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					SPR065C -S. 77A 77AA, 77B
Buying By An Unlisted Public Company And Private Company Of Its Own Securities [Sections
77A, 77Aa, 77B]

TEXT :


Secretarial Practice Recorder No. 65C

BUYING BY AN UNLISTED PUBLIC COMPANY AND PRIVATE COMPANY OF ITS OWN
SECURITIES [SECTIONS 77A, 77AA, 77B]

Note: This Secretarial Practice Recorder deals with buy-back of securities by
unlisted public companies and private companies (hereinafter referred to as
"unlisted company"). For buy-back by listed companies, see Secretarial Practice
Recorder No. 65A.

    1. What is / are the Meaning, objectives and benefits of buy-back of securities?

1.1 The term 'buy-back' means the buying back by a company of its shares or other
securities from the holders thereof. It is also refereed to as share / stock buy-back. When a
company limited by shares or a company limited by guarantee and having a share capital
buys or purchases from its shareholders the shares issued by it at a certain price, thereby
returns the share capital to those shareholders.
1.2 The share capital bought back has the effect of reduction of share capital to the extent of
the face value of the shares bought back and there is cash outflow from the company to the
extent of the price of the shares paid to the shareholders.
1.3 The buy-back of shares results into the shareholders whose shares are bought ceasing
to be the shareholders of the company. Their names are omitted from the Register of
Members.
1.4 Buy-back is different from redemption of share capital e.g. redemption of redeemable
preference shares.
1.5 Buy-back of equity shares may be driven by any one or more of the following objectives:

   i.    To increase the underlying value of the share;
  ii.    To enhance earnings per share (EPS);
 iii.    To get rid of the excess share capital;
 iv.     To rationalise the capital base by writing off the capital which is lost or unrepresented
         by the available assets;
 v.      To pay off surplus cash not required in the business;
 vi.     To increase the shareholding of the promoters or those in the management control of
         the company;
vii.     To prevent take-over bid;
viii.    As part of total financial restructuring;
 ix.     As part of compromise or arrangement (including amalgamation).

         1.6 A company may be benefited in any one or more of the following ways from buy-
         back:

          1.    Flexibility to re-organise share capital structure;
          2.    Improving return on capital, net profitability and Earning Per Share (EPS);
          3.    Servicing the remaining share capital in a better manner by way of sustained
                dividend and appreciation of share value in the long run;
          4.    Reducing the risk of possible raids owing to lesser volume of shares in
                circulation;
          5.    Maintenance of the management control, stable and continued business
                policies;
          6.    A viable proposition to investors to sell back the shares to the company;
          7.    Attracting equity investments in small businesses. Small businesses which are
                mainly family concerns are reluctant to raise capital from outsiders for fear of
                losing of control of business to outsiders. Outsiders on their part are reluctant
                to contribute capital to enterprises whose shares are not easily marketable and
                where there is risk of being locked-in;
    8.    Facilitating family re-arrangements, enabling disgruntled members to realise
          their investments without the remaining family members being required
          personally to fund the purchase back of their shares;
    9.    Facilitating buying out discontented shareholders or employee share holdings
          when the employment ceases;
   10.    Eliminating fractional share holdings and odd lots.

1. What are the company's power to buy-back its own securities?

   2.1 Every company having a share capital is prohibited under Section 77 from buying
   its own shares. [See Secretarial Practice Recorder No. 65].

   2.2 A company cannot purchase or cancel its own shares unless it complies with the
   provisions and follows the procedure for reduction of share capital under Sections 100
   to 104. [See Secretarial Practice Recorder No. 82].

   2.3 But Section 77A is an exception to the prohibition under Section 77. Section 77A
   allows companies to buy-back their own shares as well as any other securities. It is
   also an exception to Section 100.

   2.4 Buy-back of securities in accordance with Section 77A overrides Sections 77 and
   100 or any other provision of the Companies Act. This is clear from the expression
   "Notwithstanding anything contained in this Act" in sub-section (1).

   2.5 But it does not override any provision of any other law. Therefore, a company
   buying back its shares or other securities must comply with any other law, if
   applicable. Likewise, any provision of Memorandum or Articles of Association of the
   company, any joint venture, loan or any other agreement, memorandum of
   understanding or any other document will override Section 77A. Any terms or
   conditions stipulated therein or any approval or permission required thereunder will
   have to be complied with.

