salt, Crocin and Iodex on behalf of its associate companies in
India.
The Company’s Shares are at present listed on The Stock Exchange, Mumbai (BSE), the
National Stock Exchange (NSE).

Buy Back:

70
The offer will open on March 14th 2005 and close on April 12th 2005. The manager to the
buy back offer for the company was Citigroup Global Markets Private Limited.

The company decided to buy-back up to 3,325,083 fully paid equity shares of Rs. 10/-
each, representing up to 7.33 % of the outstanding fully paid up shares of the Company at
a price of Rs. 370/- per share for an aggregate amount not exceeding Rs. 123,02.81 lacs,
equivalent to 25% and 23.24% of the paid up equity capital and free reserves of the
Company as on December 2003 and 2004 respectively, through Tender Offer in
accordance with the provisions of the Articles of the Association of the Company,
Section 77 A and 77 B of the Companies Act, 1956 and the Securities and Exchange
Board of India (Buy-back of Securities) Regulations, 1998, and subsequent amendments
thereof (“The Regulations”). The mode of payment is cash and the consideration shall be
paid by way of cheque / demand draft.

Since the Buy-back was approved by the Board of Directors on December 10, 2004, prior
to the close of the financial year ended December 31, 2004, the size of the Offer has been
determined based on the paid up equity capital and free reserves as of December 31,
2003.

The company will buy back the shares through the Tender Offer to all the shareholders.
The company will not buy back the shares through a negotiated transaction or through
any private arrangement.

The aggregate shareholding of the Promoters and of the Directors of the Promoters and of
the person who are in control of the Company represented 39.99% of the issued share
capital, pre- buy back. The Promoters decided not to participate in the buy back and as
such their percentage holding in the Company, post buy back, was increased to 43.16%.

Reasons for Buy back:

71
The buy back of shares had been done by the company in order to create long term
Shareholders value, improve return on Net Worth and enhance the Earning per share of
the company. The company seems to have surplus reserves with no current opportunities
and it has also mentioned that if in the future there is any growth opportunity they have
enough reserves to fund its growth and because of the availability of such reserves the
company has bought back its shares rather than keeping the reserves idle. It can be seen
that as the company does not have any long term debt, which would mean that there
would not be any major payments in the future, therefore this is one of the reason why the
company has bought back its shares.

Glaxo SmithKLine Consumer HealthCare Limited is an FMCG company and it has been
observed that this industry do not have any major expansion plan and because they have
surplus funds available with them, they tend to utilize these funds by buying back its
shares. Few buy back of FMCG companies are Britania, Godrej, Glaxo, and now HUL is
also coming up with a buy back program. This indicates that the major FMCG companies
have huge reserves with no current expansion plan and as such they tend to buy back its
shares.

The Buy Back:

72
The company had a successful buy back offer. The company received offers for buy back
of 78, 22,873 equity shares 135% more than the shares to be bought back by the
company. The buy back Committee followed the method of proportional acceptance of
shares and only 33, 25,083 shares were bought back. Post buy back the shares were
extinguished and consequently the share capital of the company reduced.

Various Ratios:

Pre Buy back Dec 04 Post Buy back Dec 05

Net Worth(Rs Lacks) 599,35.17 47511.18
Return on Net Worth 13.82% 22.55%
Earning Per share(Rs) 16.12 25.48
Book value Per share(Rs) 116.65 96.62
P/E 20.50 24

CASE STUDY: APOLLO FINVEST LTD COMPANY

Apollo Finvest (India) Limited was originally incorporated as Apollo Mercantile Limited
on 29th July, 1985. Name of the company was changed to Apollo Finvest (India) Limited

73
w.e.f 12th May, 1992.The Company was originally engaged in telecom products and
pipes. Company then diversified by entering into financial services. Company is
presently engaged into various activities like leasing and hire purchase finance,
investment in debt and equity mutual funds, investment in equities through PMS and
investment and trading in shares

Details of buy-back

Apollo Finvest (India) Limited had announced the buyback of upto11, 50,000 fully paid
up equity shares of Rs.10/- each of the Company, from the existing owners/ beneficial
owners of the shares of the company through “tender offer route” in accordance with
Section 77A, 77AA and 77B of the Companies Act, 1956, the Companies Amendment
Ordinance 2001 and the SEBI (Buy-Back of Securities)
Regulations 1998 at a price of Rs. 10.00 per share payable in cash for an aggregate
amount not exceeding Rs.115.00 Lacs (Rupees One Hundred and fifteen Lacs Only). A

Managers to the buy back-Keynote corporate services ltd

Registrar to the buy back-Intime spectrum registry ltd

Rationale for buy back

The company has accumulated free reserves and satisfactory liquidity. at present there is
no immediate need for these funds. Further the company is debt free. Therefore it is
proposed to buy back a part of equity shares which will provide an opportunity to the
company to return the surplus funds to the shareholder and improve return on equity.

