PROCEDURE FOR BUY BACK OF SECURITIES BY PRIVATE LIMITED COMPANIES Prohibition No private or unlisted public company shall directly or indirectly purchase its own shares or other specified securities through any subsidiary company including its own subsidiary companies or through any investment company or group of investment companies otherwise than according to the Buy-back Rules, 1999 of MCA. Only fully paid up shares or securities can be bought back by the company. Further, a company which has defaulted in- repayment of deposit; or payment of interest on deposits ; or redemption of debentures ; or redemption of preference shares; or Payment of dividend to any shareholder; or repayment of interest or principal to any financial institution or bank; or Complying with the provisions of section 159 (filing of annual return), section 207 (distribution of dividend within 42 days) or section 211(annual accounts) of the Companies Act is not eligible to buy back its own securities. Authority The buy back of securities should be authorised by the Articles of association of the company. Otherwise, the Articles of Association should be amended. Source of buy back The buy back may be out of the company's free reserves or its securities premium account or out of the proceeds of any shares or other specified securities. However, no buy back of any kind of shares or other specified securities shall be made out of the proceeds of an earlier issue of the same kind of shares or the same kind of other specified securities. Methods of buy back The buy-back may be in either of the following two methods: 1. From the existing shareholders on a proportionate basis through private offers, or 2. By purchasing securities issued to employees pursuant to a scheme of stock option or sweat equity. Ceiling on quantum of buy back The quantum of buy back should be 25% or less of the total paid-up capital and free reserves of the company. Further, the buy back of equity share in company or in a financial year should not exceed 25% of the total paid-up equity capital in the financial year. Post-buy back debt equity ratio After the buy back, the ratio of debt (including all amounts of secured and unsecured debts) should not be more than twice the capital and its free reserves after such buy-back (i.e. 2:1 ratio). Time limit for completion of buy back The buy back Formalities should be completed within 12 months from the date of passing the board resolution or special resolution as applicable. If buy-back is not completed within 12 months as aforesaid, the reasons therefor will have to be stated in the Directors’ Report [section 217(2B)]. Board Resolution A Board Resolution should be passed for buy back of securities and for authorizing convening of a general meeting to pass a special resolution for buy back of securities.- only 10% being bought back hence no General meeting resolution applicable Exemption from passing special resolution No special resolution is required where the buy back is or less than 10% of the total paid-up equity capital and free reserves of the company. In this case, passing of Board Resolution shall be sufficient. No further "offer of buy back" shall be made within 365 days from the date of the preceding offer of buy back. The offer of buy-back made in pursuance of the Board resolution as above is called the "offer of buy- back". Issue of notice of general meeting The notice of the general meeting should be sent to all eligible shareholders and auditors of the company containing the following particulars: + Full and complete disclosure of all material facts + Necessity of buy back + Class of security intended to be purchased under the buy back + Amount to be invested under the buy back + Time limit for completion of buy back (within 12 months of passing the special resolution) + Additional disclosures specified in Schedule I to the Private Limited Company and Unlisted Public Limited Company (Buy-Back of Securities) Rules, 1999. General Meeting Special Resolutions (Postal Ballot) The general meeting should accordingly be held and the special resolution authorizing the buy back of securities should be duly passed. Listed companies should pass the resolution by Postal Ballot as required under rule 4A of Postal Ballot Rules, 2001 of MCA. Filing of e-Form No. 23 with the Registrar of Companies Within 30 days of passing the special resolution, a return in e-Form No. 23 should be filed with the Registrar of Companies. Filing of letter of offer and declaration of solvency Before the buy-back of shares, a draft letter of offer containing the particulars specified in Schedule II to Buy Back Rules should be filed with the Registrar of Companies along with a declaration of solvency in Form No. 4A. Declaration of solvency and verification The declaration of solvency should be duly verified by an affidavit to the effect that the Board has made a full inquiry into the affairs of the company and formed an opinion that it is capable of meeting its liabilities and will not be rendered insolvent within a year of its adoption by the Board. The declaration