   2.6 An unlisted company can under Section 77A buy-back its own shares (equity or
   preference) or any other securities. Section 77A does not define "securities" nor is it
   defined does the Act elsewhere. For the meaning of "securities", see Secretarial
   Practice Recorder No. 231.

   2.7 However, under Section 77A, a company is not allowed to buy-back any of its
   securities (other than shares) only if they are "specified securities".

2. Which companies can buy-back its securities?

   3.1 Under Section 77A, any company limited by shares or company limited by
   guarantee and having a share capital can buy-back its own securities, whether it is a
   private company, public company, deemed public company, listed company or unlisted
   company.

   3.2 In the case of unlisted companies, the buy-back of the shares or other specified
   securities must be in accordance with the Buy-back Rules.

   3.3 Every unlisted company must comply with the provisions of the Buy-back Rules,
   in respect of buy-back of its equity shares. The Buy-back Rules are applicable to the
   "buy-back of equity shares or other specified securities". [Rule 2]. 3.4 According to
   Section 77A(2)(g), the buy-back of shares or other specified securities of an unlisted
   company shall be in accordance with the guidelines as may be prescribed. The buy-
   back securities by unlisted companies must be in accordance with the Private
   Limited and Unlisted Public Company (Buy-back of Securities) Rules, 1999
   [hereinafter referred to as the Buy Back Regulations] prescribed by the Department
   of Company Affairs, Government of India vide /Notification No. G.S.R. 502 (E) dated
   6th July 1999.
       3.5 The provisions of the Buy Back Regulations shall not be applicable where the buy
       back is or less than 10% of the total paid up equity capital and free reserves of the
       Company. Such buy back can be authorised by the Board by means of a resolution
       passed at its meeting. [Refer Proviso to Section 77A(2) inserted by Companies
       (Amendment)Act, 2001 w. e. f. 23/10/2001].

   3. Are there any circumstances in which a company must not buy-back its
      securities?

4.1 A company shall not directly or indirectly purchase its own shares or other specified
securities -

   a. through any subsidiary company including its own subsidiary companies; or
   b. through any investment company or group of investment companies; or
   c. if a default is made by the company in repayment of deposit or interest payable
      thereon or in redemption of debentures or preference shares or payment of dividend
      to any shareholder or repayment of any term loan or interest payable thereon to any
      financial institution or bank is subsisting. [Section 77B(1)].

4.2 A company shall not directly or indirectly purchase its own shares or other specified
securities in case the company has not complied with provisions of Sections 159, 207 and
211. [Section 77B(2)].

   1. Which matters have a bearing on the decision of buy-back?

5.1 Non-transferability of shares due to the condition under an agreement with

   a. a financial or development institution or bank lending money or providing financial
      assistance to the company; or
   b. a venture capital company; or
   c. any other party which has lent money to the company.

5.2 Non-transferability of shares due to the condition under a non-disposal undertaking given
to a financial or development institution lending money or providing financial assistance to
the company.
5.3 Non-transferability of shares due to prohibition under a shareholders or joint venture
agreement or an instrument setting forth a family arrangement.
5.4 Purchase of any shares by a company or sale of shares by a shareholder which -

   a. would be in contravention of any law, rules, regulations or conditions of approval
      given by any authority (e.g. FIPB, RBI, DCA, etc);
   b. would require any permission or approval of financial institution, bank or other
      authorities;
   c. is prohibited by an order of any court.

5.5 Probability of the buying company ceasing to be a subsidiary company (or 100%
subsidiary if as a result of buy-back of equity shares held by the holding company in the
subsidiary which proposes to buy back the shares from the holding company.
5.6 If as result of the buy-back the free reserves will diminish, its effect on the limit for
acceptance of deposits under the Companies (Acceptance of Deposits) Rules under Section
58A;
5.7 Probability of violation due to crossing the limit on shareholding by a director under Rule
86 or 105 of the Income Tax Rules, 1962.
5.8 Effect of buy-back on -

   a. borrowing capacity of the company;
   b. debt-equity ratio;
   c. other financial ratios which would upset the financial parameters which are usually
      applied to measure financial structure, liquidity, profitability, return on capital, etc;
   d. interest rate on borrowing from financial institution or bank for working capital.
   1. From which sources can funds be utilised for buy-back?

