MEANING OF BUYBACK OF SHARES

1. The repurchase of outstanding shares (repurchase) by a company in order to

reduce the number of shares on the market. Companies will buy back shares either
to increase the value of shares still available (reducing supply), or to eliminate any
threats by shareholders who may be looking for a controlling stake.
2. A corporation's repurchase of stock or bonds it has issued. In the case of stocks,
this reduces the number of shares outstanding, giving each remaining shareholder
a larger percentage ownership of the company. This is usually considered a sign
that the company's management is optimistic about the future and believes that the
current share price is undervalued. Reasons for buybacks include putting
unused cash to use, raising earnings per share, increasing internal control of the
company, and obtaining stock for employee stock option plans or pension plans.
When a company's shareholders vote to authorize a buyback, they aren't obliged
to actually undertake the buyback. Also called corporate repurchase.
3. The act of a publiclytradedcompany buying its own stock, sometimes at a price w
ell above fairmarketvalue. Buyback is notintended to stop trade on its stock. Rathe
r, it is an attempt either to reduce the supply of shares in the market (with the hope
ofdriving up the share price) or to prevent a real or suspected hostiletakeover. If a
company becomes its own majority or pluralityshareholder, it either makes a hosti
le takeover impossible or more expensive for the acquiringcompany. A buyback
may occur all atonce or gradually over time.
4. A stock buyback, also known as a "share repurchase", is a company's buying back
its shares from the marketplace. You can think of a buyback as a company
investing in itself or using its cash to buy its own shares. The idea is simple:
because a company cant act as its own shareholder, repurchased shares are
absorbed by the company, and the number of outstanding shares
on the market is reduced.When this happens, the relative ownership stake of each
investor increases because there are fewer shares, or claims, on the earnings of the
company

HISTORICAL PERCEPTIVE/HISTORY OF BUYBACK OF

SHARE IN INDIA

India recognized the usefulness of the share buyback system in late 1998. Till
then, the Companies Act in India had strictly prohibited companies from buying
back own shares. Section 77 (1) of the Act stated: No company limited by shares,
and no company limited by guarantee and having a share capital, shall have power
to buy its own shares, unless the consequent reduction of capital is effected and
sanctioned in pursuance of Sections 100 to 104 or of Section 402. Such reduction
of capital could be effected only after shareholders approval through a special
resolution and also the creditors consent and the courts sanction.
There were some special factors which prompted the Indian authorities to
consider introducing the share buyback system. Around 1996, the Indian
government and business houses became greatly concerned about the prolonged
depression in the stock market. All the efforts of the government to revive the
1

market had proved infructuous. The stock markets revival had become a subject
of wide public debate. The business houses made a case for share buyback as a
possible way of reviving the capital market. Share buybacks are believed to inject
some buoyancy into share prices because share buyback price is invariably higher
than the market price prevailing before the buyback announcement by a company.
Business houses lobbied for it with the Government which readily accepted it and
decided to implement it on urgent basis through an Ordinance.
The Ordinance was promulgated on 31st October, 1998, adding new Sections
77A, 77AA and 77B in the Companies Act. Later the atmosphere had so changed
that in early 1998 many companies got the authorization of share buyback from
their shareholders in anticipation of the government legalizing the share buyback
system. Some of such companies were: Reliance, Kesoram Industries, TISCO,
Crompton Greaves, etc, the Companies (Amendment) Act 1999 was enacted and
was deemed to have come into force from the date of the Ordinance.
In this context, we may note that in the U.S., when the markets crashed in 1987,
the Securities Exchange Commission (SEC) relaxed its restrictions on the timing
and amount of buyback. Again in 2001, after the September 11 attacks, the SEC
relaxed buyback regulations in order to motivate firms to support their share
prices through repurchase of shares.
The worldwide acceptance of share buybacks had emerged well before India
decided to jump on the buyback bandwagon in 1998. The ordinance was issued
along with a set of conditions intended to prevent its misuse by companies and
protect the interests of investors. The buyback of shares was allowed only if the
Articles of Association of the company permitted it to do so and after passing
special resolution at a general meeting. Since, then Indian companies has not
looked back and have indeed pushed their way forward in this field few of the
companies which have announced buyback of share are Reliance, Raymonds, GE
Shipping, Bombay Dying.