of solvency should be signed by two directors including the Managing Director, where there is one. Dispatch of letter of offer Immediately after filing with the Registrar of Companies, the letter of offer should be despatched but in any case not later than 21 days from its filing with the Registrar of Companies. Duration of offer The offer for buy-back shall remain open to the members for a period not less than 15 days and not exceeding 30 days from the date of despatch of the letter of offer. General obligations regarding buy back The company should duly fulfill the following obligations in connection with the buy back of securities a) Letter of offer shall not contain untrue/ misleading information The letter of offer shall contain true, factual and material information and shall not contain any misleading information and must state that the directors of the company accept the responsibility for the information contained in such document. b) Prohibition on share issue No issue of shares (including bonus shares) shall be made till the date of the closure of the offer. c) Confirmation in letter of offer regarding opening of bank account and funds transfer Confirmation shall be made in the letter of offer regarding the opening of separate bank account testifying the availability of funds earmarked for this purpose. d) Mode of payment of buy-back consideration Consideration for buy-back shall be only by way of cash or bank draft /pay order. e) Prohibition to withdraw offer The buy-back offer shall not be withdrawn once the draft letter of offer has been filed with the Registrar of Companies. f) Not to use borrowed funds Funds borrowed from Banks/Financial Institutions should not be utilized for the purpose of buying-back its shares. Verification of offers Within 15 days from the date of closure, the verification of offers received by the company should be completed. The shares lodged with the company shall be deemed to have been duly accepted unless communication of rejection is sent within 21 days of closure of offer. Proportionate acceptance of offers 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. Opening of special bank account Immediately after the date of closure of the offer, a special bank account should be opened and a deposit of such sum, as would make up the entire sum due and payable as consideration for the buy-back in terms of these rules, should be transferred to the account. Payment of consideration Within 7 days of the completion of stipulated verification time, payment of consideration in cash or bank draft/pay order should be made to those shareholders whose offer has been accepted. Return of share certificates in case of non-acceptance of Offer In case of rejected offers, the share certificates should be returned to the concerned shareholders forthwith. Extinguishment of Certificate Within 7 days from the date of acceptance of the shares, the physical share certificates so bought back should be extinguished and physically destroyed in the presence of a Company Secretary in whole-time practice. Furnishing of certificate of compliance to the Registrar Within 7 days of the extinguishment and destruction of the certificates, a certificate, duly verified by two directors including the Managing Director and the Company Secretary in whole-time practice, certifying compliance of these rules should be furnished to the Registrar of Companies. Maintenance of record of share certificates cancelled and destroyed Within 7 days of buy-back of shares, a record of share certificates which have been cancelled and destroyed should be maintained. Maintenance of Register of shares bought back A Register of shares bought-back by the Company should be maintained in the Form specified at Annexure 'B' OF Buy Back Rules. Filing of return in e-form 4C Within 30 days of completion of buy back of securities, a return in Form 4C containing the details of buy back should be filed with the Registrar of Companies. a) Who is to file This e-Form 4C should be filed by the Managing Director or manager or secretary of the company and one director. If there is no managing director or manager or secretary, by two directors of the company. b) Attachments The following shall be attached: + Description of securities bought back and particulars relating to holders of securities as per the format given in e-Form. + Copy of the Board Resolution + Copy of the Special Resolution. + Return as per Annex 'A' of Buy Back Rules Transfer to capital redemption reserve account Where the buy back of shares is made out of the free reserves of the company, a sum equal to the nominal value of shares so purchased should be transferred to the capital redemption reserve account. The details of such transfer should also be disclosed in the Balance Sheet. Prohibition to make further issue On completion of buy back of shares or other specified securities, the same kind of securities should not be again issued within a period of 6 months. However, this restriction is not applicable to bonus issue or issues made 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.