Buy-Back of Securities

As per regulation 2(i)(n) of the SEBI (Buy-Back of Securities) Regulations, 2018, “small shareholder” means a shareholder of a company, who holds shares or other specified securities whose market value, on the basis of closing price of shares or other specified securities, on the recognized stock exchange in which highest trading volume in respect of such securities, as on record date is not more than two lakh rupees. The closing price on record date is ₹ 2514.05. The number of shares eligible for buy back under small shareholder category will be ₹ 200000/₹2514.05 = 79.55 shares.

79.55 shares rounded off to lower whole number i.e. 79 shares. Hence, equity shareholders holding not more than 79 shares of NLR Ltd. shall be classified as Small Shareholders.

In accordance with the provisions to the Regulation 6 of the SEBI (Buy-Back of Securities) Regulations, 2018, a company may buy-back its shares or other specified securities from its existing securities holders on a proportionate basis. However, fifteen percent of the number of securities which the company proposes to buy-back or number of securities entitled as per their shareholding whichever is higher, shall be reserved for small shareholders.

In terms of the above mentioned provision, the total shares reserved for small shareholders under the offer will be 200,000 x 15% = 30,000 shares.

Maximum Equity Share Capital = Number of Equity Shares for small shareholders x Closing Market Price on Record Date

= 30,000 x ₹ 2514.05 = ₹ 7,54,21,500

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2023, Q. 2A(v) (Syllabus 2017).

Conditions for Buyback of Shares or Other Securities

In terms of Regulation 4 of the SEBI (Buy-Back of Securities) Regulations, 2018, the maximum limit of any buy-back shall be 25% or less of the aggregate of paid-up capital and free reserves of the company, based on both standalone and consolidated financial statements of the Company, whichever sets out a lower amount. All shares or other specified securities for buy-back shall be fully paid-up.

In respect of the number of equity shares bought back in any financial year, the maximum limit shall be 25% and be construed with respect to the total paid-up equity shares capital of the company in that financial year.

Further, it is prescribed that the ratio of the aggregate of secured and unsecured debts owed by the company to the paid-up capital and free reserves after buy-back shall be less than or equal to 2:1, based on both standalone and consolidated financial statements of the company whichever is lower.

Maximum Buyback Limit of Glory Limited

Maximum buyback allowed = 25% of Paid-up Capital + Free Reserves

Paid-up Capital = ₹ 30 crore

Free Reserves = ₹ 60 crore

Total = ₹ 90 crore

Maximum buyback allowed = 25% × ₹ 90 crore = ₹ 22.50 crore

However, Glory Limited proposed a buyback of ₹ 25 crore which exceeds the permissible limit of ₹ 22.50 crore. Therefore, the proposed buyback is not in compliance with the SEBI (Buy- Back of Securities) Regulations, 2018. The buy-back since not permissible, the limit with respect to Debt-Equity ratio is not required to be evaluated.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2026, Q. 5(a) (Syllabus 2022).

Regulation 4(x) of the SEBI (Buy-Back of Securities) Regulation, 2018 stipulates that, the Company shall not directly or indirectly purchase its own shares or other specified securities:

a)through any subsidiary company including its own subsidiary companies;

b)through any investment company or group of investment companies; or

c)if a default is made by the company in the repayment of deposits accepted either before or after the commencement of the Companies Act, interest payment thereon, redemption of debentures or preference shares or payment of dividend to any shareholder, or repayment of any term loan or interest payable thereon to any financial institution or banking company.

However, the buy-back is not prohibited, if the default is remedied and a period of three years has lapsed after such default ceased to subsist.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2026, Q. 6(c) (Syllabus 2022).

(i)According to the provisions of regulation 4(ii) of the SEBI (Buy-Back of Securities) Regulations, 2018, the ratio of the aggregate of secured and unsecured debts owed by the company to the paid-up capital and free reserves after buy-back shall-

a)be less than or equal to 2: 1, based on both standalone and consolidated financial statements of the company whichever sets out a lower amount. However, if a higher ratio of the debt to capital and free reserves for the company has been notified under the Companies Act, 2013, the same shall prevail;

b)be less than or equal to 2:1, based on the standalone or consolidated financial statements of the company, whichever sets out a lower amount, after excluding financial statements of all subsidiaries that are non-banking financial companies and housing finance companies regulated by Reserve Bank of India or National Housing Bank, as the case may be. However, the buy-back of securities shall be permitted only if all such excluded subsidiaries have their ratio of aggregate of secured and unsecured debts to the paid-up capital and free reserves of not more than 6:1 on standalone basis.

