1.INTRODUCTION

Buy back of shares means buying back of its own shares or other specified securities by the company from the holder thereof and cancelling them. Some of the purposes Buy-back of shares are :

1) To increase the promoters holding as the shares which are bought are cancelled.

2) To increase EPS, if there is no dilution in company’s earnings as the buy-back reduces the outstanding number of shares.

3) To support the share price when the share price, in the opinion of the management is less than its fair value.

4) To pay surplus cash to the shareholders when the company does not need it for the business.

5) To reward shareholders by Buy-back of shares at much higher price than ruling market price.

6) It safeguard against a hostile takeover by increasing promoters holding.

7) to restructure the debt-equity mix

2.APPLICABLE LEGAL PROVISIONS:

1) Section 68 of the Companies Act, 2013 empowers a company to purchase its own shares or other securities in certain cases.

2)Section 69 of the Companies Act,2013 Accounting treatment of the proceed of Buyback.

3)Sections 70 of the Companies Act, 2013 imposes restriction on buy back of shares in certain circumstances &

4)Rule 17 of Companies (Share Capital and Debentures) Rules, 2014

 3.SOURCES OF BUY-BACK:

A company can purchase its own shares and other specified securities out of –

1) Free reserves

2) Securities premium account
3) The proceeds of any shares or other specified securities. However, buy-back cannot be made out of the proceeds of an earlier issue of the same kind of shares.

4. CONDITIONS OF BUY-BACK:

 1) Buy back of shares must be authorized by its Articles of Association (AOA) of the company, if no provision in AOA then first alter the AOA.

2) If the shares to be bought back amount to

1. Up to 10% of Paid-up capital + Free Reserves + Securities Premium – Pass Board Resolution.
2. Up to 25% of Paid-up capital + Free Reserves + Securities Premium – Pass Special Resolution.

3) Buy-back should not be more than 25% of the total paid up capital and free reserves of the company.

 4) Buy-back of equity shares in any financial year must not exceed 25% of its paid up equity capital.

5) Debt-equity ratio should not fall below 2:1 after buy-back.

 6) The shares should be fully paid up.

7) The buy-back should be completed within a period of one year from the date of passing of Special Resolution or Board Resolution, as the case may be.

8) Shares must be physically destroyed within 7 days of completion of buy-back.

9) No fresh issue is allowed within 6 months from buy-back, except by way of issue of bonus shares, ESOPs, sweat equity and conversion of debt/preference shares into equity.

10) No withdrawal of offer is allowed once it is announced to the shareholders.

11) The company shall not utilize any money borrowed from banks and financial institutions for a buyback.

5.RESTRICTIONS ON BUY-BACK :

According to section 70 of the Companies Act, 2013, A Company should not buy-back its securities or other specified securities, directly or indirectly –

1. through any subsidiary company including its own subsidiary companies;
2. through any investment company or group of investment companies; or
3. If there is any default in payment of deposits or interest due, redemption of debentures/preference shares or payment of dividend.
4. When Company has defaulted in filing of Annual Return, declaration of dividend & financial statement.

6.PROCEDURE FOR BUY-BACK OF SHARES

Following procedure should be followed by the Company intending for Buy-back: