Buy Back of Shares

WHITE PAPER ON
BUY BACK OF SHARES AND OTHER SPECIFIED
SECURITIES BY AN UNLISTED COMPANY UNDER
COMPANIES ACT, 2013
A PRODUCT OF RICKY CHOPRA INTERNATIONAL COUNSELS

APPLICABLE SECTIONS AND RULES
Companies Act, 2013
Section 68
Section 69
Section 70
Rule 17 of Companies (Share
Capital and Debentures
Rules,2014)

POWER OF COMPANY TO PURCHASE ITS OWN
SECURITIES
POWER TO PURCHASE
 A Company may purchase its own shares or other
specified securities out of –
(a) Its free reserve;
(b) the securities premium account; or
(c) the proceeds of the issue of any shares or other
specified securities.
No buy – back of any kind of
Shares or other securities shall
be made out of the proceeds of an
earlier issue of the same kind of share
or other specified securities.
Specified Securities include ESOP or
other Securities as may be notified by
CG.

OBJECTIVES OF BUY BACK
O
B
J
E
C
T
I
V
E
S
• To reduce capital;
• To improve the earnings per share;
• To improve return on capital and to enhance the long-term
shareholders value;
• To provide an additional exit route to shareholders;
• To return surplus cash to shareholders;
• To prevent unwelcome takeover bids;
• To achieve optimum capital structure;

CONDITIONS TO PURCHASE
 No Company shall purchase its own shares or other specified securities
under sub-section (1), unless—
(a) the buy-back is authorised by its articles;
(b) a special resolution has been passed at a general meeting of the
company authorising the buyback;
SR is not required if:-the
buy-back is, 10% or less
of the total paid-up
equity capital and free
reserves of the company

RESOLUTIONS TO PURCHASE
SPECIAL
RESOLUTION
In case the buy-back is more than
10% of the total paid up capital
and free reserves of the company.
Such Resolution shall be passed by
the Shareholders of the Company.
BOARD
RESOLUTION
In case the buy-back is less than
10% of the total paid up capital
and free reserves of the company.
Such buy-back has been authorised
by the Board by means of a
resolution passed at its meeting.

(c) the buy-back is 25% or less of the aggregate of paid-up capital
and free reserves of the company;
(d) the ratio of the aggregate of secured and unsecured debts owed
by the company after buy-back is not more than twice the paid-
up capital and free reserves;
Provided, in case of Buy-
Back of Equity Shares it shall
not exceed in any Financial
Year 25% of the total paid up
equity capital.
Provided, the CG may, by
order, notify a higher ratio of
the debt to capital and free
reserves for a class or classes of
companies.

(e) All the shares or other specified securities for buy-back are fully paid-
up;
(f) the buy-back of the shares or other specified securities listed on any
recognised stock exchange is in accordance with the regulations made
by the Securities and Exchange Board in this behalf; and
(g) the buy-back in respect of shares or other specified securities other than
those specified in clause (f) is in accordance with such rules as may be
prescribed.
No offer of buy-back shall
be made within a period of 1
year reckoned from the date
of closure of the preceding
offer of buy-back, if any.

DISCLOSURES IN EXPLANATORY STATEMENT
DISCLOSURES IN EXPLANATORY STATEMENT
The Explanatory Statement attached to the Notice of Member’s Meeting in which Special Resolution is
proposed to be passed must contain-
Full and Complete
disclosure of all
material facts.
Necessity for the
buy-back.
Class of shares or
securities intended to
be purchased under
the buy-back.
Amount to be
invested under the
buy-back.
Amount to be
invested under the
buy-back.

TIME-PERIOD
TIME- PERIOD
Every buy-back shall be completed within a period of one year
from the date of passing of the special resolution, or as the case
may be, the resolution passed by the Board.

OPTIONS FOR BUY-BACK
OPTIONS
The Buy- Back may be-
(a) from the existing shareholders or security holders on a proportionate basis;
(b) from the open market;
(c) by purchasing the securities issued to employees of the company pursuant to a
scheme of stock option or sweat equity.