In the given case, the ratio of aggregate of its secured and unsecured debts to the paid-up capital and free reserves is expected to be 2.05:1 after buy-back, which is higher than the requirements prescribed under the SEBI (Buy-Back of Securities) Regulations, 2018. Hence, the company cannot proceed for buy-back.

(ii)According to regulation 4(ix) of the SEBI (Buy-Back of Securities) Regulations, 2018, a company may buy-back shares or other securities out of its free reserves or the securities premium account or the proceeds of the issue of any shares or other specified securities. Buy back shall not be made out of the proceeds of an earlier issue of the same kind of shares or same kind of specified securities.

In the given situation, the company intends to raise funds for buy-back of equity shares by issuing debentures (other securities). Therefore, the company can proceed for buy-back.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2024, Q. 2(b) (Syllabus 2017).

(a)Regulation 4(x)(c) of the SEBI (Buy-Back of Securities) Regulations, 2018 stipulates that the Company shall not directly or indirectly purchase its own shares or other specified securities if a default is made by the company in the repayment of deposits accepted either before or after the commencement of the Companies Act, interest payment thereon, redemption of debentures or preference shares or payment of dividend to any shareholder, or repayment of any term loan or interest payable thereon to any financial institution or banking company. However, the buyback is not prohibited, if the default is remedied and a period of three years has lapsed after such default ceased to subsist.

In the given case, only two years have elapsed since the default has been remedied, the company cannot buy-back its equity shares.

(b)In terms of regulation 5(i)(b) of the SEBI (Buy-Back of Securities) Regulations, 2018, special resolution in general meeting is not required where the buy-back is 10% or less of the total paid-up equity capital and free reserves of the company based on the standalone or consolidated financial statements of the company, whichever sets out a lower amount and such buy-back has been authorised by the board of directors by means of a resolution passed at its meeting of Board.

In the given case, the company intends to buy-back 5% of its total paid-up equity capital and free reserves by way of board resolution passed in a meeting. Hence, the company can proceed for buy-back.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2024, Q. 2A(ii) (Syllabus 2017).

Explanation to regulation 4(i) of the SEBI (Buy-Back of Securities) Regulations, 2018 provides that in respect of the number of equity shares bought back in any financial year, the maximum limit shall be twenty-five per cent and be construed with respect to the total paid-up equity share capital of the company in that financial year.

(i)Total No. of Equity Shares with Sun & Moon Ltd. = ₹ 10,00,000/ ₹25

= 40000 shares

Maximum number of equity shares that can be bought back by Sun & Moon Ltd. will be:

= 40000 shares x 25%

= 10000 equity shares

Maximum equity share capital that can be bought back:

= 10000 equity shares x ₹ 25 per share

= ₹ 2,50,000

(ii)Total No. of Equity Shares with Sun & Moon Ltd. = ₹ 10,00,000/ ₹25

= 40000 shares

Maximum number of equity shares that can be bought back by Sun & Moon Ltd. will be:

= 40000 shares x 25%

= 10000 equity shares

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2024, Q. 5(b) (Syllabus 2022).

In accordance with Regulation 4 of the SEBI (Buy-Back of Securities) Regulations, 2018 the maximum limit of any buy-back shall be twenty-five per cent or less of the aggregate of paid-up capital and free reserves of the company, based on the standalone or consolidated financial statements of the company, whichever sets out a lower amount. In respect of the number of equity shares bought back in any financial year, the maximum limit shall be twenty-five per cent and be construed with respect to the total paid-up equity share capital of the company in that financial year.

Further, Section 68 of the Companies Act, 2013 provides that the buy-back is twenty-five per cent or less of the aggregate of paid-up capital and free reserves of the company. Provided that in respect of the buy-back of equity shares in any financial year, the reference to twenty-five per cent in this clause shall be construed with respect to its total paid-up equity capital in that financial year.

Therefore, the buy-back of equity shares in any financial year should not exceed 25% of its total paid up equity capital in that financial year (₹ 30,000 lakh ×25% = ₹ 7,500 Lakh).

Further, Section 68 of the Companies Act, 2013 provides that the ratio of the aggregate of secured and unsecured debts owed by the company after buy- back is not more than twice the paid-up capital and its free reserves.