MOTIVE BEHIND SHARE BUYBACK IN INDIA

The Indian corporates shared a proposal with the Government for allowing share
buybacks and the Government accepted the idea, the question arises in our mind
is about the motives behind such a move. The motives and the objectives to be
achieved through share buyback are of direct interest to shareholders. Really
speaking, the share buyback system should be judged both from the angle of
shareholders and that of the national economy.
The first and foremost reason behind buyback of shares cannot be ascertained and
fixed for every company due to their various situations. But few of the main
motives found for share buyback are clearly as follow:1. Tax efficient way to return investor's money: Healthy companies make profits
and they must find an efficient way to give the profits to the shareholders if they
don't have a good way to use them. There are two main ways to return the
money. a) Dividends. b) Buy back shares. Many companies try to keep dividends

2.

3.

4.

5.

6.

at a constant rate so as to not hit their shareholders with an unexpected tax event.
When you get a dividend you have to pay a tax for that in that year.
Signal to the market that the board thinks the company is strong. When a
company is buying back shares, it sends a message to the market. Since the
company board knows the best about the company, the markets often think that
the company is getting healthier and puts lesser pressure on the board from
activist investors.
Compensate for stock options & bonuses. Companies give out stocks to their
employees in the form of options & grants. This increases the number of
outstanding shares. Many companies want to keep their outstanding shares stable.
So, they compensate from the issue of new shares by buying back some of the
old shares from public.
Push up the stock price. The stock repurchase reduces the float (number of stocks
held by the public) thereby causing a scarcity of the company's shares in the
market. The company could then use a favorable market condition to reissue these
stocks to public and make a gain (these gains will not be reflected in the profits,
as a trading gain on one's own shares is not allowed to be reported in income
statement).
Support the price. When a company is pummeled by the market, key institutional
shareholders would press the company to "support a price". This is because the
poor performance of the company would reflect bad on the institutions (portfolio
managers, pension funds) when they send out their periodic statements to their
investors.
A buy back improves many of the financial metrics: ROE (Retrun on Equity) and
EPS (Earnings per Share). Both of these core metrics have denominator as
number of shares and by reducing number of shares, you increase them.

ADVANTAGES AND DISADVANTAGES OF BUY BACK OF

SHARES
ADVANTAGES
1. Increase confidence in management: It might enhance the confidence of its
investors on the companys board of directors, as these investors know that the
directors are ever willing to return surplus cash if its not able to earn above the
companys alternative investment or cost of capital.
2. Enhances shareholders value:Generally, share buybacks are good for shareholde
rs. The laws of supply and demand would suggest that with
fewer shares on the market, the share price would tend to rise. Although the
company will see a fall in profits because it will no longer receive interest on the
cash, this is more than made up for by the reduction in the number.

3. Reduce takeover chances: Buying back stock uses up excess cash. There turns
on excess cash in money market accounts can drag down overall company
performance. Cash rich companies are also very attractive takeover targets.
Buying back stock allows the company to earn a better return on excess cash and
keep itself from becoming a takeover target.
4. Increase ROE: Buying back stock can increase the return on equity (ROE).This
effect is greater the more undervalued the shares are when they are repurchased. If
shares are undervalued, this may be the most profitable course of action for the
company.
5. Psychological Effect:When a company purchases its own stock it is
essentially telling
the market that they think that the companys
stock is
undervalued. This can have a psychological effect on the market.
6. Buying back stock allows a company to pass on extra cash to shareholders
without raising the dividend. If the cash is temporary in nature it may prove more
beneficial to pass on value to shareholders through buybacks rather than raising
the dividend.
7. Stock buybacks also raise the demand for the stock on the open market. This point
is rather self explanatory as the company is competing against other investors to
purchase shares of its own stock.

