HISTORY AND

INTRODUCTION
Buy back of shares can be understood as the process by which a

company buys its share back from its shareholder.

Though there were ways by which a company could buy its shares back

from the shareholders but it could not be done without the sanction of
the court. This was done to protect the rights of the creditors as well as
the shareholders. But the need of less complex ways of buying its
shares back by the company was always felt. The much needed change
in the companies act was brought about by the companies amendment
act 1999. Sections 77A, 77AA and 77B were inserted in the
companies act by this amendment. In line with this, SEBI also came out
with SEBI (Buy Back of Securities) Regulations, 1998 applicable to
listed Company. The Private Limited Company and Unlisted Public
Company (Buy Back of Securities) Rules, 1999 are applicable to
Private Company and Unlisted Public Company.

WAYS FOR DOING BUY BACK

Reduction of share capital as given in sections 100 to

104;
Redemption of redeemable preferential shares under

section 80;
Purchase of shares under an order of the court for

scheme of arrangement under section 391 in

compliance with the provisions of sections 100 to 104;
Purchase of shares of minority shareholders under the

order of the company law board under section 402(b);

Objectives/ Advantages
of Buy Back
To improve earnings per share;
To improve return on capital & return on net worth;
To provide additional exit route to shareholders when

share are

under-valued;

To enhance consolidation of stake in the Company;

To prevent hostile takeover;
To return surplus cash to shareholders;

Modes of Buy Back

From the existing security holders on a proportionate

basis; or
From the open market, through ;

i) stock market.
ii) book building process. Or
From odd lots, that is to say where the lot of securities of a

public company, whoseshares are listed on a recognized

stock exchange, is smaller than such marketable lot, as may
be specified by the stock exchange; or
By purchasing the securities issued to employees of the

company under a scheme of stock option or sweat equity;

Sources of Buy Back

Free Reserves - A company may buy back out of its free

reserves but a sum equal to thenominal value of the shares so

purchased must be deposited in the capital redemption
reserves account.
Securities Premium Account - Though Section 78 of

Companies Act, 1956 does not mention buy back of securities

as one of purpose, however by virtue of clause in Section 77A,
i.e. Notwithstanding anything contained in this act, funds in
Securities premium account can be used to buy back shares.
Proceeds of Fresh Issue - No buy back of any shares or

securities shall be made out of the proceeds of an earlier issue

of the same kind of shares or same kind of securities.

GENERAL OBLIGATIONS
REGULATION 19 Obligation of Company
The company shall ensure that all the contents of the

public announcement , letter of offer, or any material

contains true factual and material information and it
shall not contain any misleading information.
No issue of any kind of securities or bonus till the date

of closure of offer for buy back.

Consideration to be paid only by 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 shares

or other 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 buyback regulations and to redress the grievances of the
investors.
Intimate the stock exchanges the particulars of the

security certificates extinguished and destroyed within

seven days of extinguishment and destruction of the
certificates.
Locked in shares cannot be bought back by the

company.

Issue a public advertisement in a national daily

within two days of completion of buy back disclosing
the following:
i. Number of shares bought back
ii. The price at which shares bought back
iii. Total amount invested
iv. Details of security holders from whom shares or other
specified securities exceeding one-per cent of total
shares or other specified securities] bought back; and
v. Changes in the capital structure and shareholding
pattern