In case buyback of shares is done out of free reserves and securities premium, a company is required transfer a sum equal to the nominal value of the shares buyback to Capital Redemption Reserve (‘CRR’). Thus, shareholders' fund after buyback would also include CRR. Therefore, X is to be deducted from free reserve as well.

Let the amount of buy-back be 'x (secured + unsecured debts) / (paid up capital + Free Reserves) ≤2 ₹ 62000 /[₹ 30000 – x + (₹ 3000 + ₹ 10000 – x )] <=2 ₹ 62000 / (₹ 43000 - 2x) = 2 ₹ 62000 = 86000 - 4x

-₹ 24000= -4x x = ₹ 6000

From the above two situations, the maximum limit upto which buy-back is permitted in the financial year 2022-23 is ₹ 6000 lakhs.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2023, Q. 4(b) (Syllabus 2017).

(i)According to regulation 4 of the SEBI (Buy-Back of Securities) Regulations, 2018, the maximum limit of any buy-back shall be 25% or less of the aggregate of paid-up capital and free reserves of the company, based on the standalone or consolidated financial statements of the company, whichever sets out a lower amount.

In the given situation, the maximum buy back limit will be:

Equity Share Capital = ₹30,00,000

12% Preference Share Capital = ₹25,00,000

General Reserve = ₹10,00,000

Profit & Loss Account = ₹25,00,000

Securities Premium = ₹15,00,000

Total = ₹105,00,000

Maximum amount of buy back by Satyawan Ltd. through special resolution: ₹105,00,000 * 25% = ₹26,25,000

(ii)Desired Debt Equity Ratio after Buyback shall be 2:1

Debt (given) (20,00,000) = ₹20,00,000

Equity to be maintained after Buyback = ₹20,00,000 ÷ 2 = ₹10,00,000

Existing Equity (Share Capital + Free Reserves)

(₹30,00,000+₹25,00,000+ ₹10,00,000 + ₹25,00,000 + ₹15,00,000)= ₹ 105,00,000

Therefore, Permissible Dilution in Equity = ₹105,00,000 – ₹10,00,000 = ₹95,00,000

Therefore, Maximum Permissible Buyback = Least of the above as calculated i.e. ₹26,25,000.

Further, in respect of the number of equity shares bought back in any financial year, the maximum limit shall be 25% and be construed with respect to the total paid-up equity share capital of the company in that financial year.

Accordingly,

Maximum number of equity shares that can be bought back:

= (₹30,00,000/₹10 face value) *25% = 75,000 shares

Maximum price that can be paid per equity share bought back:

= ₹26,25,000/75,000 shares = ₹35 per equity share.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2023, Q. 5(b) (Syllabus 2022).

(i)According to regulation 4 of the SEBI (Buy-Back of Securities) Regulations, 2018, the maximum limit of any buy-back shall be 25% or less of the aggregate of paid-up capital and free reserves of the company, based on the standalone or consolidated financial statements of the company, whichever sets out a lower amount.

In the given situation, the maximum buy back limit will be:

Maximum amount of buy back by Sun Rise Ltd. through special resolution:

₹10,00,000 * 25% = ₹ 2,50,000

(ii)In respect of the number of equity shares bought back in any financial year, the maximum limit shall be 25% and be construed with respect to the total paid-up equity share capital of the company in that financial year.

Maximum number of equity shares that can be bought back:

(₹ 5,00,000/₹ 10 face value) *25% = 12,500 shares

Maximum price that can be paid per equity share bought back:

₹ 2,50,000/12,500 shares = ₹ 20 per equity share

(iii)The ratio of the aggregate of secured and unsecured debts owed by the company to the paid up capital and free reserves after buy-back shall-

(i)be less than or equal to 2:1, based on both standalone and consolidated financial statements of the company. However, if a higher ratio of the debt to capital and free reserves for the company has been notified under the Companies Act, 2013, the same shall prevail; or

(ii)be less than or equal to 2:1 based on both standalone and consolidated financial statements of the company, after excluding financial statements of all subsidiaries that are non-banking financial companies and housing finance companies regulated by Reserve Bank of India or National Housing Bank as the case may be. However, buy-back of securities shall be permitted only if all such excluded subsidiaries have their ratio of aggregate of secured and unsecured debts to the paid up capital and free reserves of not more than 6:1 on standalone basis.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2023, Q. 4(b) (Syllabus 2017).

