CONDITION AND LIMITATION ON BUYBACK OF SHARES

BY SUSHMA GOWDA

INTRODUCTION

As per section 68(1) of the companies act 2013, the companies have power to purchase their own shares or other specified securities.

The provisions relating to buy back of shares are discussed are as follows:

A company can purchase its own shares or securities are as follows-

1) Its Free reserves 2) securities premium account 3) the proceeds of any shares or other specified securities.

As per Section 69 of companies act 2013, In case of shares are bought back out of free reserve than such nominal amount shall be transferred to reserve account to be called capital redemption reserve account.

CONDITION FOR BUYBACK OF SHARES

Non company shall purchase its own shares or other specified securities unless as referred to above:

1. a) Buy back must be authorised by its articles of association.
2. b) Pass a board resolution for buy back up to 10% of total of paid up share capital & for reserves or pass a special resolution of members of company for buy back up to 25% of total paid up capital and free reserves of company.
3. c) Debt owed by the company is not more than twice the capital and its free reserves after buy-back.
4. d) All shares and securities must be fully paid up
5. e) All shares and securities listed on stock exchange is in accordance with regulation made by SEBI

NOTICE OF MEETING

Notice of meeting should be in the form of Special resolution it shall be full and complete with all material fact.

 Resolution must state what is the necessity for buy back, what all securities are intended to purchase and amount planning to invest on buy back of securities etc..

Every buy back of share should get complete within the period of 12 month from the date of passing special resolution

MODES OF BUY BACK OF SHARES OR SECURITIES

Shares or Securities can be buy back through open market through 1) book building 2) Stock Exchange

From odd-lot holders

By purchasing the securities issued to employee through the medium of sweat equity shares or stock option scheme.

The company buy back its shares and securities it shall not further buy back shares or securities for the period of 6 month from the date of its completion from buy back of shares and securities.

PROHIBITION FOR BUY-BACK IN CERTAIN CIRCUMSTANCES [SEC. 70(1) OF COMPANIES ACT 2013]

Section 70(1) Provides that, no company shall purchase its own shares or securities:

1. a) Through any subsidiary company or investment company
2. b) if default in repayment of deposit or interest their on, redemption of debentures or preference shares or payment of dividend or repayment of a term loan or interest there on to any financial bank

or

c) if the company has not complied with the provision of section 92 of companies act 2013( i.e Annual return), Section 127 of companies act, 2013 that is failure to distribute dividends within specified time, and Section 129 of companies act , 2013 financial statement