The shares of the company are listed at the stock exchanges of Mumbai, jaipur and
ahmedabad the buy back will provide an exit opportunity to those shareholders who so

74
desire in a manner that does not substantially impact the market price of the company’s
shares to the detriment of the continuing shareholders

The buy back is expected to enhance the earning per share of the company in future and
create long term shareholder value.

Basis of the offer

The buy back price is 52.67% more than the average of the high low of closing prices of
the shares on BSE during the 26 weeks period prior to 31/12/2004, being the date of the
board resolution approving the buy back of equity shares through tender offer route

Process and methodology for buy back

The company has proposed the buy back through tender offer route on a proprtianate
basis from the exisiting equity shareholders of the company

Promoters holding
The promoters currently hold 28,93,329 equity shares, representing 58.75% of the paid
up equity share capital of the company. The promoter proposed to tender the equity
shares of afil held buy them in the buy back offer to such an extent that teir shareholding
post buy back remains equal to their present shareholding i.e 58.75%. considering buy
back of equity shares to the fullest extent, promoters will have to tender 6,75,675 equity
shares of Rs 10/- each to maintain their shareholding at 58.75%. thus buy back from other
shareholders will be to an extent of 4,74,425 equity shares.

75
Public Announcement to this effect was issued on 07/01/2005

1.2 The Buyback was effected through the tender offer route
1.3 The Buyback Offer was open from 01/03/2005 to 30/03/2005

POST DETAILS OF THE BUYBACK

The total number of shares bought back under the Buyback is 11,50,000 equity shares

The total amount invested in the Buyback is Rs. 115.00 lacs

The Shares were bought back at a price of Rs. 10/- per share.

AFIL received 617 applications for 12, 68,354 equity shares in response to the Buy-Back
Offer leading to the subscription of 110.29%. Out of this, 33 applications for 10,005
equity shares were rejected on technical grounds and 584 applications for 11, 50,000
equity shares were accepted proportionately under the buyback offer. Since the buyback
offer was oversubscribed, shares were proportionately accepted from among the valid
applications and accordingly 1,08,349 equity shares were returned to 577 applicants.

Details of shareholders who have sold the shares exceeding 1% of the total number of
shares bought back.

Sr. No. Name of the shareholder Mode No. of shares % of shares bought back

76
 No of Shares (%)
1. Ms. Anju Innani Demat 6,75,575 58.75
2. M/s Saksham Holding Ltd Demat 2,35,000 20.43
3. Mr. Vipul Agarwal Demat 62,513 5.44
4. Ms. Suman Agarwal Demat 43,849 3.81
5. Mr. Gnanamudhan D N Demat 13,520 1.18
6. Ms. Pushpa Soni Demat 12,000 1.04

UNSUCCESSFUL BUYBACK

The reason for a failure of a buy back can be divided into:

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 1) Regulatory
2) Investor rejection

REGULATORY – LEGISLATIVE

In accordance with 77A, 77AA and 77B in the Companies (Amendment) Act, 1999,
SEBI has an exhaustive list of guidelines that a company must follow in the event of a
buy back its own shares. If the company has not been able to fulfill any of these
conditions laid down by SEBI, its buyback will not be considered valid.
For example, buyback of shares can be done only out of company's free reserves,
securities premium account or proceeds of any earlier issue specifically made for
buyback purposes. Moreover, companies are allowed to buyback their own shares up to
25 percent of the paid up capital and free-reserves. Board Resolutions need to be passed,
approving the buyback decision, post buyback DER has to be maximum 2:1 etc.
To explain this further, we can take the example of Ruias-promoted Essar Shipping.
Their buy-back offer driven by Essar Shipping and Logistics Ltd (ESLL), the largest
shareholder and promoter of the company, has failed to receive the minimum number of
shares, required for the purposes of delisting.
Apollo Finvest ltd co. Buy-Back case