(i)Ascertainment of maximum equity share capital of Airrath Aviation Ltd., that can be bought back-

= ₹30,00,000 x 25/100 = ₹7,50,000

Maximum number of equity shares of Airrath Aviation Ltd., that can be bought back-

= Rs. 7,50,000 / Rs. 50 = 15,000 equity shares

(ii)Buy-back through Tender Offer under SEBI (Buy-Back of Securities) Regulations, 2018

‘Tender Offer’ means an offer by a company to buy-back its own shares or other specified securities through a letter of offer from the holders of the shares or other specified securities of the company;

A company may buy-back its shares or other specified securities from its existing securities holders on a proportionate basis in accordance with the provisions of the SEBI (Buy-Back of Securities) Regulations, 2018.

However 15% of the number of securities which the company proposes to buy-back or number of securities entitled as per their shareholding, whichever is higher, shall be reserved for small shareholders.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2022, Q. 3(a) (Syllabus 2017).

As per SEBI (Buy-Back of Securities) Regulations, 2018, the Company shall not directly or indirectly purchase its own shares or other specified securities if a default is made by the company in the repayment of deposits accepted either before or after the commencement of the Companies Act, interest payment thereon, redemption of debentures or preference shares or payment of dividend to any shareholder, or repayment of any term loan or interest payable thereon to any financial institution or banking company.

However, the buy-back is not prohibited if the default is remedied and a period of three years has lapsed after such default ceased to subsist.

In the given case, Alpha Ltd, defaulted the payment of interest on secured loan to Bank in the year 2016. Although the company has made good the default in year 2017 but the statutory period of three years has not lapsed. Hence, the company cannot proceed to buy-back the shares.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2020, Q. 1(c) (Syllabus 2017).

Conditions for buy-back of securities

As per regulation (4) of SEBI (Buyback of Securities), Regulations, 2018

(i)The maximum limit of any buy-back of shares shall be twenty five percent or less of the aggregate of paid-up capital and free reserves of the company.

(ii)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. If a higher ratio of the debt to capital and free reserves for the company has all shares or other specified securities for buy-back shall be fully paid-up been notified under the Companies Act, 2013, the same shall prevail.

(iii)All shares or other specified securities for buy-back shall be fully paid up. In respect of the buy-back of equity shares in any financial year, the reference to 25% in this regulation shall be construed with respect to its total paid-up equity capital in that financial year.

(iv)A company may buy-back its shares or other specified securities by any one of the following methods:

(a)from the existing share holders or other specified securities holders on a proportionate basis through the tender offer;

(b)from the open market through—

(i)book-building process,

(ii)stock exchange;

(c)from odd-lot holders:

Provided that no offer of buy-back for fifteen per cent or more of the paid up capital and free reserves of the company shall be made from the open market.

(v)A company shall not buy-back its shares or other specified securities so as to delist its shares or other specified securities from the stock exchange.

(vi)A company shall not buy-back its shares or other specified securities from any person through negotiated deals, whether on or off the stock exchange or through spot transactions or through any private arrangement.

(vii)A company shall not make any offer of buy-back within a period of one year reckoned from the date of expiry of buyback period of the preceding offer of buy-back, if any.

(viii)A company shall not allow buy-back of its shares unless the consequent reduction of its share capital is effected.

(ix)A company may undertake a buy-back of its own shares or other specified securities out of—

(a)its free reserves;

(b)the securities premium account; or

(c)the proceeds of the issue of any shares or other specified securities:

Provided that no such buy-back shall be made out of the proceeds of an earlier issue of the same kind of shares or same kind of other specified securities.

Additional/ General Conditions for Buyback of Shares or Other Securities

(i)The company shall not authorise any buy-back unless:

(a)The buy-back is authorised by the company's articles;

(b)A special resolution has been passed at a general meeting of the company authorising the buy-back:

Provided that nothing contained in this clause shall apply to a case where the buy-back is, ten per cent or less of the total paid-up equity capital and free reserves of the company; and such buy-back has been authorised by the board of directors by means of a resolution passed at its meeting.

(ii)Every buy-back shall be completed within a period of one year from the date of passing of the special resolution at general meeting, or the resolution passed by the board of directors of the company, as the case may be.

(iii)The company shall, after expiry of the buy-back period, file with the Registrar of Companies and the SEBI, a return containing such particulars relating to the buy-back within thirty days of such expiry, in the format as specified in the Companies (Share Capital and Debentures) Rules, 2014.