6.1 A company may purchase its own shares or other specified securities 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)].

6.2 The company must have at the time of buy-back, balance in any one or more of these
accounts which is sufficient to accommodate the total value of the buy- back.
6.3 No company can buy-back its securities out of the proceeds of an earlier issue of the
same kind of shares or same kind of other securities. [Section 77A(1)]. Thus, a company
cannot use the proceeds of issue of equity shares to buy back equity shares. It can use
proceeds of that issue to buy back preference shares or debentures or any other securities.
Likewise, a company can use proceeds of issue of debentures to buy back equity shares.

   1. What are the provisions as regards creation of capital redemption reserve
      account?

       7.1 Where buy-back is sourced out of free reserves, then a sum equal to the nominal
       value of the share so purchased shall be transferred to the Capital Redemption
       Reserve Account referred to in clause (d) of the proviso to sub-section (1) of Section
       80 and details of such transfer shall be disclosed in the balance sheet. [Section 77AA].

       7.2 If redeemable preference shares are to redeemed out of distributable profits, an
       amount of profits equivalent to the nominal amount of the shares to be redeemed
       must be transferred to an account titled 'Capital Redemption Account'.

       7.3 According to clause (d) of sub-section (1) of Section 80, where any such shares
       are redeemed otherwise than out of the proceeds of a fresh issue, there shall, out of
       profits which would otherwise have been available for dividend, be transferred to a
       reserve fund, to be called the capital redemption reserve account, a sum equal to the
       nominal amount of the shares redeemed; and the provisions of this Act relating to the
       reduction of the share capital of a company shall, except as provided in this section,
       apply as if the capital redemption reserve account were paid-up share capital of the
       company.

       7.4 This account is similar to share capital account in that it cannot be applied for any
       purpose unless the provisions regarding reduction of capital are complied with as is
       required in the case of paid-up share capital, with one exception, namely it can be
       applied for issuing fully paid bonus shares. It cannot be applied for distribution as
       dividend.

   2. Whether the Articles of association must expressly authorise buy-back of
      securities?

8.1 The Articles of Association of the company must authorise the buy-back. [Section
77A(2)(a)].
8.2 The articles must contain express provision authorising the buy-back. Model provisions
in Articles of Association prohibiting and authorising buy-back may read as follows:

   1. The Company shall not have power to buy its own shares, unless the consequent
      reduction of capital is effected and sanctioned in pursuance of Sections 100 to 104 or
      of Section 402.
   2. Notwithstanding anything contained in the preceding Article No. -----, but subject to
      and in accordance with the provisions of Sections 77A, 77AA and 77B or any other of
      the Act and Securities and the Private Limited Company and Unlisted Public Limited
      Company (Buy-back of Securities) Rules, 1999, for the time being in force, the
      Company may purchase any of its own shares or other securities.
8.3 If the articles do contain a provision, the company may amend the articles to insert
therein such a provision. For the procedure to amend the articles, see Secretarial Practice
Recorder No. 38.

   1. What is the limit up to which a company can buy-back?

       9.1 The maximum limit up to which any company can buy-back its securities is
       twenty-five per cent of the total paid-up capital and free reserves of the company.
       [Section 77A(2)(c)].

       9.2 This limit will be calculated with reference to the last audited Balance Sheet
       relevant to the time of buy-back.

       9.3 However, in calculating this limit the amount of securities bought back by the
       company in the past will be deducted. For example, suppose according to the Balance
       Sheet of a company as at 31st March 1998 the aggregate of the paid-up share capital
       and free reserves is Rs. 100 lakhs. If the company had in the past bought back
       securities of the total value of Rs. 10 lakhs, the company can now buy back
       securities up to Rs. 15 lakhs.

       9.4 Within the overall limit mentioned above, a company can in any single financial
       year buy-back its equity shares up to twenty-five per cent of its total paid-up equity
       capital in that financial year. The expression "in that financial year" indicates that for
       the purpose of this limit paid-up capital can be taken at the time of the buy-back, so
       that any increase between the last financial year end and the proposed buy-back is
       included to compute the limit. This limit is applicable only to the buy-back of equity
       shares; it is not applicable to the buy-back of other securities.