DISADVANTAGE
1. Sending Negative Signals: A buyback announcement can send a negative signal
in these situations. A typical example is the HP case: From November 1998
through October
2000, the
computer
giant
Hewlett-Packard
spent
$8.2 billion to buy back 128 million of its shares. The aim was to make
opportunistic purchases of HP stock at attractive pricesin other words, at prices
they felt undervalued the company. Instead of signaling a good operating
prospects to the market, the buyback signal was completely drowned out more
powerful contradictory signals about the companys future which are an aborted
acquisition, a protracted business restructuring, slipping financial results, and a
decay in the general profitability of key markets. By last January, HPs shares
were trading at around half the average $64 per paid share to repurchase the stock.
2. Backfire: Buybacks can also backfire for a company competing in a high-growth
industry because they may be read as an admission that the company has few
important new opportunities on which to otherwise spend its money. In such
cases, long-term investors will respond to a buyback announcement by selling the
companys shares
3. The share buyback scheme might become a big disadvantage to the company
when it pays too much for its own shares. Indeed, it is foolish to buy in an
overpriced market. Instead, the company should put the money into assets that
can be easily converted back into cash. This way, when the market swings the
other way and is trading below its true value, shares of the company can be
bought back at a discount, ensuring current shareholders receive maximum
benefit. Strictly, a company should repurchase its shares only when its stock is

trading below its expected value and when no better investment opportunities are
available.

RELATIONSHIP BETWEEN BUYBACK OF SHARES AND

MERGERS & ACQUISITIONS
There are several reasons for buying back shares.
For some, a buyback programme is seen as a useful way of returning cash to investors
without making the permanent commitment implied by an increased dividend.
Companies that enjoy high free cash flow are able to enhance their growth in earnings per
share by buying back their shares when capital growth might otherwise be difficult or
expensive for them to achieve.
It can also be used as a way of indicating that companies consider their shares to be
undervalued. In practice, though, it is not at all certain that the amount of money a
company puts into the market through a buyback is equal to the increase in value that
shareholders enjoy.
At the least, the expected share price gain can take months or even longer to materialise,
and can never be disentangled from other market-moving factors. But in the past, some
investors have been critical of share buybacks, claiming they are unimaginative.
Others do not want to receive their returns in the form of a higher share price, which can
be reaped only on the sale of shares. That is when M&A comes in as the alternative.
Using spare cash on an acquisition is one of the quickest ways for a company to increase
its top-line growth. BHP Billitons $39bn all-cash bid for PotashCorp of Canada had
divided analysts over whether it is a good use of money for the Anglo-Australian miner.
Analysts at Nomura, however, reckon that a buyback, rather than the acquisition of
Potash, could provide 11 times greater returns for shareholders in 2011. Nomura
estimates that the Anglo-Australians miners current bid of $130 a share would add 2 per
cent to BHPs EPS in 2011, while a buyback of equal value would add 22 per cent.
To achieve the same EPS accretion to the proposed bid, the Japanese bank said BHP
would need to carry out a share buyback scheme of roughly $6bn.
BHP has publicly said it will remain disciplined in its pursuit of Potash but then,
management teams always say that, usually right before they increase their offer.
That is what Irene Rosenfeld, chief executive of Kraft, did when she acquired Cadbury,
the UK confectionery company. Ms Rosenfelds acquisition may prove to come good.
But when it comes to deciding how to deploy spare cash, it is clear there is no perfect
solution that makes all investors happy.
Meanwhile, those companies that choose M&A over a share buyback can be sure their
shareholders will want to ensure they are not spending their cash on yet another deal that
will prove value destroying when the next downturn comes.
Share repurchases avoid the accumulation of excessive amounts of cash in the
corporation. Companies with strong cash generation and limited needs for capital

spending will accumulate cash on the balance sheet, which makes the company a more
attractive target for takeover, since the cash can be used to pay down the debt incurred to
carry out the acquisition. Anti-takeover strategies, therefore, often include maintaining a
lean cash position and share repurchases bolster the stock price, making a takeover more
expensive.