(iv)A copy of the resolution passed at the general meeting under sub-section (2) of section 68 of the Companies Act, 2013 shall be filed with the Board and the stock exchanges where the shares or other specified securities of the company are listed, within seven days from the date of passing of the resolution.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2019, Q. 4(b) (Syllabus 2017).

As per Regulation 4 (vi) of the SEBI (Buy-back of Securities) Regulations, 2018, a company shall not buy-back its shares or other specified securities from any person through negotiated deals, whether on or off the stock exchange or through spot transactions or through any private arrangement.

As per Regulation 4 (iv) of the SEBI (Buy-back of Securities) Regulations, 2018, a company may buy-back its shares or other specified securities by any one of the following methods:

(a)from the existing shareholders or other specified securities holders on a proportionate basis through the tender offer;

(b)from the open market through —

(i)book-building process,

(ii)stock exchange;

(c)from odd-lot holders.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2019, Q. 1(d) (Syllabus 2017).

As per Regulation 5 of the SEBI (Buy-Back of Securities) Regulations, 2018, the company shall not authorise any buy-back unless a special resolution has been passed at a general meeting of the company authorising the buy-back. However, special resolution is not required where the buy-back is, ten per cent or less of the total paid-up equity capital and free reserves of the company, based on the standalone or consolidated financial statements of the company, whichever sets out a lower amount and such buy-back has been authorised by the board of directors by means of a resolution passed at its meeting.

A company is required to deposit in an escrow account such sum as specified under the SEBI (Buy- Back of Securities) Regulations, 2018.

In case company buy-back its shares through Tender Offer:

Regulation 9 of the SEBI (Buy-Back of Securities) Regulations, 2018, stipulates that the company shall, within two working days of the public announcement, as and by way of security for performance of its obligations under the regulations, deposit in an escrow account such sum as specified below.

(i)if the consideration payable does not exceed Rupees 100 crores; 25 per cent of the consideration payable;

(ii)if the consideration payable exceeds Rupees 100 crores; 25 per cent upto Rupees 100 crores and 10 per cent thereafter.

In case company buy-back from open market through stock exchange:

Regulation 20 of the SEBI (Buy-Back of Securities) Regulations, 2018, stipulates that the company shall, within two working days of the public announcement, create an escrow account towards security for performance of its obligations under these regulations, and deposit in escrow account 25 per cent of the amount earmarked for the buy-back as specified in the resolution of the board of directors or the special resolution, as the case may be.

The escrow account as referred above shall consist of (subject to appropriate margin):

(i)Cash including bank deposits deposited with any scheduled commercial bank, or

(ii)Bank guarantee issued in favour of the merchant banker by any scheduled commercial bank, or

(iii)Deposit of frequently traded and freely transferable equity shares or other freely transferable securities, or

(iv)Government securities, or

(v)Units of mutual funds invested in gilt funds and overnight schemes, or

(vi)A combination of above.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2024, Q. 4(c) (Syllabus 2022).

According to regulation 5 of the SEBI (Buy-back of Securities) Regulations,2018, the company shall not authorize any buy back (whether by way of tender offer or from open market) unless a special resolution has been passed at a general meeting of the company authorizing the buy back. However, special resolution is not required, where the buy back is ten percent or less of the total paid up equity capital and free reserves of the company; and such buy back has been authorized by the board of directors by means of a resolution passed at its meeting.

(a)In the given situation, the company desired to buy back of shares to the extent of 8% of paid up capital and free reserves by way of passing of board resolution through circulation. However, as per above regulations and Section 179 of the Companies Act, 2013, the board resolution pertaining to buy-back should be passed at its meeting and not through circulation. Therefore, with reference to above stated provisions, the proposal of buy back is not valid.

(b)In second given case, the buy back is 12% which is more than 10% limit of company’s paid- up share capital and free reserves. In this case, buy back must be authorized by special resolution.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2023, Q. 6A(iii) (Syllabus 2022).

According to the regulation 5 of the SEBI (Buy-back of Securities) Regulations, 2018, the company shall not authorize any buy-back (whether by way of tender offer or from open market or odd lot) unless:

1.The buy-back is authorised by the company's articles;

2.A special resolution has been passed at a general meeting of the company authorizing the buy-back.

However, such special resolution is not required, where the buy- back is, 10% or less of the total paid-up equity capital and free reserves of the company and such buy-back has been authorized by the board of directors by means of a resolution passed at its meeting. In the given case, the company desired to buy-back of shares to the extent of 9% of paid-up capital and free reserves by way of passing of board resolution through circulation. However, as per the above-mentioned regulation, the board resolution should be passed at the meeting of board of directors and not through circulation. Therefore, with reference to the above stated provisions, the proposal of buy-back is not-valid.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2023, Q. 2A(i) (Syllabus 2017).

