Company can buyback ___ paid Equity shares only
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Answer:
Power of company to purchase its own securities
(1) Notwithstanding anything contained in this Act, but subject to the provisions
of sub-section (2), a company may purchase its own shares or other specified securities
(hereinafter referred to as buy-back) 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 buy-back of any kind of shares or other specified securities shall be
made out of the proceeds of an earlier issue of the same kind of shares or same kind of other
specified securities.
(2) No company shall purchase its own shares or other specified securities under
sub-section (1), unless—
(a) the buy-back is authorised by its 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—
(i) the buy-back is, ten per cent. or less of the total paid-up equity capital and
free reserves of the company; and
(ii) such buy-back has been authorised by the Board by means of a resolution
passed at its meeting;
(c) 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;
(d) 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:
Provided that the Central Government may, by order, notify a higher ratio of the
debt to capital and free reserves for a class or classes of companies;
(e) all the shares or other specified securities for buy-back are fully paid-up;
(f) the buy-back of the shares or other specified securities listed on any recognised
stock exchange is in accordance with the regulations made by the Securities and
Exchange Board in this behalf; and
(g) the buy-back in respect of shares or other specified securities other than
those specified in clause (f) is in accordance with such rules as may be prescribed:
Provided that no offer of buy-back under this sub-section shall be made within a
period of one year reckoned from the date of the closure of the preceding offer of buy-back,
if any.
(3) The notice of the meeting at which the special resolution is proposed to be passed
under clause (b) of sub-section (2) shall be accompanied by an explanatory statement stating—
(a) a full and complete disclosure of all material facts;
(b) the necessity for the buy-back;
(c) the class of shares or securities intended to be purchased under the buy-back;
(d) the amount to be invested under the buy-back; and
(e) the time-limit for completion of buy-back.
(4) Every buy-back shall be completed within a period of one year from the date of
passing of the special resolution, or as the case may be, the resolution passed by the Board
under clause (b) of sub-section (2).
(5) The buy-back under sub-section (1) may be—
(a) from the existing shareholders or security holders on a proportionate basis;
(b) from the open market;
(c) by purchasing the securities issued to employees of the company pursuant
to a scheme of stock option or sweat equity.
(6) Where a company proposes to buy-back its own shares or other specified securities
under this section in pursuance of a special resolution under clause (b) of sub-section (2) or a
resolution under item (ii) of the proviso thereto, it shall, before making such buy-back, file with
the Registrar and the Securities and Exchange Board, a declaration of solvency signed by at
least two directors of the company, one of whom shall be the managing director, if any, in such
form as may be prescribed and verified by an affidavit to the effect that the Board of Directors
of the company has made a full inquiry into the affairs of the company as a result of which they
have formed an opinion that it is capable of meeting its liabilities and will not be rendered
insolvent within a period of one year from the date of declaration adopted by the Board:
Provided that no declaration of solvency shall be filed with the Securities and Exchange
Board by a company whose shares are not listed on any recognised stock exchange.
(7) Where a company buys back its own shares or other specified securities, it shall
extinguish and physically destroy the shares or securities so bought back within seven days
of the last date of completion of buy-back.