Buy Back of Shares

Buy Back of Shares

Under Private Listed Company and Unlisted Public Limited Company (Buy back of Securities) Rules, 1999:

Eligibility requirements:

1.         AoA should permit buy back.

2.         Buy back is permitted only out of:
   (i)   Its free reserves; or
   (ii)  The Securities Premium Account; or
   (iii) The proceeds of any shares or other specified securities [Section 77A(1)] Money borrowed from Banks/Financial Institutions should not be utilized for the purpose of buying back [Rule 8(1)(e)].

3.         Amount of buy back proposed to be made should be less than 25% of the total paid-up capital and free reserves [Section 77A(2)(c)]; and
buy back of equity shares in any financial year does not exceed 25% of your company’s total paid-up equity capital in that financial year. [Section 77A(2)(c) Proviso]

4.         (i) The ratio of debt including all amounts of unsecured and secured debts owed by the company should not be more than twice the capital and the free reserves after such buy back [Section 77A(2)(d)],

except otherwise a higher ratio is prescribed by the Central Government for a class or classes of companies [Section 77A(2)(d) proviso].
(ii) All shares or other specified securities which are to be bought back are all fully paid up [Section 77A(20(e)].

Procedure:

1.      Board Meeting should be convened after issuing notices to the directors of the company as per Section 286 to decide about details of the proposed buy back and to fix up the date time place and agenda for convening a General Meeting and to pass a Special Resolution by three forth majority for the same [Section 77A(2)(b), Section 189].

2.      The draft of the notice of the General Meeting and also the draft of the Explanatory Statement to accompany the notice should be prepared.
The Explanatory Statement should contain:
   (i)   a full and complete disclosure of all material facts;
   (ii)  the necessity for the buy back;
   (iii) the class of security intended to be purchased under the buy back;
   (iv) the amount to be invested under the buy back; and
   (v)  the time limit for completion of buy back [not exceeding 12 months from the date of passing of the special resolution] [Section 77A(3) and (4)].

3.      Notices should be issued in writing at least twenty one days before the date of the General Meeting with the Explanatory Statement [Section 171(1), Sections 173(2) read with 77A(3)].

4.      Special Resolution and Explanatory Statement (contents in Schedule I) should be filed with the concerned ROC in e-Form No. 23  within thirty years [Section 192(4)(a)] after paying the requisite fee prescribed under Schedule X to the Companies Act, 1956 [Rule 22].

A draft letter of offer [contents in Schedule II, Rule 8(1)] should be filed with ROC subsequent to the passing of the special resolution but before the buy back [Rule 5(1)] along with a declaration of solvency in Form No. 4A [Rule 5(2)]. The same letter is to be dispatched to the shareholders whose shares are being bought back immediately after filing it with ROC but not later than 21 days of such filing.
The offer should not be withdrawn once the draft letter of offer has been filed with the ROC [Rule 8(1)(d)].

5.      Do not make further issue of the same kind of shares including allotment of further shares under Section 81(1)(a) or other specified securities within a period of 6 months from the completion of buy back of shares or other specified securities, except by way of 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 [Section 77A(8)].

6.      If company purchases its own shares out of free reserves, then a sum equal to the nominal value of shares so purchased should be transferred to the capital redemption reserve account referred to in Section 80(1)(d) and the balance sheet should disclose the details of such transfer.

7.      If company’s paid up share capital is in the range Rs 10 lakhs – Rs 2 crores, it is required to obtain a compliance certificate from a secretary in whole-time practice which is to be filed with the ROC in respect of each financial year within 30 days from the date on which the company’s annual general meeting was held [Rules 2(2)]. Mentioning therein inter alia that the company has bought back its shares during the financial year after complying with the provisions of the Act as per paragraph 20 of the Form & Compliance Certificate appended to the Companies (Compliance Certificate) Rules, 2001 [Section 383A(1) proviso]. It is to be filed as an attachment to e-Form No. 66.

8.      Offer for buy back should remain open to the members for a period not less than 15 days and not exceeding 30 days from the date of dispatch of the letter of offer [Rule 6(2)].

9.      In case the number of shares offered by the shareholders is more than the total number of shares to be brought back by the company, the acceptance per share holder should be made on proportionate basis.

10.  Verifications of the offers received should be completed within 15 days from the date of closure of the offer [Rule 6(4)].

11.  Shares including bonus shares should not be issued till the date of the closure of the offer of buy back [Rule 8(1)(b)].

POST BUY BACK REQUIREMENTS:

1.              A register is to be maintained of securities bought back, the consideration paid, the date of cancellation of securities, the date of extinguishing and physically destroying of securities and such other particulars in Form no. 4B [Section 77A(9)].

2.      A Return containing particulars relating to buy back is to be filed with the ROC within 30 days of completion of the buy back as given in e-Form No. 4C [Section 77A(10), Rule 9 read with Section 77A(10) proviso] along with the following attachments:

   (i)   Description of securities bought back by the company;
   (ii)  Particulars relating to holders of securities before buy back;
   (iii) Copy of the special resolution passed at the general meeting;
   (iv) Copy of board resolution.

3.      Filing of e-Form No. 23 should precede filing of e-Form No. 4C.

4.      A special bank account should be opened immediately after the date of closure of the offer and such sum as would make up the entire sum due and payable as consideration for the buy back should be deposited therein [Rule 7(1)].

5.      Payment for consideration should be made in cash or bank draft / pay order should be made to those shareholders whose offer has been accepted or the share certificates should be returned to the shareholders forthwith within 7 days from 15 days from the date of closure of the offer [Rule 7(2)].

6.      The share certificates so bought back should be extinguished and physically destroyed within 7 days from the date of acceptance of the shares in the presence of the Company Secretary in whole-time practice [Section 77A(7) read with Rule 10(1)].
Certificate regarding the same is to be filed with the ROC within 7 days of extinguishment [Rule 10(2)]. Certificate is to be verified by two whole-time directors including the managing director and company secretary in whole time practice certifying compliance [Rule 10(2)].

7.      A record of share certificates which have been cancelled and destroyed within 7 days of buy back of shares is to be maintained [Rule 10(3)].

8.      A Register of shares bought back by the company in the Form specified in Annexure B of Rules is to be maintained [Rule 11].