The financial data of a listed company as on 31st March, 2018 are as follows:

According to the regulation 5 of the SEBI (Buy-back of Securities) Regulations, 2018, the company shall not authorize any buy-back (whether by way of tender offer or from open market or odd lot) unless a special resolution has been passed at a general meeting of the company authorising the buy-back. However, special resolution is not required, where the buy-back is, ten per cent or less of the total paid-up equity capital and free reserves of the company; and such buy-back has been authorised by the board of directors by means of a resolution passed at its meeting.

In the given case, the company desired to buy-back of shares to the extent of 9% of paid-up capital and free reserves by way of passing of board resolution through circulation, however as per above regulations, the board resolution should be passed at its meeting not through circulation. Therefore with reference to the above stated provisions, the proposal of buy-back is not valid.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2019, Q. 2A(iv) (Syllabus 2017).

In terms of proviso to the Regulation 6 of the SEBI (Buyback of Securities) Regulations, 2018, fifteen percent of the number of securities which the company proposes to buy back or number of securities entitled as per their shareholding, whichever is higher, shall be reserved for small shareholders. Hence the total shares reserved for buyback under the offer will be:

200,000 x 15% = 30,000 shares

Further, as per regulation 2(n) of the SEBI (Buy back of Securities) Regulations, 2018 'small shareholder' means a shareholder of a company, who holds shares or other specified securities whose market value, on the basis of closing price or shares or other specified securities, on the recognized stock exchange in which highest trading volume in respect of such securities, as on record date is not more than two lakh rupee.

The closing price on record date is ₹2514.05. The number of shares eligible for buy back under small shareholders category will be:

200000 ₹ =79.55 shares 2514.05

79.55 shares rounded off to lower whole number i.e 79 shares.

Hence, equity shareholders holding not more than 79 shares of TechNoGrow Ltd. shall be classified as Small Shareholders.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2019, Q. 3(a) (Syllabus 2017).

As per Regulation 9 of the SEBI (Buy-Back of Securities) Regulations, 2018, the company shall, within two working days of the public announcement, as and by way of security for performance of its obligations under the regulations, deposit in an escrow account such sum as specified. The amount in the escrow account shall be deposited in the following manner:

(i)if the consideration payable does not exceed Rupees 100 crore; 25 per cent of the consideration payable;

(ii)if the consideration payable exceeds Rupees 100 crore; 25 per cent upto Rupees 100 crore and 10 per cent thereafter.

In view of the SEBI (Buy-Back of Securities) Regulations, 2018, the company contention that money will be available only at the time of final payment for buy-back offer, will not be in accordance with the requirements under the SEBI (Buy-Back of Securities) Regulations, 2018. In the escrow account money should be deposited within two working days of the public announcement.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2024, Q. 1(d) (Syllabus 2017).

(i)The company shall as and by way of security for performance of its obligations under the SEBI (Buy back of Securities) Regulations, on or before the opening of the offer, deposit in an escrow account such sum as specified under the Regulations.

The amount in the escrow shall be deposited in the following manner:

(ii)The unregistered shareholder may also tender his shares for buy-back by submitting the duly executed Transfer Deed for transfer of shares in his name, along with the offer form and other relevant documents as required for transfer, if any.

(iii)Every buy back shall be completed within a period of one year from the date of passing of the special resolution passed at the general meeting, or the resolution passed by the Board of directors of the company, as the case may be.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2021, Q. 2A(v) (Syllabus 2017).

A company may buy-back its shares or other specified securities from its existing securities holders through the book building process. In case Mystique Enterprises Ltd. wants to buy-back the shares of the company through Book Building, the offer procedure for the same is prescribed under Regulation 22B of the SEBI (Buy-Back of Securities) Regulations, 2018, which is as follows:

1.The company making the buy-back offer shall disclose the maximum buy-back price, being the upper end of the price range, as approved by the Board of Directors of the company or its shareholders, as the case may be and the book value of the shares or other specified securities of the company.

2.The company shall publish the offer opening announcement on the date of commencement of the buy-back.

