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Buy-Back of Shares
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Procedure For Buyback Of Shares And Other Specified Securities​

Section 68 of the Companies Act, 2013 signifies that any company limited by shares or guarantees with share capital can opt for Buyback of Shares and other specified securities. Whether it’s a listed or unlisted company, both can go for buy-back of shares.

Earlier, the concept of buyback was buried under the Companies Act, 1956 until it was amended in the year 1999. Apart from this, section 68, 69 and 70 of the Companies Act, 2013 with the Rule 17 of the Companies (Shares Capital and Debentures) Rules, 2014 governs the process of buyback of shares by the unlisted company.

In this blog, we are going to learn the procedure for the buyback of shares and other specified securities in detail. From the regulatory framework to provisions and procedure, we will peep into every basic detail. So keep on reading.

What is Buyback of Shares?

Buyback of Shares refers to the process by which a company re-purchases its shares and other specified securities from its existing shareholders at a price higher than the market price.

Besides, whenever a company repurchases its shares, the outstanding shares in the market fall. The buy-back of shares is governed by Section 68 of the Companies Act, 2013.

Furthermore, it’s a method of the cancellation of share capital. The buy-back of shares is also referred to as ‘share repurchase.’ Generally, the need for buyback arises when the management considers that the shares are undervalued or if the outstanding shares are falling.

Regulatory Framework for Buyback of Shares

The legal framework that regulates the buy-back of shares and other specified securities are the following:

Class of Companies Regulation
Buy-Back of Unlisted Public Company & Private Limited Company Section 68, 69, 70 of Companies Act, 2013 Rule 17 of Companies (Share Capital & Debentures) Rule, 2014
Buy-Back for Listed Companies Section 68, 69, 70 of Companies Act, 2013 Rule 17 of Companies (Share Capital & Debentures) Rule, 2014 Securities Exchange Board of India (Buy-Back of Securities Amendment) Regulations, 2013  
Modes of Buyback of Shares

The shares can be bought back through any of the following:

Conditions & Requirements for Buyback of Shares and Other Securities

According to new SEBI (Buy-back of Securities) Regulations, 2018, the applicant requires fulfilling the following conditions for buyback of shares and other specified securities:

Note: The reference to 25% in this regulation, in respect of the buyback of shares/securities in any of the financial year, implies its total paid-up equity capital in that FY.

Condition: The Central Government may, by order, notify a higher ratio of the debt to capital and free reserves for a class or classes of companies.

  1. All shares and other securities for buy-back should be wholly paid-up.
  2. Companies may buy back their shares or other securities by any of the following means:
  3. The existing shares other specified security-holders on the basis of proportion through the tender offer;
  4. Open market through-
    • Book-building process
    • Stock Exchange
  1. Odd-lot holder
  1. A company could undertake a buy-back of its own shares or securities out of the following:
  2. Its free reserves,
  3. The securities premium account, or
  4. The proceeds of the issue of any shares or securities as specified:

Condition: Any such buy-back shall not be made out of the proceeds of an earlier issue of the similar shares or other specified securities.

Note: For this regulation, “free reserves” comprises a securities premium account.

Restrictions on Buyback

Along with the above-described conditions, there are some restrictions on the companies opting for buy-back of shares. These are also a kind of condition that the applicant company must follow. They are as follows:

Condition: The buyback isn’t restricted, in case the company has resolved its default and it has lapsed a period of three years after such default.

Procedure for Buyback of Shares India

Now that you are aware of the conditions and if you meet the requirements, then you can go for the process for buyback of shares in India:

Step 1: Convene the Board Meeting

Firstly, the applicant needs to call a board meeting. For the same, a notice must be sent to the directors of the company at least 7 days prior to the date of the meeting.

Step 2: Approval for EGM

In the board meeting, the applicant company needs to approve the buy-back, fix the date of the EGM (Extra-Ordinary Meeting), and approve the EGM’s notice along with the explanatory statement under Section 102.

Step 3: Send the notice for EGM

Once the notice for EGM is approved, the applicant must send it at least 21 days before the date of the meeting.

Step 4: Passing of Special Resolution for Buy-Back of Shares

In the EGM, a special resolution must be passed for the approval of the Buy-back of shares.

Step 5: File SH-8

After the resolution has been passed, one must file the Letter of Offer in Form SH-8 with the Registrar. Furthermore, the form must contain the signature of two directors of the company.

Step 6: Declaration of Solvency

Along with the form SH-8, you need to annex form SH-9 which is the declaration of solvency. Again, the form must be signed by the two directors of the directors.

Step 7: Letter of Offer to the Shareholders

Within 20 days of the filing of SH-8 with the Registrar, the applicant needs to dispatch the ‘Letter of Offer’ to the shareholders of the company. Moreover, the Letter of Offer needs to be kept open for at least 15 days and a maximum of 30 days.

Step 8: Acceptance of Offer

The Offer will be considered as accepted if there’s no communication of rejection within 21 days of offer closure.

Step 9: Opening of a Bank Account

So, if the shareholders have accepted the offer, the applicant company has to open a separate bank account. Besides, the total consideration amount for the shares offered to be paid in Buy-back should be deposited in a separate bank account.

Furthermore, the consideration must be paid within seven days of verification. Moreover, shares that are to be bought back should be destroyed within seven days of the completion of buyback.

Step 10: Filing of SH-11

Lastly, the applicant needs to file form SH-11 within thirty days of the completion of the buyback return.

What are the provisions of the Buyback of Shares under Section 68?

In any case, the company is found to make any default in the process under Section 68 of the Companies Act, 2013, or any listed company of any regulation made by SEBI, then-

  1. Such a company would be subject to a fine of not less than ₹1 lakh. In fact, it would exceed up to ₹3 lakhs.
  2. Every such officer engaged in the process who is in default shall be punishable for a period that could extend up to three years or fine with an amount not less than ₹1 lakh.

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