Apollo Finvest (India) Limited was originally incorporated as Apollo Mercantile Limited
on 29th July, 1985. Name of the company was changed to Apollo Finvest (India) Limited
w.e.f 12th May, 1992.The Company was originally engaged in telecom products and
pipes. Company then diversified by entering into financial services. Company is
presently engaged into various activities like leasing and hire purchase finance,
investment in debt and equity mutual funds, investment in equities through PMS and
investment and trading in shares

Details of buy-back

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Apollo Finvest (India) Limited had announced the buyback of upto11, 50,000 fully paid
up equity shares of Rs.10/- each of the Company, from the existing owners/ beneficial
owners of the shares of the company through “tender offer route” in accordance with
Section 77A, 77AA and 77B of the Companies Act, 1956, the Companies Amendment
Ordinance 2001 and the SEBI (Buy-Back of Securities)
Regulations 1998 at a price of Rs. 10.00 per share payable in cash for an aggregate
amount not exceeding Rs.115.00 Lacs (Rupees One Hundred and fifteen Lacs Only). A

Managers to the buy back-Keynote corporate services ltd

Registrar to the buy back-Intime spectrum registry ltd

Rationale for buy back

The company has accumulated free reserves and satisfactory liquidity. at present there is
no immediate need for these funds. Further the company is debt free. Therefore it is
proposed to buy back a part of equity shares which will provide an opportunity to the
company to return the surplus funds to the shareholder and improve return on equity.

The shares of the company are listed at the stock exchanges of Mumbai, jaipur and
ahmedabad the buy back will provide an exit opportunity to those shareholders who so
desire in a manner that does not substantially impact the market price of the company’s
shares to the detriment of the continuing shareholders

The buy back is expected to enhance the earning per share of the company in future and
create long term shareholder value.

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Basis of the offer
The buy back price is 52.67% more than the average of the high low of closing prices of
the shares on BSE during the 26 weeks period prior to 31/12/2004, being the date of the
board resolution approving the buy back of equity shares through tender offer route

Process and methodology for buy back

The company has proposed the buy back through tender offer route on a proprtianate
basis from the exisiting equity shareholders of the company

Promoters holding
The promoters currently hold 28,93,329 equity shares, representing 58.75% of the paid
up equity share capital of the company. The promoter proposed to tender the equity
shares of afil held buy them in the buy back offer to such an extent that teir shareholding
post buy back remains equal to their present shareholding i.e 58.75%. considering buy
back of equity shares to the fullest extent, promoters will have to tender 6,75,675 equity
shares of Rs 10/- each to maintain their shareholding at 58.75%. thus buy back from other
shareholders will be to an extent of 4,74,425 equity shares.

Public Announcement to this effect was issued on 07/01/2005

1.2 The Buyback was effected through the tender offer route
1.3 The Buyback Offer was open from 01/03/2005 to 30/03/2005

POST DETAILS OF THE BUYBACK

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The total number of shares bought back under the Buyback is 11,50,000 equity shares

The total amount invested in the Buyback is Rs. 115.00 lacs

The Shares were bought back at a price of Rs. 10/- per share.

AFIL received 617 applications for 12, 68,354 equity shares in response to the Buy-Back
Offer leading to the subscription of 110.29%. Out of this, 33 applications for 10,005
equity shares were rejected on technical grounds and 584 applications for 11, 50,000
equity shares were accepted proportionately under the buyback offer. Since the buyback
offer was oversubscribed, shares were proportionately accepted from among the valid
applications and accordingly 1,08,349 equity shares were returned to 577 applicants.

Details of shareholders who have sold the shares exceeding 1% of the total number of
shares bought back.

Sr. No. Name of the shareholder Mode No. of shares % of shares bought back

No of Shares (%)
1. Ms. Anju Innani Demat 6,75,575 58.75
2. M/s Saksham Holding Ltd Demat 2,35,000 20.43
3. Mr. Vipul Agarwal Demat 62,513 5.44
4. Ms. Suman Agarwal Demat 43,849 3.81
5. Mr. Gnanamudhan D N Demat 13,520 1.18
6. Ms. Pushpa Soni Demat 12,000 1.04

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CASE STUDY: STERLITE INDUSTRIES

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Sterlite Industries (India) Ltd (SIIL) is a leading producer of copper in India. It is the
principal subsidiary of the Vedanta Resources Group a London listed metals and mining
major with Aluminum, Copper and Zinc operations in India and Australia,. Sterlite was
the first company in India to set up a Copper Smelter and Refinery in Private Sector and
operate the largest capacity continuous Cast Copper Rod plants. SIIL’s main products,
Copper Cathodes and Copper Rods meet global quality benchmarks.