3.In case of frequently traded securities, the lower end of the price range shall not be less than the higher of:

–the closing price of the securities of the company on the date of the Notice as specified in Schedule- VI to the Regulations; and

–the volume weighted average market price of the shares or other specified securities of the company in the fifteen trading days prior to the date of the intimation of the meeting of the Board of Directors approving the buy-back.

4.In case of infrequently traded securities, the lower end of the price range shall not be less than the price of the securities of the company determined on the basis of the report of a registered valuer.

5.The buy-back price shall depend upon the price discovered through the bids received from the shareholders within the price range.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2024, Q. 4(a) (Syllabus 2017).

A buy-back represent a more flexible way of returning surplus cash to its shareholders as it is governed by a process laid down by law, it is carried out through the stock exchange mechanism and is more tax efficient as it does not involve the company to make payment of dividend distribution tax and it has the benefits of long term capital gains.

Buy-back leads to reduction in outstanding number of equity shares, which may lead to improvement in earnings per equity share and enhance return on net worth and create long term value for continuing shareholders. In India, while buy-back of securities is not permitted as a treasury option under which the securities may be reissued later, a company can resort to buy-back to reduce the number of shares issued and return surplus cash to the shareholders.

Objectives of Buy-Back

1.To strategically increase promoters’ shareholding subject to compliance with the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011;

2.To improve earnings per share;

3.To improve return on capital, return on net worth and to enhance the long-term shareholder value;

4.To enhance consolidation of stake in the company;

5.To prevent unwelcome takeover bids;

6.To return surplus cash to shareholders and allow profitable deployment of cash surplus;

7.To achieve optimum capital structure;

8.To support share price during periods of sluggish market conditions;

9.To service the equity more efficient;

10.To provide an additional exit route to shareholders when shares are under-valued or are thinly traded.

Factors which influence the buy-back decision of the Company

The decision to buy-back is also influenced by various other factors relating to the company, such as growth opportunities, capital structure, sourcing of funds, cost of capital and optimum allocation of funds generated.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2024, Q. 3(c) (Syllabus 2017).

Different forms of Escrow Account

The escrow account as required under the SEBI (Buy-Back of Securities) Regulations, 2018 may be in any of the following forms (subject to appropriate margin):

(i)cash including bank deposits deposited with any scheduled commercial bank, or

(ii)bank guarantee issued in favour of the merchant banker by any scheduled commercial bank, or

(iii)deposit of frequently traded and freely transferable equity shares or other freely transferable securities, or

(iv)government securities, or

(v)units of mutual funds invested in gilt funds and overnight schemes, or

(vi)a combination of above.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2025, Q. 6(d) (Syllabus 2022).

(a)SEBI may, in the interest of investors and the securities market, relax the strict enforcement of any requirement of the SEBI (Buy-back of Securities) Regulations, 2018 except the provisions incorporated from the Companies Act, 2013, if SEBI is satisfied that:

(1)the requirement is procedural in nature; or

(2)the requirement may cause undue hardship to investors.

For seeking relaxation as above, the company shall file an application with the SEBI, supported by a duly sworn affidavit, giving details and the grounds on which such relaxation has been sought.

Further, SEBI may, exempt any person or class of persons from-

•the operation of all or

•any of the provisions of SEBI (Buy-back of Securities) Regulations, 2018

for a period as may be specified but not exceeding twelve months, for furthering innovation relating to testing new products, processes, services, business models, etc. in live environment of regulatory sandbox in the securities markets. Any exemption granted by SEBI shall be subject to the applicant satisfying such conditions as may be specified by SEBI including conditions to be complied with on a continuous basis. Regulatory Sandbox means a live testing environment where new products, processes, services, business models, etc. may be deployed on a limited set of eligible customers for a specified period of time, for furthering innovation in the securities market, subject to such conditions as may be specified by SEBI.

(b)As per the provision of Regulation 9 of the SEBI (Buy-Back of Securities) Regulations, 2018, an unregistered shareholder may also tender his shares for buy-back by submitting the duly executed Transfer Deed for transfer of shares in his name, along with the Offer Form and other relevant documents as required for transfer, if any.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2024, Q. 2A(iii) (Syllabus 2017).

Note to Managing Director of Amber Ltd.

Sir,

This is reference to the conditions for buy-back of shares with reference to the SEBI (Buy-Back of Securities) regulations, 2018.

The said Regulations shall be applicable to buy-back of shares or other specified securities of a company in accordance with the applicable provisions of the Companies Act, 2013. Accordingly following condition are framed for buy-back of shares and specified securities.