       9.5 Paid up share capital will include both equity and preference share capital. Free
       reserves shall have the meaning assigned to it in clause (b) of Explanation to Section
       372A. [For detailed discussion on free reserves, see Secretarial Practice Recorder No.
       231].

       9.6 Proviso to sub-section (2) inserted by the Companies (Amendment) Act, 2001 w.
       e. f. 23/10/2001, authorises the Board of Directors to buy-back upto ten percent of
       the total paid-up equity capital and free reserves of the company. Clause (A) of the
       proviso specifically states only equity capital and therefore while calculating the
       maximum amount that can be bought-back under this proviso, preference capital
       shall be excluded.

   2. What should be the post buy-back debt-equity ratio?

       10.1 A company proposing to buy back any securities must ensure that after
       the buy back it will have debt-equity ratio of 2 : 1, namely the debt owed by the
       company is not more than twice the capital and its free reserves after such buy-
       back. [Section 77A(2)(d)].

       10.2 Debt includes unsecured and secured debts. [Explanation to Section 77A(2)(d),].

       10.3 The Central Government may prescribe a higher ratio of the debt than that
       specified under this clause for a class or classes of companies. [Proviso to Section
       77A(2)(d)].

   3. Whether partly paid-up securities can be bought-back?

       11.1 All the shares or other specified securities for buy-back must be fully
       paid-up at the time of buy-back. [Section 77A(2)(e)].
       11.2 If any of the securities which are proposed to be bought back are partly paid,
       steps must be taken to make them fully paid before buy-back of securities.

       11.3 The shares or other securities, which are partly paid up should be made fully paid
       up by making a call on the holders of these securities before taking any steps for buy-
       back, and it is only after the date stipulated for making the payment of the call that a
       company can proceed for buy-back. If any shareholder has not made the payment till
       such date, those shares should be forfeited before any steps are taken to implement
       the proposed buy-back scheme / programme. [For the procedure for forfeiture of
       shares, see Secretarial Practice Recorder No. 64A.

   4. Which securities can be bought-back?

12.1 A unlisted company can buy-back its securities-

   a. from the existing security holders on a proportionate basis; or
   b. by purchasing the securities issued to employees of the company pursuant to a
      scheme of stock option or sweat equity. [Section 77A(5) & Rule 3 of the Buy-back
      Rules].

12.2 An unlisted company cannot buy back its securities in any other manner.

   1. What are the various sanctions required to buy-back securities?

13.1 The process of buy-back of shares (or other securities) begins with the approval of the
Board of Directors of the company. The Board will pass resolutions approving the proposal of
buy-back and certain other resolutions. A model resolution is given below.
              "RESOLVED THAT subject to the provisions of Sections 77A, 77AA, 77B, and
              such other provisions as may be applicable, the Private Limited Company and
              Unlisted Public Limited Company (Buy-back of Securities) Rules, 1999, and
              subject to the approval of the shareholders by special resolution the Company
              do purchase --- [the number]--- of its equity shares of Rs. 10 each fully paid-
              up.&
              9;


              RESOLVED FURTHER THAT an extraordinary general meeting of the members of the
              Company be convened to be held on ---[day & date] --- at ---[time]--- at ---[place]---to
              consider and if thought fit to pass with or without modification as special resolution the
              resolution set out in the draft notice of the meeting placed on the table, which is hereby
              approved;


              RESOLVED FURTHER THAT Mr. ………, Company Secretary be and is hereby
              authorised to issue the notice of the extra-ordinary general meeting and to do such other
              acts, things and deeds as may be necessary in that connection."
13.2 Every buy-back of any securities must be approved by a special resolution passed in
general meeting of the company. [Section 77A(2)(b)]; For the meaning of and procedure for
passing special resolution, see Secretarial Practice Recorder No. 133]. A model resolution is
given below:
              RESOLVED THAT subject to and in accordance with the provisions of Sections
              77A, 77AA, 77B, and such other provisions as may be applicable, the Private
              Limited Company and Unlisted Public Limited Company (Buy-back of
              Securities) Rules, 1999, approval be and is hereby accorded to the Company
              purchasing --- [the number]---- of its equity shares of Rs. 10 each fully paid-
              up, in accordance with the Scheme of Buy-back as set out in the explanatory
              statement annexed to this notice;
                   RESOLVED FURTHER THAT the Board of Directors of the Company be and is
                   hereby authorised to modify the Scheme of Buy-back, if required, in any
                   manner and to do such other acts, things and deeds as may be necessary to
                   give effect to this resolution."

