BUY-BACK OF
SECURITIES
I.
Applicable
provisions:
Ø Companies Act,
2013
-
Section
68
-
Section
69
-
Section
70
-
Rule
17 of The Companies (Share Capital and Debentures) Rules, 2014
Ø SEBI
-
Securities
and Exchange Board of India (Buy-back of Securities) Regulations, 2018.
II.
What
is Buy-Back?
There is no
definition given under Companies Act, 2013 or in SEBI Regulations.
In general,
Buy-Back of securities means “purchasing own shares or other specified
securities of the company from its existing shareholders to extinguish/reduce
the outstanding shares or securities”. It is one of the modes of capital
restructuring with no intervention of Tribunal.
III.
Reasons
for Buy-back :
-
To
increase the shareholder’s wealth
-
It
is a tax effective mode of rewarding shareholders
-
To
increase the value of the company
-
To
provide an additional exit route shareholder when shares are under valued
-
To
enhance consolidation of stake in the company
-
To
prevent unwelcome takeover bids
-
To
achieve optimum capital structure
-
To
support share price during the periods of sluggish market
IV.
Sources
of buy-back:
As per the
Section 68 (1) of the Companies Act, 2014 buy-back can be made only out of:
-
Free
reserves
-
Security
premium account
-
The
proceeds out of fresh issue of shares or other specified securities
-
Buy-back
of any kind of shares or other specified securities cannot be made out of the
proceeds of the earlier issue of same kind of shares or same kind of other
specified securities.
V.
Conditions
for Buy-Back:
Ø Authorisation
for Buy-back: Articles of Association of the Company shall authorise
the Buy-back.
Ø Approval for
Buy-back:
-
Approval
of Board of Directors: If the total amount of Buy-back is up to 10% of
the Paid up capital and free reserve.
-
Approval
of Shareholders: If the total amount of buy-back is more than 10% as mentioned
above and up to 25% of Paid up Capital and free reserve
Ø Filing of
letter of offer:
Before the buy-back of
shares company needs to file letter of offer with Registrar in form SH-8.
Within 20 days from filing of letter of offer with ROC the letter of offer
shall be dispatched to shareholders of the Company.
Ø Declaration of
solvency:
The Company shall file
with the ROC, declaration of solvency along with offer letter in form SH-9.
Ø Offer period
The buy-back shall be open
for 15 -30 days from the date of dispatch of offer letter. (It can be less
than 15 days if all the members approved)
Ø Fully paid up
shares
Only fully paid up shares
can be bought back.
Ø Time limit:
Buy-back should be
completed within 1 year from the passing of Special resolution or Board
Resolution.
Ø Acceptance of
Offer:
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 out of the total shares offered for being bought back.
Ø Verification
Company should complete
the verification of offers received within 15 days from the completion of offer
and within 21 days from the date offer company shall intimate the rejection of
offer received if any.
(If the company is not
intimate the rejection within 21 days it is deemed to be accepted)
Ø Separate Bank
Account
After the closure of the
buy-back offer, the company shall immediately open a separate bank account and
deposit therein, such sum, as would make up the entire sum due and payable as
consideration for the shares tendered for buy-back.
Ø Payment
Within 7 days from
the date of verification of offers:
·
Make
the payment to those shareholders whose shares are accepted
·
Return
the share certificate to those shareholders whose shares are not accepted
Ø Extinguishment
of Shares:
Within 7 days from the
date of completion of buyback the Company should extinguish and physically
destroy the shares bought back.
Ø Return of
Buy-back
Within 30 days from the
completion of buyback Company needs to file return of buyback in form SH-11.
VI.
Prohibition
of Buy-Back in certain cases:
According to
section 70 of the Companies Act, 2013, A Company should not buy-back its
securities or other specified securities, directly or indirectly
a)
Through
its subsidiary Company, including its own subsidiary Company
b)
Through
any investment Company or group of investment Companies
c)
If
the company is defaulted in repayment of deposits, interest payment thereon,
redemption of debenture or preference shares, payment of dividend to any
shareholder and repayment of any term loan or interest thereon
Note: if the default
is remedied and period of 3 years has been lapsed after such default ceased to
subsist.
d)
If
the Company has not complied with the provisions of Section 92 (Annual Return),
Section 123 (Declaration of Dividend), Section 127 (Punishment for failure to
distribute dividends) and Section 129 (Financial Statements).
VII.
Quantum
of Buy-back
VIII.
Steps
involved in buy-back
A.
Convening
of Board Meeting:
-
Pass
the resolution for buy-back of shares
-
Approve
the notice of Extra Ordinary General Meeting
B.
Convening
of Extra Ordinary General Meeting
-
Pass
the Resolution for buy-back of shares
-
Filing
of form MGT-14 with ROC (in case of passing of special resolution)
-
Filing
of letter of offer and declaration of solvency with ROC
-
Circulation
of letter of offer to shareholders
C.
Opening
of buy-back process
-
Buy-back
shall be open for 15-30 days from the dispatch of offer letter
-
Verification
of offer – Should be completed within 15 days from the completion of offer
-
Rejection
of offer – within 21 days from the date offer company shall intimate the
rejection of offer received if any.
D.
Opening
of Bank account
-
After
completion of buy-back Company shall open a separate Bank account and deposit
the total amount of consideration payable for buy-back.
E.
Payment
-
Within
7 days from the date of verification shall make the payment to those
shareholders whose shares are accepted
-
Within
7 days from the date of completion of buyback the Company should extinguish and
physically destroy the shares bought back.
F.
Return
of buy-back
-
Within
30 days from the completion of buyback Company needs to file return of buyback
in form SH-11.
IX.
POINTS
TO BE KEPT IN MIND
-
the ratio of the aggregate of secured and unsecured debts owed
by the company after buy-back is not more than twice the paid-up capital and
its free reserves.
-
Where a company completes a buy-back of its shares or other
specified securities under this section, it shall not make a further issue of
the same kind of shares or other securities including allotment of new shares
under clause (a) of sub-section (1) of section 62 or other specified securities
within a period of six months except by way of a bonus issue or in the
discharge of subsisting obligations such as conversion of warrants, stock
option schemes, sweat equity or conversion of preference shares or debentures
into equity shares.
-
The company shall maintain a register of shares or other
securities which have been bought-back in Form No. SH.10.
For more details you can contact us
email: dcsadvisors@gmail.com
Mobile: 9019421726
Author:
TEAM DCS ADVISORS LLP
Disclaimer:
The Views expressed are solely of the Author and the contents of
this article is to share the Knowledge on subject matter. Expert advice should
be sought for your specific circumstances.