METHODS OF BUYBACK OF SHARES UNDER SEBI

A company must not buy back its shares from any person through negotiated deals
whether on or off the stock exchange or through spot transactions or through any private
arrangement. Thus, no listed company can buy back its equity shares from its
shareholders in any manner other than those permitted. According to Securities and
Exchange Board of India (Buy Back of Securities) Regulations, 1998 (SEBI
Regulations), a listed company may buy back its shares by methods:
1. from the existing shareholders on a proportionate basis through tender offer;
2. from open market through ; (a) book-building process; or (b) Stock Exchange;
3. from odd-lot holders.
Open Market Purchase : In an open market purchase, a company can buy its
shares directly from the stock market through brokers. Open market purchases are
resorted to when the number of shares to be bought back is relatively small. The
company has to fix the maximum price for an open market offer; stipulate the
number of shares it intends to purchase, and announce the closing date of Buy
Back of Shares Comprehensive Analysis Articles the offer. A company
intending to buyback its equity shares in accordance with this method has to
comply with the provisions of Section 77A as well as Regulations 14 to 18
contained under Chapter IV of SEBI Regulations.
Tender Offer: A tender offer is made when the number of shares to be bought
back is large. Such an offer is a fixed price offer, i.e., the company fixes a
particular price for the maximum number of shares it is willing to purchase and
sends a letter of offer to all the non-promoter shareholders. It also fixes an outer
time limit for accepting the offer. The offer price is usually fixed at a premium in
order to encourage shareholders to surrender their shares. The company accepts
the shares on a proportionate basis if the offer is over subscribed. The Company is
allowed to buyback its shares on a proportionate basis in accordance with the
provisions of Chapter III of the SEBI Regulations (Regulation 6). But if offer is
under-subscribed, the company may either accept whatever is tendered or extend
the time limit. Regulations 8, 9, 10, 11, 12 of the SEBI Regulations govern the
buy back of shares by tender offer.

Buy-back of odd lot shares: The term odd lot is not defined anywhere. It means
that those shares of a listed company, which are not in marketable lot fixed by the
stock exchange (that is less or more than market lot). The provisions pertaining to
buy-back through tender offer as specified above are applicable mutatis mutandis
(with the necessary changes) to odd lot shares. It should be noted that shares of all
the companies are presently traded at the stock exchanges in compulsory
dematerialized form only and in case of demat shares, the market lot for all the
companies is only one share. Hence this mode of buy back has become more or
less redundant in the present scenario.

LEGAL PROVISIONS OF BUYBACK

In India, section 77 of the Companies Act prohibits a company from buying or

cancelling its own shares, unless it complied with the provisions and followed the
procedure in accordance for reduction of share capital under section 100 to 104 of
the Companies Act, where court confirmation is required in addition to adhering
SEBI procedures 1998 which have been amended from time to time. These
practices are regulated through several laws and regulation with a view to prevent
unscrupulous efforts and disastrous outlets arising there from.
Theseare prevalent in other countries in varied forms. Buyback of Shares by comp
anies in India isregulated by Section 77A, 77AA, and 77B of the Companies Act,
1956.
These
sectionswereincorporated by the Companies (Amendment) Act, 1999 which was e
nacted after the promulgation of the ordinance by the Government regarding the
sanctity of share buyback by companies. Section 77A is an exception to the
prohibition under Section 77 and under Section100. Apart from these Act, the
share buyback practices by the listed companies are regulated the SEBI (buyback
of securities) Regulations, originally framed in 1998 and thereafter amended from
time to time. However, in the case of unlisted public and private limited
companies, the rules of the Central Government known as private limited
company and unlisted public limited company (buyback of securities) Rules, 1999
are applicable

Section 77(1) of the Companies Act provides that a company limited by share or a
company limited by guarantee having a share capital cannot buy its own share, as
it involves permanent reduction of capital without sanction of court.

However, the Companies (Amendment) Act 1999 has introduced three new
sections, viz., Section 77A, 77AA and section 77B where under companies have
been permitted to buy-back their share or other securities subject to certain
conditions. Besides, SEBI has issued certain guidelines regulating these buybacks. The provisions relating to buy-back as per the Amendment Act including
SEBI guidelines in this regard are as follows:

Section 77A, inserted by the (Amendment) Act ,1999, allows [subject to provision
of Section 77B(2)] a company to buy its own share out of it free reserves; or
ii
the
security
premium
account;
or
iii. the proceeds of any share or other specified securities.