(i)The maximum limit of any buy-back shall be 25% or less of the aggregate of paid-up capital and free reserves of the company based on both standalone and consolidated financial statements of the company.

(ii)The ratio of the aggregate of secured and unsecured debts owed by the company to the paid-up capital and free reserves after buy-back shall,-

a)be less than or equal to 2:1, based on both standalone and consolidated financial statements of the company:

However if a higher ratio of the debt to capital and free reserves for the company has been notified under the Companies Act, 2013, the same shall prevail; or

b)be less than or equal to 2:1, based on both standalone and consolidated financial statements of the company, after excluding financial statements of all subsidiaries that are non-banking financial companies and housing finance companies regulated by Reserve Bank of India or National Housing Bank, as the case may be:

However buy-back of securities shall be permitted only if all such excluded subsidiaries have their ratio of aggregate of secured and unsecured debts to the paid-up capital and free reserves of not more than 6:1 on standalone basis.

(iii)All shares or other specified securities for buy-back shall be fully paid-up.

(iv)A company may buy-back its shares or other specified securities by any one of the following methods:

a)from the existing share holders or other specified securities holders on a proportionate basis through the tender offer;

b)from the open market through—

i)book-building process,

ii)stock exchange;

c)from odd-lot holders:

Provided that the buyback from open market shall be less than fifteen per cent of the paid up capital and free reserves of the company, based on both standalone and consolidated financial statements of the company.

(v)A company shall not buy-back its shares or other specified securities:

(a)so as to delist its shares or other specified securities from the stock exchange.

(b)from any person through negotiated deals, whether on or off the stock exchange or through spot transactions or through any private arrangement.

(vi)A company shall not make any offer of buy-back within a period of one year reckoned from the date of expiry of buy-back period of the preceding offer of buy-back, if any.

(vii)A company shall not allow buy-back of its shares unless the consequent reductions of its share capital is effected.

(viii)A company may undertake a buy-back of its own shares or other specified securities out of—

(a)its free reserves;

(b)the securities premium account; or

(c)the proceeds of the issue of any shares or other specified securities.

Buy-back shall not be made out of the proceeds of an earlier issue of the same kind of shares or same kind of other specified securities.

(ix)The company shall not directly or indirectly purchase its own shares or other specified securities:

(a)through any subsidiary company including its own subsidiary companies;

(b)through any investment company or group of investment companies; or

(c)if a default is made by the company in the repayment of deposits accepted either before or after the commencement of the Companies Act, interest payment thereon, redemption of debentures or preference shares or payment of dividend to any shareholder, or repayment of any term loan or interest payable thereon to any financial institution or banking company.

The buy-back is not prohibited, if the default is remedied and a period of three years has lapsed after such default ceased to subsist.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2022, Q. 2A(iv) (Syllabus 2017).

(i)As per the conditions and requirements for buyback of shares provided under the SEBI Buyback Regulations, the company shall not directly or indirectly purchase its own shares through any subsidiary including its own subsidiaries.

Therefore, this statement is not as per the provisions of the SEBI Buyback Regulations.

(ii)As per the conditions and requirements for buyback of shares provided under the SEBI Buyback Regulations, the Buyback shall not be made out of the proceeds of an earlier issue of the same kind of shares or same kind of other specified securities of the company.

Therefore, this statement is not as per the provisions of the SEBI Buyback Regulations.

(iii)As per the conditions and requirements for buyback of shares provided under the SEBI Buyback Regulations, a company shall not allow buyback of its shares unless the consequent reduction of its share capital is affected.

Therefore, this statement is as per the provisions of the SEBI Buyback Regulations.

(iv)As per the conditions and requirements for buyback of shares provided under the SEBI Buyback Regulations, the buy-back is not prohibited, if the default is remedied and a period of three years has lapsed after such default ceased to subsist.

Therefore the company is prohibited from Buyback whose default is remedied and a period of two years has lapsed after such default ceased to subsist, therefore, this statement is as per the provisions of the SEBI Buyback Regulations.

(v)As per the conditions and requirements for buyback of shares provided under the SEBI Buyback Regulations, the buyback from open market shall be less than 15 percent of the paid up capital and free reserves of the company, based on both standalone and consolidated financial statements of the company.

Since the Board of Directors has denied the offer of buyback of shares for 16 percent of the paid up capital and free reserves to be made from the open market, therefore, this statement is as per the provisions of the SEBI Buyback Regulations.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2021, Q. 1(d) (Syllabus 2017).