DECLARATION OF SOLVENCY
SOLVENCY DECLARATION
 Where a company proposes to buy-back its own shares or other specified securities under this
section in pursuance of a special resolution under clause (b) of sub-section (2) or a resolution
under item (ii) of the proviso thereto, it shall, before making such buy-back, file with the
Registrar and the Securities and Exchange Board, a declaration of solvency signed by at least
two directors of the company, one of whom shall be the managing director, if any, in such form
as may be prescribed and verified by an affidavit to the effect that the Board of Directors of the
company 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 from the date of declaration adopted by the Board.
Provided that no declaration of solvency shall be filed with the Securities and Exchange Board
by a company whose shares are not listed on any recognised stock exchange.

EXTINGUISHMENT OF PHYSICAL CERTIFICATE
EXTINGUISHMENT OF PHYSICAL CERTIFICATE
 Where a company buys back its own shares or other specified securities, it shall
extinguish and physically destroy the shares or securities so bought back within
seven days of the last date of completion of buy-back.

OTHER REQUIREMENTS
OTHER REQUIREMENTS
Where a company completes a buy-back of its shares or other specified securities, it shall not make a
further issue of the same kind of shares or other securities including allotment of new shares or other
specified securities within a period of six months except by way of:
a) a bonus issue or
b) 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.

REGISTER TO BE MAINTAINED
REGISTER
Where a company buys back its shares or other specified securities under this section, it shall maintain a
register of the shares or securities so bought, the consideration paid for the shares or securities bought back,
the date of cancellation of shares or securities, the date of extinguishing and physically destroying the
shares or securities and such other particulars as may be prescribed.

RETURN OF BUY-BACK
RETURN
A company shall, after the completion of the buy-back under this section, file with the Registrar and the
Securities and Exchange Board a return containing such particulars relating to the buy-back within thirty
days of such completion, as may be prescribed.
Provided that no return shall be filed with the Securities and Exchange Board by a company whose shares
are not listed on any recognised stock exchange.

PENAL PROVISIONS
PENALTY
If a company makes any default in complying with the provisions of this section:
i. The company shall be punishable with fine which shall not be less than one lakh rupees but
which may extend to three lakh rupees; and
ii. Every officer of the company who is in default shall be punishable with imprisonment for a
term which may extend to three years or with fine which shall not be less than one lakh
rupees but which may extend to three lakh rupees, or with both.

CAPITAL REDEMPTION RESERVE ACCOUNT
CAPITAL REDEMPTION RESERVES
Where a company purchases its own shares out of free reserves or
securities premium account, a sum equal to the nominal value of the
shares so purchased shall be transferred to the capital redemption
reserve account and details of such transfer shall be disclosed in the
balance sheet.
UTILIZATION OF CAPITAL REDEMPTION RESERVES
The capital redemption reserve account may be applied by the
company, in paying up unissued shares of the company to be issued
to members of the company as fully paid bonus shares.
CAPITAL
REDEMPTION
RESERVE
ACCOUNT

RESTRICTION ON BUY BACK
No company shall directly or indirectly purchase its own
shares or other specified securities—
a) through any subsidiary company including its own
subsidiary companies;
b) through any investment company or group of investment
companies; or
c) if a default, is made by the company, in the repayment of
deposits accepted either before or after the
commencement of this Act, interest payment thereon,
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 banking company.
Provided that the buy-back is not prohibited, if the
default is remedied and a period of three years has
lapsed after such default ceased to subsist.
No company shall, directly or indirectly, purchase its
own shares or other specified securities in case such
company has not complied with the provisions of:
a)Sections 92: Annual Return
b)Section 123: Declaration and Payment of Dividend
c)Section 127: Failure to pay Dividend
d)Section 129: Failure to give True and Fair Statement

PROCESS OF BUY-BACK
Step No. Description Time Limit Observation/Explanation
1. (a) Buy-Back by Board of Directors
without Special Resolution.
At least 7 days’ notice to
Directors.
• Only when Buy-Back is ten percent (10%)
or less of the total paid up equity capital and
free reserves of the company.
• Buy-Back shall be authorized by the Board
by a general resolution at its meeting.
• No special resolution needs to be passed

PROCESS OF BUY BACK (contd.)
Note: Steps no. 2 and 3 are required only in case of Buy Back with a special resolution in 1(b) above.
(b) Buy-Back approved in General
Shareholders’ Meeting with
Special Resolution
• When Buy-Back is more than ten percent (10%) and
up to twenty-five percent (25%) of the aggregate of
paid up capital and free reserves of the company.
• Convene a Board Meeting as above and decide
details of proposed Buy-Back and fix date, time,
place and agenda for convening a general meeting to
pass a special resolution.
• A special resolution needs to be passed at the
forthcoming general meeting of the company
authorizing Buy-Back.