However, no buy-back of any kind of share or other specified securities shall be

made out of the proceeds of an earlier issue of the same kind of share or same
kind of other specified securities.

In case share are bought back out of free reserves, then a sum equal to the
nominal value of shares bought back shall be transferred to a reserve account to
be called the Capital Redemption Reserve Account (Sec.77AA). The details of
such transfer shall be disclosed in the balance sheet. SEBI guidelines stipulate that
this account shall be disclosed in the balance sheet. SEBI guidelines stipulate that
this account shall be allowed to be used for issue of fully paid bonus share.

The Securities and Exchange Board of India [SEBI] has issued SEBI (Buy back
of Securities) Amendment Regulations, 2013 [hereinafter referred to as "New
Regulations"] vide notification dated 8th August, 2013 amending the existing
SEBI (Buy back of Securities) Regulations, 1998 [hereinafter referred to as
"Regulations"/ "Old/Earlier Regulations"]. Also, recently the Companies Bill,
2013 [hereinafter referred to as "Companies Bill"] has been passed by the
parliament. Section 68 of the new Act, deals with the issue of buy-back. The
corresponding provision in the old Act is Section 77A Considering the above New
Regulations, Regulations and the Companies Bill an analysis has been done
discussing the various provisions. The changes have been discussed point wise as
follows:

KEY CHANGES/TRANSFORMATION
1. Ceiling prescribed for buy back from open market: Regulation 4 of the
Regulations state that a company may buy-back its shares or other specified
securities from the existing security-holders on a proportionate basis through
tender offer or from the open market offer. The existing regulations do not
prescribes any cap on the amount on buy back of securities. However, with the

2.

3.

4.

5.

6.

7.

issue of new regulations, a provision has been added to Regulation 4 which

provides that buy-back offer from the open market shall not be made for 15% or
more of the paid up capital and free reserves of the company. In this regard,
clause 68 of the Companies Bill, recently approved by Rajya Sabha provides that
the buy-back of securities shall be limited to 25% of total paid-up capital and free
reserves. Provided that in case of buy-back of equity shares it is 25% of total
paidup equity capital in a financial year.
Lock in period on further buy-back : The existing regulations do not provide
for any lock in period between two buy back offers. However, the new regulations
has issued a sub-regulation 4 after sub-regulation 3 of Regulation 4 which
provides that no offer of buy-back shall be made by any company within a period
of one year from the date of closure of the preceding offer of buy back. The
Companies Bill in this regards also provides that no offer of buy-back shall be
made within a period of one year from the date of closure of preceding offer of
buy-back.
Minimum Buy Back limit: The newly introduced sub regulation 3 of Regulation
14 of the new regulations provides that atleast 50% of the amount set aside for
buy-back shall be utilized for buying back shares or other specified securities.
There was no such limit prescribed in the existing regulations. Further, the
Companies Bill is also silent with respect to such limit.
Public Announcement (PA): Regulation 15(d) of the said regulations provided
that the PA shall be made at least 7 days prior to the commencement of buy back.
However, the new regulations has modified the said regulation and provides that
the PA shall be made within 7 working days from the date of passing the
resolution authorizing buy-back. It is to be noted that there is no such condition
relating to the same has been provided in the Companies Bill.
Filing of copy of PA with SEBI: The regulations provided that copy of PA shall
be filed with SEBI within 2 days of making such announcement. The same has
now been modified and the companies shall now be required to ensure that copy
of PA shall be filed with SEBI simultaneous with the issue of public
announcement.
Submission of information pertaining to buy-back : Regulation 15(i) in the
regulations provided that the company shall submit the information pertaining to
buy-back on daily basis to Stock Exchange and publish the same in a national
daily on a fortnightly basis. However, as per the amended regulation (i) of
Regulation 15, the company shall be required to submit the information regarding
the shares or securities bought back to stock exchange on daily basis in specified
form and the stock exchange shall upload the same on its website. Further, newly
inserted sub regulation (ia) of Regulation 15 provides that the company shall
upload the information regarding the shares or other securities bought-back on its
website on a daily basis.
Period of buy back offer: The newly inserted sub regulation (k) of Regulation 15
provides that the buy-back offer shall open not later than seven working days
from the date of public announcement and shall close within six months. No such
condition was prescribed under the existing regulations. However, the Companies

