Page 200 - DCOM404_CORPORATE_LEGAL_FRAMEWORK

Unit 10: Share Capital

premium account; or (iii) the proceeds of any shares or other specified securities. However, Notes

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 specifi ed
securities.
2. This buy-back is allowed only if the following conditions are satisfi ed;
(a) the buy-back is authorised by the articles,
(b) a special resolution has been passed in general meeting of the company authorising
the buy-back;
(c) the buy-back does not exceed 25% of the total paid-up capital and free reserves of the
company; also, the buy-back of equity shares in any fi nancial year shall not exceed
25% of the total paid-up equity capital in the fi nancial year;
(d) the ratio of the debt owed by the company must not be more than twice the capital
and its free reserves after such buy-back. However, the Central Government may
prescribe a higher ratio of the debt for a class or classes of companies. The term ‘debt’
here includes all amounts of unsecured and secured debts;

(e) all the shares or other specified securities, for buyback must be 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 SEBI;
(g) the buy-back in respect of unlisted shares or other specified securities is in accordance

with the guidelines prescribed.
3. The notice of the meeting at which special resolution is proposed to be passed 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 security intended to
be purchased under the buy-back, (d) the amount to be invested under the buy-back; (e)
the time-limit for completion of buy-back. In any case every buy-back shall be completed
within 12 months from the date of passing the special resolution.

4. The buy-back may be (a) from the existing security-holders on a proportionate basis;
or (b) from the open-market; or (c) from odd lots, (i.e., where the lot of securities of a
public company, whose shares are listed on a recognised stock exchange, is smaller than

such marketable lot, as may be specified by the stock exchange; or (d) by purchasing the
securities issued to employees of the company pursuant to a scheme of stock option or
sweat equity.
5. Where a company has passed a special resolution to buy-back its own shares or other
securities, it shall, before making such buy-back file with the Registrar of Companies and

the SEBI a declaration of solvency in the prescribed form. This declaration is to be verifi ed
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 of the date of declaration adopted by the Board and signed by at least two
directors of the company, one of whom shall be the managing director, if any.

However, in case if a company whose shares are not listed on a recognised stock exchange,
no such declaration need be filed with SEBI.

Where a company buys back its own securities, it shall extinguish and physically destroy
the securities so bought back within seven days of the last day of completion of buy-back.

6. Where a company completes a buy-back of its shares or other specified securities, it shall
not make further issue of the same kind of shares [including allotment of further shares

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