       a. 13.3 A special resolution authoring buy-back of securities may be passed at an
          annual general meeting or at an extra-ordinary general meeting. [For the procedure to
          convene an annual general meeting, see Secretarial Practice Recorder No. 117; for the
          procedure to convene an extra-ordinary general meeting, see Secretarial Practice
          Recorder No. 119].

            13.4 The notice of the general meeting at which special resolution is proposed to be
            passed shall be accompanied by an explanatory statement stating:

       b.   a full and complete disclosure of all material facts;
       c.   the necessity for the buy-back;
       d.   the class of security intended to be purchased under the buy-back;
       e.   the amount to be invested under the buy-back; and
       f.   the time limit for completion of buy-bac

k. [Section 77A(3)].
13.5 Besides information on the above points, the explanatory statement to be annexed to
the notice of the meeting must comply with the requirements laid down in Section 173 of the
Companies Act in relation to the special resolution for buy-back of securities. [For checklist
on Section 173, see Secretarial Practice Recorder No. 123].
13.6 The explanatory statement must contain disclosures as specified in Schedule I to the
Buy-back Rules, see Rule 4]. The matters to be disclosed as per Schedule I are as follows:

   i.       the date of the Board meeting at which the proposal for buy back was approved by
            the Board of Directors of the company;
  ii.       the necessity for the buy-back;
 iii.       the class of security intended to be purchased under the buy-back;
 iv.        the method to be adopted for the buy-back;
  v.        the maximum amount required under the buy-back and the sources of funds from
            which the buy back would be financed;
 vi.        the basis of arriving at the buy back price;
vii.        the number of securities that the company proposes to buy back;
viii.       the time limit for the completion of buy-back;
              a.    the aggregate shareholding of the promoter and the directors of the promoters,
                    where the promoter is a company and of persons who are in control of the
                    company as on the date of the notice convening the General Meeting;
              b.    aggregate number of equity shares purchased or sold by persons including
                    persons mentioned in (a) above during a period of six months preceding the
                    date of the Board Meeting at which the buy back was approved from date till
                    date of notice convening the general meeting;
              c.    the maximum and minimum price at which purchases and sales referred to in
                    (b) above were made along with the relevant date;
 ix.        intention of the promoters and persons in control of the company to tender shares for
            buy-back indicating the number of shares, details of acquisition with dates and price;
  x.        a confirmation that there are no defaults subsisting in repayment of deposits,
            redemption of debentures or preference shares or repayment of term loans to any
            financial institutions or banks;
 xi.        a confirmation that the Board of Directors has made a full enquiry into the affairs and
            prospects of the company and that they have formed the opinion -
              a.    that immediately following the date on which the General Meeting is convened
                    there will be no grounds on which the company could be found unable to pay
                    its debts;
         b.     as regards its prospects for the year immediately following that date that,
                having regard to their intentions with respect to the management of the
                company's business during that year and to the amount and character of the
                financial resources which will in their view be available to the company during
                that year, the company will be able to meet its liabilities as and when they fall
                due and will not be rendered insolvent within a period of one year from that
                date; and
           c.   in forming their opinion for the above purposes, the directors shall take into
                account the liabilities as if the company were being wound up under the
                provisions of the Companies Act, 1956 (including prospective and contingent
                liabilities);
xii.    a report addressed to the Board of Directors by the company's auditors stating that –
           a.   they have inquired into the company's state of affairs;
           b.   the amount of the permissible capital payment for the securities in question is
                in their view properly determined; and
           c.   the Board of directors have formed the opinion as specified in clause (xii) on
                reasonable grounds and that the company, having regard to its state of affairs,
                will not be rendered insolvent within a period of one year from that date.
xiii.   the price at which the buy back of shares shall be made;
xiv.    if the promoters intend to offer their shares –
           a.   the quantum of shares proposed to be tendered; and
           b.   the details of their transactions and their holdings for the last six months prior
                to the passing of the special resolution for buy back including information of
                number of shares acquired, the price and the date of the acquisition.

