BUYBACK OF SECURITIES / REPURCHASE OF ITS SECURITIES
SECTION- 68, 69 and 70
Buyback meaning it means when a company repurchase its securities from stock market thereby reducing its available securities from market and increasing its earning per share (how to calculate EPS: net income less preference dividend divided by total number of shares)
CONDITIONS FOR BUYBACK
Company can repurchase only:
- Its own share OR
- Other specified securities it includes employee stock option or other securities notified by CG.
Buyback can be done only out-off:
- Company’s free reserve;
- Its securities premium account;
- Proceeds of issue of share or other specified securities (not to use proceeds of earlier issue of same kind securities); OR
- Any combination of above.
No company will proceed with buyback unless:
- It is authorized by AOA.
- Special resolution has been passed by co. authorizing buyback (this condition not to follow if buyback is 10% or less of total paid up equity capital + free reserves and buyback has been authorized by board through board resolution).
- Buyback not to exceed 25% of paid-up equity share capital + free reserve.
- Debt equity ratio should not fall below 2:1 after buyback (how to calculate D/E ratio: total liabilities divided by total equity).
- Securities proposed to be repurchased are fully paid up.
- If security (proposed to be repurchased) of co. is listed, then then follow SEBI regulation made in this behalf.
- Follow company rules made in this behalf.
Company not to proceed with buyback if it has made earlier buyback offer within 1 year of new offer.
Explanatory statement relating to notice of general meeting (where SR is passed), states:
- Complete disclosure of all material facts relating to buyback.
- Why company wants to buyback.
- Class of securities proposed to be repurchased.
- Amount of buyback.
- Time limit for completion of buyback.
Every buyback to be completed under a period of 1 year from date of passing of resolution (SR/BR). - Company to buyback securities from:
- Open market
- Existing security holders
- Employee (securities issued under scheme of stock option or sweet equity).
Company to file a declaration of solvency signed by at-least 2 director one of whom shall be managing director to ROC and SEBI (file with SEBI if co. is listed), specifying that co. is capable of meeting its liabilities will not become insolvent within 1 year from buyback.
After repurchasing its securities, company to destroy securities bought back within 7 days of completion of buyback.
After buyback of security, company not to issue same security within a period of 6 months except by way of bonus issue and in discharge of existing liability in case of warrant, stock option, sweet equity, conversion etc.
Company to maintain a buyback register and record details of buyback.
Company to file a return of buyback within 30 days of completion of buyback with ROC and SEBI (file with SEBI if co. is listed).
If company defaults in complying with the provisions of sec 68 or regulation made by SEBI in this behalf, then company punishable with fine of 1 lakh which can extend up-to 3 lakh and officer in default shall be punishable with fine of 1 lakh which can extend up-to 3 lakhs.
Company to transfer sum equal to nominal value of securities so repurchased to capital redemption reserve account.
Company not to repurchase its securities:
- Through any subsidiary company
- Through any investment company
- If company has defaulted in repayment of deposit or interest thereon, redemption of debenture or preference share, payment of declared dividend, or repayment of loan or interest thereon to any bank or financial institution.
buy-back is not prohibited if defaults in point 3 above is resolved and 3 years has lapsed after such defaults is resolved.
