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Presented By, Achintya Srivastava School Of Law Christ University

The repurchase of outstanding shares (repurchase) by a company in order to reduce the number of shares on the market. Companies will buyback shares either to increase the value of shares still available (reducing supply), or to eliminate any threats by shareholders who may be looking for a controlling stake. A buyback is a method for company to invest in itself since they can't own themselves. Thus, buybacks reduce the number of shares outstanding on the market which increases the proportion of shares the company owns.

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The provisions regulating buy back of shares are contained in Section 77A, 77AA and 77B of the Companies Act,1956. These were inserted by the Companies (Amendment) Act,1999. The Securities and Exchange Board of India (SEBI) framed the SEBI (Buy Back of Securities) Regulations,1999 and the Department of Company Affairs framed the Private Limited Company and Unlisted Public company (Buy Back of Securities) rules,1999 pursuant to Section 77A(2)(f) and (g) respectively.

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To increase promoters holding Increase earning per share Rationalize the capital structure by writing off capital not represented by available assets. Support share value To increase takeover bid To pay surplus cash not required by business In fact the best strategy to maintain the share price in a bear run is to buy back the shares from the open market at a premium over the prevailing market price.

A Company can purchase its own shares from
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free reserves; securities premium account; or proceeds of any shares or other specified securities.

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The buy-back is authorized by the Articles of association of the Company; Special resolution; The buy-back is of less than twenty-five(25%) per cent of the total paid-up capital and fee reserves of the company and that the buy-back of equity shares in any financial year shall not exceed twenty-five(25%) per cent of its total paid-up equity capital in that financial year; The ratio of the debt owed;

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There has been no default in any of the following in repayment of deposit or interest payable thereon, redemption of debentures, or preference shares or Payment of dividend, if declared, to all shareholders within the stipulated time of 30 days from the date of declaration of dividend or repayment of any term loan or interest payable thereon to any financial institution or bank;

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There has been no default in complying with the provisions of filing of Annual Return, Payment of Dividend, and form and contents of Annual Accounts; All the shares or other specified securities for buy-back are fully paid-up;

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The buy-back of the shares or other specified securities listed on any recognized stock exchange shall be in accordance with the regulations made by the Securities and Exchange Board of India in this behalf; and The buy-back in respect of shares or other specified securities of private and closely held companies is in accordance with the guidelines as may be prescribed.

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The securities can be bought back from
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existing security-holders on a proportionate basis; the open market through
book building process; stock exchanges or

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odd lots; or purchasing the securities issued to employees of the company pursuant to a scheme of stock option or sweat equity.

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passing of the special/Board resolution. public announcement public notice draft letter.

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copy of the Board resolution date of opening of the offer buy back offer A company opting for buy back through the public offer or tender offer shall open an escrow Account.

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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.

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Every buy-back shall be completed within twelve (12) months from the date of passing the special resolution or Board resolution as the case may be. A company which has bought back any security cannot make any issue of the same kind of securities in any manner whether by way of public issue, rights issue up to six(6) months from the date of completion of buy back. 

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could enable a company to achieve its desired capital structure more quickly or facilitate a major restructuring. could avert a hostile takeover bid by reducing the number of shares in circulation 

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Market generally interprets buy-back as a positive aspect Shareholders have a choice of deciding whether or not to receive the payout by selling or holding their shares, unlike a dividend payout. Returning excess cash by way of a share buy-back gives a company greater flexibility with regard to it¶s dividend policy  

Re-purchase of it¶s own shares may conversely have a negative signaling effect. Management may not seek to utilize any existing excess cash effectively  

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Possible mismanagements may arise ifToo high a price is paid for the re-purchased shares or if Cash resources are eroded to the level that could give rise to a risk of insolvency. A return of funds by way of a share buy-back is less certain than an annual dividend stream. 

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Buybacks should be used as an opportunity to exit only when there is concern over a company¶s prospects or when the post-buyback free float is expected to shrink considerably. In most other cases, buybacks do offer the lure of an immediate benefit±but you might be better off as a residual shareholder, and gain from a hike in the share of assets and profits of the business.

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