13.7 The special resolution shall be filed with the Registrar of Companies within 30 days after
the general meeting. [Section 192; for a detailed procedure, see Secretarial Practice Recorder
No. 135; for model special resolution, see Annex I].

    1. What are the provisions as regards Declaration of Solvency?

        14.1 After passing a special resolution but before making buy-back, the company
        must file with the Registrar of Companies a declaration of solvency in Form No. 4A
        prescribed under Rule 5C of the Companies (Central Government's) General Rules &
        Forms, 1956.

        14.2 The declaration must be verified by an affidavit to the effect that the Board has
        made a full inquiry into the affairs of the company as a result of which they have
        formed an opinion that it is capable of meeting its liabilities and will not be rendered
        insolvent within a period of one year of the date of declaration adopted by the Board,
        and signed by at least two directors of the company, one of whom shall be the
        managing director, if any. [Section 77A(6)].

        14.3 The declaration of solvency required under Section 77A(6) is similar to the one
        under Section 488 of the Companies Act which provides that where it is proposed to
        wind-up a company voluntarily, its directors, or in case the company has more than
        two directors, the majority of the directors, may, at a meeting of the Board, make a
        declaration verified by an affidavit, to the effect that they have made a full inquiry into
        the affairs of the company, and that, having done so, they have formed the opinion
        that the company has no debts, or that it will be able to pay its debts in full within
        such period not exceeding three years from the commencement of the winding up as
        may be specified in the declaration.

        14.4 No declaration of solvency is required to be filed with the SEBI by a company
        whose shares are not listed on any recognised stock exchange. [Proviso to Section
        77A(6)].
   2. What are the provisions as regards Letter of Offer to be sent to the
      shareholders?

15.1 The company which has proposed to buy-back securities must send every shareholder,
who is entitled to offer his shares under the buy-back scheme, a letter of offer.
15.2 The company which has proposed to buy-back securities must send to every
shareholder, who is entitled to offer his shares under the buy-back scheme, a letter of offer.
The following points should be noted:

   a. The letter of offer shall contain the information specified in Schedule II to the Buy-
      back Rules.
   b. The letter of offer should be dated and signed by the Board of Directors of the
      company.
   c. A draft letter of offer should be filed with the Registrar of Companies.
   d. The letter of offer shall be despatched immediately after filing it with the Registrar of
      Companies but not later than 21 days from its filing with Registrar of Companies.

15.3 The company shall file alongwith the letter of offer, a declaration of solvency in Form
No. 4A, prescribed under the Companies (Central Government's) General Rules and Forms,
1956 and in accordance with provisions of sub-section (6) of Section 77A of the Companies
Act, 1956.
15.4 The Company which has been authorised by a special resolution shall, before the buy-
back of shares, file with the Registrar of Companies a draft letter of offer containing
particulars specified in Schedule II. [Buy-back Rules, Rule 5].
15.5 The letter of offer shall be dispatched immediately after filing with Registrar of
Companies but not later than 21 days from its filing with Registrar of Companies. [Buy-back
Rules, Rule 6(1)].
15.6 The Company shall file alongwith the letter of offer a declaration of solvency in Form No.
4A, prescribed under the Companies (Central Government's) General Rules and Forms, 1956
and in accordance with provisions of sub-section (6) of Section 77A of the Companies Act,
1956. [Buy-back Rules, Rule 5(2)]. [For details as to the declaration of solvency, see para –
14 above].

   1. What are the provisions as regards acceptance of offer & other related
      formalities?

       16.1 The Offer for buyback shall remain open to the members for a period not less
       than 15 days and not exceeding 30 days from the date of dispatch of letter of offer.
       [Buy-back Rules, Rule 6(2)].

       16.2 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. [Buy-back Rules, Rule 6(3)].

       16.3 The company shall complete the verifications of the offers received within 15
       days from the date of closure of the offer and the shares lodged shall be deemed to be
       accepted unless a communication of rejection is made within 21 days from the closure
       of the offer. [Buy-back Rules, Rule 6(4)].

