BUY BACK OF SECURITIES

Objectives

To increase promoters holding Increase earning per share Rationalise the capit
al structure by writing off capital not represented by available assets. Suppor
t share value To thwart takeover bid To pay surplus cash not required by busin
ess To service equity more efficiently
Conditions

Authorised by the Articles of association of the Company. By Board resolution n

ot exceeding 10% of the paid up capital and free reserves. By special resolutio
n at General Meeting not exceeding 25% of paid up capital and free reserves. Bu
y back of equity not to exceed 25% of the total paid up capital & free reserves
in the financial year. Not to exceed in any financial year 25% of the total equ
ity paid up capital of the company.
The ratio of the debt owed by the company is not more than twice the capital and
its free reserves after such buy-back. Notice containing special resolution to
have explanatory statement stating :
o o o o o
Disclosure on all material facts Necessity for buy back Amount to be invested un
der buy back Time limit for completion of buy back Class of security intended fo
r buy back
There has been no default in :
o o o o o
Repayment of deposits or interest thereon Redemption of debentures/preference sh
ares Payment of dividend Repayment of term loan or interest thereon Filing of An
nual Returns, Annual Account etc.

Shares or other specified securities for buy back are fully paid up. Buy back of
listed securities to be in accordance with SEBI regulations.
Resources of Buy Back

Free reserves. An amount equal to nominal value of shares so purchased shall be

transferred to CRR.
Securities premium account. Proceeds of issue of any shares or securities.
Modes of Buy Back

Existing security-holders on a proportionate basis. The open market through (i)

book building process; (ii) stock exchanges. Odd lots.

Purchasing the securities issued to employees of the company pursuant to a schem

e of stock option or sweat equity
Securities not available for Buy Back

Securities in lock in period Non-transferable securities

Disputed securities kept in abeyance

Declaration of solvency

After the passing of resolution but before making buyback, file with the Registr
ar and the SEBI a declaration of solvency. Declaration must be verified by an af
fidavit to the effect that the Board has made a full inquiry into the affairs of
the company. That company is capable of meeting its liabilities and will not be
rendered insolvent within a period of one year of the date of declaration adopt
ed by the Board. Signed by at least two directors of the company, one of whom sh
all be the managing director, if any.
Issue of further shares

Every buy back shall be competed within 12 months of Board / special resolution.
No issue of same kind of securities, in any manner, upto 6 months of completion
of buy back.
Register of securities bought back
After completion of buy back, company shall maintain register of securities boug
ht back with following :

Consideration paid for securities bought back; Date of cancellation of securitie

s; Date of extinguishing and physically destroying of securities; and Such other
particulars as may be prescribed.
Where a company buy back its securities, it must extinguish and physically destr
oy such securities within 7 days of the last date of completion of buy back.
Prohibition
A company shall not directly or indirectly purchase its own securities : Throug
h any subsidiary company including its own subsidiary companies; or Through any
investment company or group of investment companies.
Filing of return
A company shall after completion of buy back, file with registrar and SEBI a ret
urn containing particulars of such buy back within 30 days of completion of such
buy back.
Procedure for buy back

After passing of board/special resolution, make a public announcement in at leas

t one English National, one Hindi National and Regional Language Daily. Announce
ment shall specify a date, which shall be "specified date" for the purpose of de
termining the names of shareholders to whom the letter of offer has to be sent.
Public notice shall be given containing disclosures as specified in Schedule I o
f the SEBI regulations.
Draft letter of offer shall be filed with SEBI through a merchant Banker. The le
tter of offer shall then be dispatched to the members of the company. Copy of th
e Board resolution authorising the buy back shall be filed with the SEBI and sto
ck exchanges. Date of opening of the offer shall not be earlier than 7 days or l
ater than 30 days after the specified date. Offer shall remain open for a period
of not less than 15 days and not more than 30 days.
Escrow Account

The company should deposit in an Escrow account opened with a scheduled bank on
or before opening of offer an amount :
o
Where estimated consideration payable does not exceed Rs.100 crores, 25% of cons
ideration payable; Where consideration payable exceeds Rs.100 crores, 25% upto R
s.100 crores and 10% of the balance.
o
Payment of consideration

Payment for buy back to be made within 7 days from date of completion of verific
ation of offers. Verification of offers to be done within 15 days of closure of
offer. Payment to be made to those security holders whose offers have not been r
ejected in full or in part. After completion of verification, within 7 days secu
rities to be returned to security holders whose offers have been rejected.
Public advertisement-post buyback

Within 2 days of completion of buy back, public advertisement to be issued conta

ining :
o o o o
o
Number of securities bought back Buy back price Total amount invested in buy bac
k Details of security holders from whom securities exceeding 1% were bought back
Consequent changes in capital structure and share holding.
Buy back through Stock Exchange

Max. Price at which buy back shall be made shall be specified. Only through stoc
k exchanges having electronic trading facility. The company is shown as the purc
haser on the electronic screen. Appointment of merchant banker. Public announcem
ent at least 7 days prior to commencement of buy back. Copy of such public annou
ncement to be filed with SEBI within 2 days of announcement.
Only at stock exchanges having nation wide trading terminals. Company & Merchant
banker to furnish information, to SEBI, of securities bough back on daily basis
. Publish such information on fortnightly basis in a national daily. Publish inf
ormation every time when additional 5% buy back is completed. No letter of offer
required. Company to purchase all securities offered by holder without attachin
g any condition.
If seller has attached any condition, such securities should not be bought back.
Promoters/persons in control not allowed to sell. Company not under an obligati
on to place buy orders on daily basis. Company should pay to brokers on every se
ttlement date.