2. Notice of General Meeting accompanied
by Explanatory Statement for passing a
special resolution as in 1(b) above.
At least 21 Days’ Notice to
shareholders
Information that needs to be annexed
with the Explanatory Statement and
notice of GM must be as per Rule 17.
3. Filing Special Resolution with ROC in
form No. MGT-14
Within 30 days of passing of
special resolution
Must be filed with a copy of the
special resolution and explanatory
statement.
Must be certified by a CA, CS or any
Cost Accountant of the company with
digital signatures.

4. File Letter of Offer in Form No. SH 8
with ROC
Dated and signed on behalf of the
Board of directors of the company by
not less than two directors of the
company, one of whom shall be the
managing director.
5. Declaration of Solvency in Form No.
SH-9 to be filed along with Letter of
Offer mentioned under step no. 4, with
ROC
Signed by at least two directors of the
company, one of whom shall be the
managing director, if any, and verified
by an affidavit as specified in the said
Form.

6. Dispatch copy of Letter of Offer to
Shareholders/ Security holders
Not later than 20 days from
the date of filing with ROC
The offer for Buy-Back shall remain
open for a period of not less than 15
days and not exceeding 30 days from
the date of dispatch of the letter of
offer.
7. Deposit of money in the Separate Bank
Account for Buy Back payments
Immediately after closure of
offer of Buy Back.
Deposit such sum, as would make up
the entire sum due and payable as
consideration for the shares tendered
for Buy-Back.

8. Verification, Acceptance and Rejection
of Shares/ Securities.
Within 15 days from the date
of closure of offer.
Acceptance of buy back shall be on
pro rata basis if number of shares
offered for Buy-Back is more than the
total number of shares so approved to
be bought back.
The shares or other securities lodged
shall be deemed to be accepted unless
a communication of rejection is made
within twenty one days from the date
of closure of the offer.
9. Payment of Consideration Amount Within 7 days of verification/
acceptance
Payment in cash only, to those
shareholders whose shares/securities
have been accepted.

10. Return of share certificates where
shares/ securities not accepted for Buy-
Back.
Within 7 days of Rejection Return share certificates to the
shareholders or security holders whose
securities have not been accepted at all
or the balance of securities in case of
part acceptance on pro rata basis.
11. Extinguish and physically destroy
shares/ securities bought back
Within 7 days from the last
date of completion of Buy-
Back

12. Maintain Register of
shares/securities bought back in
Form SH-10.
The register of shares or securities bought-back
shall be maintained at the registered office of the
company and shall be kept in the custody of the
secretary of the company or any other person
authorized by the board in this behalf.
The entries in the register shall be authenticated by
the secretary of the company or by any other
person authorized by the Board for the purpose.
Register shall contain all the particulars as
mentioned under Form No. SH-10.

13. Filing Return of Buy-Back with ROC in
Form SH-11
Within 30 days of Completion
of Buy-Back
After the completion of the Buy-Back,
file with the Registrar, a return in Form
No. SH.11.
14. Filing of Compliance Certificate with
ROC along with the Return.
Within 30 days of Completion
of Buy-Back (annexed with
Form NO. SH-11)
Annexed to the return filed with the
Registrar in Form No. SH.11, a
certificate in Form No. SH.15 signed
by two directors of the company
including the managing director, if any,
certifying that the Buy-Back of
securities has been made in compliance
with the provisions of the Companies
Act and the Companies (Share Capital
and Debentures) Rules.

Presented By:
Prepared By
Ms. Prachi Sharma
Counsel
Ricky Chopra Intea
L www.rickychopra.co

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