In 2001, Homegrown metals major Sterlite Industries made an offer to its non-promoter
shareholders to buy back their holdings UNDER a scheme of arrangement (approved by
the Mumbai High Court), Sterlite Industries proposes to purchase around 2.79 crores
equity shares (representing approximately 50 per cent of the paid-up equity) from the
shareholders.

The following arrangement was made for the same:

o The consideration for the purchase is payable in two parts : a) a cash

consideration of Rs 100 and b) five debentures of the face value of Rs 10 each.
These are secured non-convertible debentures with a coupon rate of 10 per cent
and redeemable at the end of the fourth, fifth and sixth year from the date of
allotment.

o Unlike an open offer or buyback, in this scheme of arrangement, if the

shareholder chooses to remain a shareholder of Sterlite, he must intimate to the
company his intention to continue to hold equity shares. This has to be done by
exercising his option using an option form provided for the purpose, which has to
be sent to Sterlite by June 21, 2002.

o If the public shareholding is reduced below 10 per cent, Sterlite Industries will
apply for delisting of the shares from the stock exchanges.

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This arrangement of buyback met with a lot of uproar from SEBI as well as the investors
with respect to legalities.

Charges against Sterlite

The Securities and Exchange Board of India (Sebi) moved the Mumbai high court for a
stay of Sterlite’s buyback offer. A move without precedent, it follows a furor over the
terms of the Sterlite open offer.

It said that Sterlite had violated the Companies Act Provisions, 391 & 77 (a) and that the
scheme also violated the Depositories Act under which shareholders' share could not be
cancelled without their consent.

1. Legal hindrance: The company had formulated the scheme under Section 391-394
of the Companies Act, 1956, even while there is an existing provision in the
Companies Act, Section 77A, that provides for buyback. Hence, it was believed
that the company had left some grey areas, legally speaking.

2. Procedural hindrance: Generally a company that wants to buy-back shares makes

the offer to the shareholders who tender their shares to the registrars if they want
to sell their holdings. Once the tender of shares is done the registrar (after
considering over subscription, if any) will send the cheque for the accepted shares
and the unaccepted shares, if any.

But instead of following this method Sterlite sent cheques in advance to the
shareholders with a form for non-acceptance of the offer which they could fill in,
sign and send to the company along with the cheque if they did not want to sell
their holdings. Shareholders have to communicate their non-acceptance of the
offer to the company. And silence would be construed as an acceptance of the
offer. The scheme provided that unless the shareholders rejected the offer
specifically they would be deemed to have accepted it. Thus, if, for instance, you

84
 missed reading the notice or forgot to send a letter of rejection, you will find a
cheque in the mail soon thereafter and your shares bought and cancelled.

This procedure, termed negative consent is a little confusing to the investors

because they would be inclined to believe that acceptance is mandatory because
cheques are sent even before they tender their share.

3. Undervalued Price: There were also some rumblings that the company is buying
back its equity cheap. The argument was based on the below contention.
o As of June 30, 2001, the book value per share of Sterlite worked out to Rs
297.29. the free reserves (on a per share basis) —worked out to over Rs
125 per share, higher than the cash consideration payable on this offer.
o Sterlite has been on an investment spree over the past couple of years.
According to the break-up available for investments loans and advances
and cash and bank balances as of June 30, 2001, the non-operating assets
on a per share basis works out to Rs 188 per share. This is significantly
higher than the total consideration payable under the scheme of
arrangement working out to Rs 150 per share.

Due to the above charge against Sterlite the court had put a stay order on the proceedings.

