Page 279 - DMGT407Corporate and Business Laws

Corporate and Business Laws

Notes 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 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 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
under s.81 (1)] or other specified securities within a period of 24 months except by way of
bonus issue or in the discharge of subsisting obligations such as conversion of warrants,
stock option schemes, sweat equity or conversion of preference shares or debentures into
equity shares.

7. Where a company buys-back the securities, it shall maintain a register of the securities so
bought, the consideration paid for the securities bought back, the date of cancellation of
securities, the date of extinguishing and physically destroying of securities and such other
particulars as may be prescribed.
8. A company shall, after the completion of the buy-back, file with the Registrar and SEBI, a
return containing such particulars relating to the buy-back within 30 days of such completion
as may be prescribed. However, no such return need be filed with SEBI, in the case of a
company whose shares are not listed on any recognised stock exchange.
9. If a company makes a default in complying with the above provisions, the company or any
officer of the company who is in default shall be punishable with imprisonment for a term
which may extend up to 2 years, or with fine which may extend up to ` 50,000 or with both.
10. For the purposes of this Section - (i) ‘specified securities’ includes employees’ stock option
or other securities as may be notified by the Central Government from time to time,
(ii) ”free reserves” shall have the meaning assigned to it in s.372A.

11. Transfer of certain sums to capital redemption reserve account (s.77AA). Where a company
purchases its own shares out of free reserves, then a sum equal to the nominal value of the
shares so purchased shall be transferred to the capital redemption reserve account and
details of such transfer shall be disclosed in the balance sheet.
12. Prohibition for buy-back in certain circumstances (s.77B). This section provides that no
company shall directly or indirectly purchase its own shares or other specified securities

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