SEBI regulations apply in respect of buy-back of of equity shares of a company listed on a stock exchange. As per Clause 4(1) of the regulations A company may buy-back its specified securities by any one of the following methods:
from the existing securities holders on a proportionate basis through the tender offer; A tender offer is defined as an offer by a company to buy back its specified securities through a letter of offer from the holders of the specified securities of the company.
from open market through -
book-building process,
stock exchange,
from odd-lot holders.
The procedure for effecting buyback of specified securities through tender offer and for effecting buyback from odd-lot holders is prescribed in Chapter III of the regulations. In respect buyback from open market separate procedures for effecting through book-building process and that stock exchange are prescribed in Chapter IV of the regulations.
Instances where Buyback should not be effected
A company shall not buy back its specified securities from any person through negotiated deals, whether on or of the stock exchange or through spot transactions or through any private arrangement. (Clause 4.2)
Any person or an insider shall not deal in securities of the company on the basis of unpublished information relating to buy-back of specified securities of the company. (Clause 4.3)
Formalities common under all Methods
Passing of Special Resolution:
The special resolution to be passed as per sub-section (2) of section 77A of the Companies Act. The explanatory statement to be annexed to the notice for the general meeting shall contain disclosures as specified in schedule I of the Regulation as separately furnished in this article. A copy of the resolution passed at the General meeting under sub - section (2) of section 77A of the Companies Act, shall be filed with the Board and the stock exchanges where the specified securities of the company are listed, within seven days from the date of passing of the resolution.
Passing of Board Resoltion:
Board resolution to be passed at its meeting to buy back its securities and copy of the resolution, shall be filed with the Board (SEBI) and the stock exchanges, where the securities of the company are listed, within two days of the date of the passing of the resolution
Release of Public Notice:
public notice shall be given, within 2 days of the passing of the resolution by the Board of Directors, in at least one English national daily, one Hindi national daily and a regional language daily, all with wide circulation to also contain the disclosures as specified in
Schedule I of the regulations.
Releasing Public Announcement (Regulation 8)
The company which has been authorised by a special resolution / a resolution passed by the Board of Directors at its meeting shall before buy back of specified securities make a public announcement in at least one English National Daily, one Hindi National Daily and a Regional language daily all with wide circulation at the place where the Registered office of the company is situated and shall contain all the material information as specified in schedule II of the Regulation. The public announcement shall specify a date, which shall be the 'specified date' for the purpose of determining the names of the security holders to whom the letter of offer shall be sent. The specified date shall not be earlier than thirty days and not later than forty-two days from the date of the public announcement.
Filing of Offer Document /Appointment of merchant banker (Regulation 8)
The Company shall within seven working days of the public announcement shall file with the Board a draft-letter of offer (accompanied with prescribed fees) containing disclosures as specified in schedule III of the regulation through a merchant banker who is not associated with the company. The company shall file along with the draft letter of offer, a declaration of solvency in the prescribed form and in a manner prescribed in sub-section (6) of section 77A of the Companies Act.
Despatch of letter of offer to security holders: The letter of offer shall be dispatched not earlier than twenty-one days from its submission to the Board.
Provided that if, within twenty-one days from the date of submission of the draft letter of offer, the Board specifies modifications, if any, in the draft letter of offer, (without being under any obligation to do so) the merchant banker and the company shall carry out such modifications before the letter of offer is dispatched to the security holders.
Obligations of the Company Carrying out process of buyback of its securities (Regulation 19)
The company shall ensure that, -
the letter of offer, the public announcement of the offer or any other advertisement, circular, brochure, publicity material or public notice referred to in clause (a) of sub-regulation (1) of regulation 5A shall contain true, factual and material information and shall not contain any misleading information and must state that the directors of the company accepts the responsibility for the information contained in such documents;
the company shall not issue any specified securities including by way of bonus till the date of closure of the offer made under these regulations;
the company shall pay the consideration only by way of cash;
the company shall not withdraw the offer to buy-back after the draft letter of offer is filed with the Board or public announcement of the offer to buy-back is made;
the promoter or the person shall not deal in the specified securities of the company in the stock exchange during the period the buy-back offer is open.
No public announcement of buy back shall be made during the pendency of any scheme of amalgamation or compromise or arrangement pursuant to the provisions of the Companies Act.
The company shall nominate a compliance officer and investors service centre for compliance with the buy-back regulations and to redress the grievances of the investors.
The particulars of the security certificates extinguished and destroyed shall be furnished by the company to the stock exchanges where the specified securities of the company are listed within seven days of extinguishment and destruction of the certificates.
The company shall not buy-back the locked-in specified securities and non-transferable specified securities till the pendency of the lock-in or till the specified securities become transferable.
Sub Clause deleted
Provided that the capital buy back reserve account may be applied by the company in paying up un-issued shares of the company to be issued to members of the company as fully paid bonus shares.
The company shall within two days of the completion of buy-back issue an public advertisement in a national daily, inter alia, disclosing:
number of specified securities bought;
price at which the specified securities bought;
total amount invested in buy-back;
details of the security holders from whom specified securities exceeding one-per cent of total specified securities bought back; and,
the consequent changes in the capital structure and the shareholding pattern after and before the buy-back.
The company in addition to these regulations shall comply with the provisions of buy-back as contained in the Companies Act and other applicable laws.
Obligations of the Merchant Banker (Regulation 20)
The merchant banker shall ensure that -
the company is able to implement the offer;
the provision relating to escrow account as referred to in regulation 10 has been made;
firm arrangements for monies for payment to fulfil the obligations under the offer are in place;
the public announcement of buy-back is made in terms of the regulations; the letter of offer has been filed in terms of the regulations;
the merchant banker shall furnish to the Board a due diligence certificate which shall accompany the draft letter of offer;
the merchant banker shall ensure that the contents of the public announcement of offer as well as the letter of offer are true, fair and adequate and quoting the source wherever necessary;
the merchant banker shall ensure compliance of section 77A and section 77B of the Companies Act, and any other laws or rules as may be applicable in this regard;
upon fulfillment of all obligations by the company under the regulations, the merchant banker shall inform the bank with whom the escrow or special amount has been deposited to release the balance amount to the company;
the merchant banker shall send a final report to the Board in the form specified within 15 days from the date of closure of the buy-back
