Buy-Back through Tender Offer - Chapter III
Buy-back from existing security holders

A company may buy-back its specified securities] from its existing security holders on a proportionate basis in accordance with the provisions of Chapter III of the Regulations, in addition to the common formalities stated in respect of all methods; viz.

1. Passing of Special Resolution (sub regulation 5(1)

2. Passing of Board Resolution (Sub regulation 5A)

3. Release of Public Notice (also (Sub regulation 5A)

4. Release of Public Announcement (sub regulation (1) of Regulation 8)

5. Despatch of letter of offer to security holders(sub regulation 4 of Regulation 8)

The explanatory statement annexed to the notice under section 173 of the Companies Act or the public notice under sub-regulations 5A shall contain the disclosures mentioned in regulation or regulation 5A and also the following disclosures; -

1. The maximum price at which the buy-back of specified securities shall be made and whether the Board of Directors of the company are being authorised at the general meeting to determine subsequently the specific price at which the buy-back may be made at the appropriate time;

2. If the promoter intends to offer their specified securities,

   1. the quantum of specified securities proposed to be tendered, and

   2. the details of their transactions and their holdings for the last six-months prior to the passing of the special resolution for buy-back including information of number of specified securities acquired, the price and the date of acquisition.

1. The offer for buy back shall remain open to the members for a period not less than fifteen days and not exceeding thirty days.

2. The date of the opening of the offer shall not be earlier than seven days or later than thirty days after the specified date.

3. The letter of offer shall be sent to the security holders so as to reach the security holders before the opening of the offer.

4. In case the number of specified securities offered by the security holders is more than the total number of specified securities to be bought back by the company, the acceptances per security holder shall be equal to the acceptances tendered by the security holders divided by the total acceptances received and multiplied by the total number of specified securities to be bought back.

5. The company shall complete the verifications of the offers received within fifteen days of the closure of the offer and the specified securities lodged shall be deemed to be accepted unless a communication of rejection is made within fifteen days from the closure of the offer.

1. The company shall as and by way of security for performance of its obligations under the regulations, on or before the opening of the offer deposit in an escrow account such sum as specified in sub-regulation 2.

2. The escrow amount shall be payable in the following manner,-

   1. If the consideration payable does not exceed Rs.100 crores - 25% of the consideration payable;

   2. if the consideration payable exceeds Rs. 100 crores - 25% upto Rs. 100 crores and 10% thereafter.

3. The escrow account referred in sub-regulation (1) shall consist of

   1. cash deposited with a scheduled commercial bank or;

   2. bank guarantee in favour of the merchant banker; or

   3. deposit of acceptable securities with appropriate margin, with the merchant banker, or

   4. (d) a combination of (a),(b) and (c) above.

4. Where the escrow account consists of deposit with a scheduled commercial bank, the company shall, while opening the account, empower the merchant banker to instruct the bank to issue a banker's cheque or demand draft for the amount lying to the credit of the escrow account, as provided in the regulations.

5. Where the escrow account consists of bank guarantee, such bank guarantee shall be in favour of the merchant banker and shall be valid until thirty days after the closure of the offer.

6. The company shall, in case the escrow account consists of securities, empower the merchant banker to realise the value of such escrow account by sale or otherwise and if there is any deficit on realisation of the value of the securities, the merchant banker shall be liable to make good any such deficit.

7. In case the escrow account consists of bank guarantee or approved securities, these shall not be returned by the merchant banker till completion of all obligations under the regulations.

8. Where the escrow account consists of bank guarantee or deposit of approved securities, the company shall also deposit with the bank in cash a sum of at least one-percent of the total consideration payable, as and by way of security for fulfillment of the obligations under the regulations by the company.

9. On payment of consideration to all the security holders who have accepted the offer and after completion of all formalities of buy back, the amount, guarantee and securities in the escrow, if any, shall be released to the company.

10. The Board in the interest of the security holders may in case of non-fulfilment of obligations under the regulations by the company forfeit the escrow account either in full or in part.

11. The amount forfeited under sub-regulation (10) may be distributed pro rata amongst the security holders who accepted the offer and balance, if any, shall be utilised for investor protection.

[Note: An escrow account is a special savings account that's set up when you take out a mortgage. The money in the account (or accounts) covers your estimated real estate taxes and home insurance when they come due. But the account protects the lender's hide, not yours, because you're paying all that money in advance. To make matters worse, most lenders don't pay you any interest on that money. It is a trust account held in the borrower's name to pay for specific obligations]

1. The company shall immediately after the date of closure of the offer open a special account with a bankers to an issue registered with the Board and deposit therein, such sum as would, together with the amount lying in the escrow account make-up the entire sum due and payable as consideration for buy-back in terms of these regulations and for this purpose, may transfer the funds from the escrow account.

2. The company shall within seven days of the time specified in sub-regulation (5) of regulation 9 make payment of consideration in cash to those security holders whose offer has been accepted or return the security certificates to the security holders.

1. The company shall extinguish and physically destroy the security certificates so bought back in the presence of a Registrar or the Merchant Banker, and the Statutory Auditor within seven days from the date of acceptance of the specified securities.

2. The specified securities offered for buy-back if already dematerialised shall be extinguished and destroyed in the manner specified under Securities and Exchange Board of India (Depositories and Participants) Regulations, 1996 and the bye-laws framed thereunder.

   1. the registrar and whenever there is no registrar through the merchant banker;

   2. two whole-time Directors including the Managing Director and,

   3. the statutory auditor of the company, and certifying compliance as specified in sub-regulation (1), within seven days of extinguishment and destruction of the certificates.

3. The particulars of the security certificates extinguished and destroyed under sub-regulation (1) shall be furnished to the stock exchanges where the shares of the company are listed within seven days of extinguishment and destruction of the certificates.

4. The company shall maintain a record of security certificates, which have been cancelled and destroyed as prescribed in sub-section (9) of section 77A of the Companies Act.

The provisions pertaining to buy back through tender offer as specified in this Chapter shall be applicable mutatis mutandis to odd lot specified securities.