Judgment:
The Court in its judgment declared that Section 391 of the Companies Act, 1956 could
govern Sterlite's buyback scheme is distinctly independent of Section 77A of the
Companies Act, 1956. “The legislative intention behind the introduction of section 77A is

85
to provide an alternative method by which a company may buy back up to 25 per cent. of
its total paid up equity capital in any financial year. It does not replace or take away any
part of the pre-existing jurisdiction of the company court to sanction a scheme for such
reduction under sections 100 to 104 and section 391.”
With respect to the arrangement of negative consent, the court ordered to provide for a
safety net for shareholders who had not responded in any way to the option form sent to
them. The court said that the shares of these shareholders should be held in trust for a
period of three months before considering them surrendered and extinguishing them.
Within a period of three months, any such shareholder who had neither responded to the
company's offer nor accepted the consideration may communicate to the company of his
desire to continue as a shareholder. In this case the company will then make available
equivalent number of shares which have been purchased from him against surrender held
in trust for him.

However in the midst of the legal battle, the high court approved the scheme of
arrangements after imposing a lot of conditions. And ultimately Sterlite was able to
cancel only 30% of the total paid up equity capital as opposed to the 50% which was
intended. The company had intended to delist the company from the exchange if it were
able to mope up 50% shares from the market. Since it would have acquired 90%
promoter's shares. However this was not possible as the buyback was only 30%.

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INVESTOR REJECTION

During a buyback, the actual buyer seller relation is reversed, the company becomes the
buyer & its shareholders the seller. The choice of subscribing to the buyback offer lies
with the investor. There are cases when the Buyback offer is rejected by the public due to
various reasons.

To explain this further, we can take the case of Indian Rayon and Industries Ltd (IRIL).

CASE: INDIAN RAYON

In 1999, AV Birla group company Indian Rayon announced buying back up to one-fourth
(25%) of its equity share capital at a price ranging between Rs 75 and Rs 85 per share.
Total 76.06 lakh equity shares After buyback; the Birlas' stake in Indian Rayon will go up
to 28.7 per cent from the present 21.5 per cent. . If the buyback offer is fully subscribed
to, it will result in an outflow of Rs 127-144 crores approximately, depending on the final
price.

Reasons: The reason given by the management for the buyback was that Indian Rayon is
working at below capacity and there were no major capital expenditure plans at that time.
Hence the best way to add value to shareholders is to return the funds to them.

The buy-back was unlikely to cause any material impact on the profitability of Indian
Rayon, except to the extent of loss of interest income on the amount to be utilized for
buy-back. The buy-back will also enhance the EPS of the company and create long-term
shareholder value.
A number of investors had invested in Indian Rayon because of the fact that it was in the
cement business. Since this business has been hived off to Grasim, such investors would
now have an exit route. With the two of the three main businesses of the company--
viscose filament yarn and insulators--not doing well and no further investments planned,
the buyback is likely to prop up shareholder value.

87
Considering the above factors the management was confident about the success of the
buyback scheme.
Result
The share buyback scheme met with limited success as it could repurchase only 11 per
cent of its outstanding shares as against the maximum 25 per cent offered, despite hiking
the repurchase prices to Rs.85 per share.
The company in the last five years has seen its market capitalisation falling to Rs.455
crores as against Rs.1397 crores from early 1999. Sale of assets like cement unit to
Grasim had led to huge cash surplus from which the company wanted to buy back its
shares but the shareholders decided to hold on to their shares as the offer was extremely
unattractive.
Shareholders had seen their wealth falling considerably, thus it was not surprising that
they decided to reject the offer made by the management. In the last three years they have
seen the company losing its crucial assets and in the last few months the company's scrip
has crashed from Rs.207 to Rs.67. The buybacks raised doubts over whether these have
been pursued with surplus cash and enhance valuation or to indirectly raise the promoter's
stake
The graph below shows the comparison of the IRIL share price and the BSE Sensex. The
investors were justified in rejecting the offer. The IRL buyback had been launched at a
wrong time when the company was also not doing well and the markets were crashing.
Thus, inspite of compliance of all the regulations as per the SEBI as well as the
Companies Act, 1956, the company faced with a rather unsuccessful buyback

88
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u
 ORACLE I- FLEX STORY

US-based Oracle has repeatedly tried to buyback the shares of I-flex in order to gain a
controlling stake in the company and eventually delist the company from the exchange.
However its efforts have continuously received lukewarm response from the investors.
Stung by this cold response from the market, Oracle has maintained it has no plans to
come out with additional open offers for I-flex shareholders for at least the next five
years. In a recent filing with the US Securities and Exchange Commission, however, it
added a rider stating it may think of an open offer if the share price is below Rs 2,100 per
share - its offer price of December 7, 2006. Rs. 2100 was the final offer price given by
Oracle for the purchase of shares of I flex

Oracle holds 83 per cent of I-flex's shares and has been consistently trying to acquire the
rest in a bid to delist I-flex from the Indian bourses. It would require a little over 90 per
cent of shares to do so. The move will help it to integrate I-flex with its business
worldwide.