       16.4 The Company shall immediately after the date of closure of the offer open a
       special bank account and deposit therein, such sum, as would make up the entire sum
       due and payable as consideration for the buy-back in terms of these rules. [Buy-
       back Rules, Rule 7(1)].

       16.5 The company shall within 7 days of the time specified in sub-rule (4) of Rule 6
       make payment of consideration in cash or bank draft / pay order to those
       shareholders whose offer has been accepted or return the share certificates to the
       shareholders forthwith. [Buy-back Rules, Rule 7(2)].
   2. What are the general obligations of the company in case of buy-back of
      securities?

       17.1 According to Rule 8 of the Buy-back Rules, the company buying back its
       securities must comply with the general obligations with regard to the buy-
       back of securities.

   3. What is the period limit within which buy-back must be completed?

       18.1 Every buy-back shall be completed within twelve months from the date
       of passing the special resolution authorising the buy-back. [Section 77A(4)].

   4. What are the provisions as regards return of buy-back of securities?

       19.1 After the completion of the buy-back, the company must file with the
       Registrar of Companies, a return containing particulars relating to the buy-
       back. [Section 77A(10)].

       19.2 The return shall be filed within thirty days of the completion of the buy- back.
       [Section 77A(10)].

       19.3 No return shall be filed with the Securities and Exchange Board of India by an
       unlisted company which has bought back its securities. [Proviso to Section 77A(10)].

       19.4 The return shall be in the form prescribed under Annexure A to the Buy-back
       Rules.

   5. What are the provisions as regards extinguishment of certificates?

       20.1 Rule 10 of the Buy-back Rules lays down the following requirements regarding
       extinguishment of certificates of the securities which have been bought back by the
       company:

       (1) The company shall extinguish and physically destroy the share certificates so
       bought back in the presence of the Company Secretary in whole-time practice within 7
       days from the date of acceptance of the shares.

       (2) The company shall furnish a certificate to the Registrar of Companies duly verified
       by (a) two whole-time directors including the Managing Director and (b) Company
       Secretary in whole time practice, certifying compliance of these rules including those
       specified in sub-rule (1) above within 7 days of the extinguishment and destruction of
       the certificates.

       (3) The company shall maintain a record of share certificates which have been
       cancelled and destroyed within 7 days of buy-back of shares.

   6. Whether the company can issue new securities after buy-back?

21.1 A company which has bought back any securities cannot make any issue of the same
kind of securities in any manner whether by way of public issue, rights issue, private
placement issue, up to *six months from the date of completion of the buy-back. [Section
77A(8)]. [Section 77A(8)]. *Earlier the limit was twenty four months, which was revised by
the Companies (Amendment) Act, 2001 w. e. f. 23/10/2001.
21.2 However, the following types of issues are not prohibited

   a. bonus issue of shares;
   b. issue of shares or other securities arising due to 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)].
   1. What are the provisions as regards Register of Securities bought-back?

22.1 A company buying-back its securities shall maintain a register which may be in a
computer or floppy or disc.(Rule 11)
22.2 After the completion of buy-back, the company shall enter in a register the following
particulars -

   a.   the consideration paid for the securities bought-back;
   b.   the date of cancellation of the securities;
   c.   the date of extinguishing and physically destroying the securities; and
   d.   such other particulars as may be prescribed. [Section 77A(9)].

22.3 This register shall be in Form 4B of the Companies (Central Government) General Rules
& Forms (as set out in Annexure B to the Buy-back Rules) [Rule 11].
                                            Annex I
                Model special resolution sanctioning buy-back of shares
"RESOLVED THAT subject to and in accordance with the provisions of Sections 77A, 77AA,
77B, and such other provisions as may be applicable the Private Limited & Unlisted Public
Limited Company (Buy-back of Securities) Rules, 1999, approval be and is hereby accorded
to the Company purchasing - [the number]-- of its equity shares of Rs. 10 each fully paid-up,
in accordance with the Scheme of Buy-back as set out in the explanatory statement annexed
to this notice;
RESOLVED FURTHER THAT the Board of Directors of the Company be and is hereby
authorised to modify the Scheme of Buy-back, if required, in any manner and to do such
other acts, things and deeds as may be necessary to give effect to this resolution."
ACTS & SECTIONS REFERENCE :

				
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