out of—
a) Free reserves
b) Securities Premium Account or
c) Proceeds of issue of any shares No buy-back - out of proceeds of an earlier issue of
same kind of shares
“Free Reserves” includes Securities Premium Account.
Purchase own securities
Buy-back is authorized by its articles
Board Resolution – If 10% or less of total paid-up equity capital and free reserves
Special Resolution - More than 10% of total paid-up equity capital and free reserves
**Paid-up equity capital of that FY in which buy back is made and not in totality
No Buy Back Unless-
Existing shareholders/security holders on a proportionate basis;
Open market;
By purchasing securities issued to employees pursuant to scheme of stock option or sweat equity.
Buy back shares from
Maximum Buy-back - 25% or less of aggregate of paid-up capital and free reserves
**If buy-back of equity shares - 25% of total paid-up equity capital
No Buy Back Unless………
Ratio of secured and unsecured debts after buy-back - not more than twice paid-up capital and its free reserves
All shares are fully paid-up
Subsequent offer of buy back – after 1 year from date of closure of preceding offer of buy-back
No Buy Back Unless………
Hold BM and Pass resolution if less than 10%
Hold GM and Pass Special Resolution if more than 10%
File Form No. MGT – 14
File with ROC a declaration of solvency with an affidavit – Form SH-9
Procedure
File letter of offer with ROC Form No. SH.8
Dispatch Letter of offer to shareholders/security holders within 20 days from filing with ROC.
Offer remain open for 15 to 30 days from date of dispatch of letter of offer.
Immediately after closure of offer - open a separate bank account and deposit such sum, as would make up entire sum due and payable as consideration for shares tendered
Procedure
complete verifications of offers received within 15 days from date of closure of offer
shares lodged shall be deemed to be accepted unless a communication of rejection is made within 21 days from date of closure of offer.
within 7 days after end of 21 days - Make payment and Return share certificates
Procedure…….
Extinguish & physically destroy shares so bought back within 7 days
Make entries in Register of Buy Back - Form No. SH.10
File return of buy-back within 30 days of completion - Form No. SH.11 along with a certificate in Form No. SH.15
Procedure…….
After BM obtain Report addressed to BOD by company’s auditors – To be annexed with Notice stating that-
a) They have inquired into company’s state of affairs;
b) Amount of permissible capital payment for securities in question is in their view properly determined;
c) Audited accounts on the basis of which calculation with reference to buy back is done is not more than 6 months old from date of offer document; and
d) BOD have formed opinion as specified in clause 17(1)(m) of Rules and company shall not be rendered insolvent within a period of 1 year from that date
Report from Auditor
Transfer sum equal to nominal value of shares so purchased and details of such transfer disclose in Balance Sheet.
CRRA may applied, in paying up unissued
shares to be issued as fully paid bonus shares.
Company shall not utilize any money borrowed from banks/FI for buying back its shares
Capital Redemption Reserve Account (CRRA)
Through any subsidiary including its own subsidiary companies
Through any investment /group of investment companies or
if a default, is made in repayment of deposits accepted &
interest payment thereon, redemption of debentures/preference shares/payment of dividend /repayment of any term loan/interest payable thereon to any FI or banking company
NA above – if default is remedied and 3 years has lapsed
after such default ceased to subsist.
Prohibition for buy-back
No company shall, directly/indirectly, purchase its own shares if not complied with :
a) Section 92 - Annual Returnb) Section 23 - Declaration of dividendc) Section 127 - Punishment for failure to
distribute dividends and d) Section 129 - Financial Statement
Prohibition for buy-back…….
No further issue of same kind of shares including allotment of new shares u/s 62(1) (a) - for 6 months of completion-
- Except bonus issue/in discharge of subsisting obligations such as conversion
Not issue new shares/bonus shares from passing resolution till date of closure of offer-
- Except those arising out of any outstanding convertible instruments;
Further Issue / Allotment
Accompanied by an explanatory statement u/s. 102 stating-
a full and complete disclosure of all material facts;
the necessity for the buy-back;
Notice of GM
the class of shares or securities intended to be purchased under the buy-back;
the amount to be invested under the buy-back; and
the time-limit for completion of buy-back.
Notice of GM……
within a period of 1 year from date of passing of special resolution/passed by Board
Completion of Buy back
If a company makes default - punishable with fine Rs.1,00,000/- to Rs. 3,00,000/-
Every officer who is in default - punishable with imprisonment for term up to 3 years or fine Rs. 1,00,000/- to Rs. 3,00,000/-
or with both.
Punishment