Under current norms of SEBI, if the minority shareholders do not surrender shares
willingly to the new promoter, the Securities and Exchange Board of India's takeover
code requires the new promoter to come out with a proposal to buy back the rest of the
shares from the minority shareholders in order to delist the company.
However, since its open offers received a tepid response, the US-based firm has
reportedly been lobbying the Indian government for over a year to amend the SEBI
takeover code. The amendment was aimed at compelling the minority shareholders to
surrender the shares of I-flex in favor of Oracle, a government source said.
The amendment was suggested on the lines of the "minority squeeze-out norms" of the
US under which minority shareholders of an acquired company are compelled to
surrender their shares in favour of the new promoter that has acquired a majority stake.
However the SEBI has refused to amend its norms as suggested by Oracle. Hence Oracle
has taken a stante that it will not delist I-flex at least 5 more yrs unless sit gets the
required shares form the open market at a price lower than Rs. 2100.

90
How Oracle acquired I-flex
Year Acquired Shares
Oracle obtained 42.8 per cent; in I-flex solutions for $593
Nov 2005 million.
The company made additional purchases of I-flex common
Mar-Jun 2006 stock through ordinary brokerage transactions
I-flex board of directors approved a preferential allotment of
4.45 million shares at Rs 1,307.5 per share. Shares issued on
Aug 14, 2006 September 14 cost Oracle approximately $126 million and
increased its ownership to 55 per cent
Oracle notified public shareholders of I-flex of intention to
Sept 12, 2006 make an open offer to buy up to 20 per cent I-flex equity at
Rs 1,475 a share
Price of the open offer increased by 42 per cent to Rs 2,100
Sept 12, 2006: Dec 7, 06 per share
Oracle accepted the 23 million shares tendered in the offer
Jan 6, 2007: for approximately $1.1 billion

91
 INNOVATION

Buyback of the shares for other than the cash

At present, as per the buy back regulations, buy back of shares by the companies is
allowed only for the cash. However, Buy back regulations allow the companies to raise
the funds through the securities other than the shares for the specific purpose of buying
back its shares. It means that the company may raise the funds through say a debt
instrument for paying for the equity, planned to be bought back.

In the present scenario, it is always possible that some existing shareholders of the
company would be subscribing to the debt offer of the company, which is made to raise
funds to meet the buy back outflow. Then company would use the same funds for buying
the equity back from the said investors. Hence, those equity investors, who subscribed to
the debt offer of the company, would be given the cash back for their equity. This is
resulting in the two cycles of cash movement - first money being flowing from investors
to the company and then back.

Both the said transactions can be squeezed to one by allowing the buyback of shares for
other than the cash. In the instant case, company could offer the debt instrument to the
said investor instead of first receiving the cash and then paying it back. This instrument to
instrument transaction could save enormous administrative hassles and financial loss to
both the investors and issuers. Accordingly, there is a feeling in the market that the same
may be allowed.

It may be prudent to argue here that all the equity holders may not be interested in the
debt instrument. In that case, investors may be paid cash by the company through some
alternative arrangement of the funds. In other words, this may be made optional for the
investors to take debt instrument or the cash for their equity holding. This would open up
a very wide opportunity zone for the companies to be creative and do something
distinctly different in the market place.

92
Further, for the Capital restructuring, it makes enormous sense for the companies to go
for exchange of instruments i.e. company may like to replace the equity with the debt or
any other instruments. Therefore, allowing companies to buyback for other than the cash
would pave the way for enormous creativity in the system.

Further, while making the buy back offer even for other than the cash all other existing
requirements of the regulations would be complied with by the issuer companies. In
addition, there would be the requirement of the offered instrument being of minimum
investment grade quality.

It may be relevant to mention here that acquisition of the shares in Takeover cases is
allowed for other than the cash. On the similar lines and the global experiences, buyback
may be allowed. This is, indeed, being practices globally at a large scale as a corporate
restructuring exercise.

93