Process and Procedure for Buy-back of Securities Simplified

The Securities and Exchange Board of India (“SEBI”) on September 11, 2018 released SEBI (Buy-Back of Securities) Regulations, 2018 (“Regulations”) in order to regulate the buy-back of shares or other specified securities of a company.

Following are the major highlights of the Regulations:

  • The maximum limit of any buy-back of securities (which includes employees’ stock option or other notified securities) shall be 25% or less of the aggregate of paid-up capital and free reserves of the company. Also, the ratio of the aggregate of secured and unsecured debts owed by the company after buy-back shall not be more than twice the paid-up capital and free reserves. All shares or other specified securities for buy-back shall be fully paid-up.
  • The Regulations contain a requirement to make public announcement for the offer to buy-back securitieswithin 2 working days after declaration of postal ballot results. The Regulations also contain the draft letter of offer which is needed to be furnished within 5 working days of the public announcements.
  • An explanation for ‘free reserves’ in-line with Companies Act, 2013 is also the part of the Regulations. The buyback period has also been defined as the time between date of authorisation for buyback by a company’s board of directors and the date on which the payment is made to shareholders who have accepted the offer.
  • The Regulations further prescribes for general obligations for company for buy back procedure as well.A company can undertake buyback of shares out of its free reserves (including securities premium account). However, buy-backs cannot be made out of the proceeds of an earlier issue of the same kind of shares or same kind of other specified securities.
  • It has also been provided that the company shall not authorise any buy-back (whether by way of tender offer or from open market or odd lot or book-building process) unless the buy-back is authorised by the company’s articles and a special resolution has been passed at a general meeting of the company authorising such buy-back. It is also to be noted that every buy-back must be completed within a period of 1 year from the date of passing of such resolution.
  • The buy-back shall be made only on stock exchanges having nationwide trading terminals.