Bill provides that the buy-back shall be required to be completed within a period
of 1 year from the date of passing of resolution authorizing buyback.
8. Buying back physical shares/ specified securities: Regulation 15A has been
inserted in the new regulation which deals with buy-back of physical shares or
other specified securities. Following are some of the key points:

a separate window shall be created by the stock exchange, which shall

remain open during the buy-back period, for buyback of shares or other
specified securities in physical form.

Before proceeding with buy-back, verification of the identity proof and

address proof needs to undertaken by the broker.

the price at which the shares will be bought back shall be the volume
weighted average price of the shares or other specified securities boughtback, other than in the physical form, during the calendar week in which
such shares or other specified securities were received by the broker

No such conditions were prescribed in the earlier regulations. Neither there is any
provision relating to same in the Companies Bill.
9.
Escrow Account : New Regulation 15B has been inserted which provides that
before opening of the buy-back offer, the company shall create an escrow account
towards security and shall deposit 25 % of the amount earmarked for the buy-back in
such escrow account. No such condition was/is there either in the regulations or
Companies Bill.
9.
Extinguishment of Certificates : The newly inserted sub regulation 3 of
Regulation 16 provides that the company shall be required to extinguish and physically
destroy the security certificates so bought back during the month in the presence of a
Merchant Banker and the Statutory Auditor, on or before 15th day of the succeeding
month. Further, the company shall ensure that all the securities bought-back are
extinguished within seven days of the last date of completion of buyback. Earlier there
was no such provision under the regulations. The Companies Bill however, provides that
the certificates shall be extinguished within 7 days of the last date of completion of buyback.
9.
Restriction on dealing in Shares or specified securities: Regulation 19(1)(e)
has been modified so as to specifically mention the period during which the promoters or
the person shall be restricted to deal in shares or specified securities. As per the said
regulation, the promoter or the person shall not be allowed to deal in the shares or other
specified securities of the company in the stock exchange during the period or offmarket, including inter-se transfer of shares among the promoters during the period from
the date of passing the resolution relating to buyback. As per the earlier regulations, such
restriction was for during the period when buy back offer is open. No such condition as
prescribed in the Companies Bill.
9.
Raising of further capital : As per the newly inserted Regulation 19(1)(f ), the
company shall not raise further capital for a period of 1 year from the closure of buy-back

10

offer, except in discharge of its subsisting obligations. However, as per the Companies
Bill, a period of 6 months has be prescribed for the purpose of raising further capital
except by way of bonus issue or in discharge of its subsisting obligation.
9.
Requirements during Buy back: SEBI now requires all the information related
to shares bought back to be disclosed on a daily basis on the website of the company and
the stock exchange on cumulative basis. Before the amendment, the aforementioned
disclosure had to be made on a daily, fortnightly and monthly basis.To tackle and reduce
the unpredictability in the market, SEBI now prevents the promoters of the company
from executing any transaction, during the buy-back period, regardless of whether these
transactions are on-market or off-market.
9.
Buy Back Method: In order to increase stability in share prices of a company,
SEBI has restricted the Buy Back method only to Tender offer method. SEBI permits the
company to buy 15% or more of capital which may include both paid-up capital as well
as free reserves. This amendment takes away the freedom of company to choose the
method for buy back.
9.
Procedure for Buy back: Procedure for buy-back of physical shares (odd-lot)
has been modified which includes creation of separate window in the trading system for
tendering the shares, requirement of PAN/Aadhaar card for verification, etc.

The amendments made to the existing legal framework of Buy Back Regulations
have been done considering the overall interests of the various stakeholders.
Furthermore the modifications to the existing framework for Buy Back through
open market purchase have been done by holding the shareholder's interest as the
paramount consideration. Now the companies cannot misuse the Buy Back for
promotion of their own interest.

CONDITION FOR BUYBACK

(a) The buy-back is authorised by the Articles of association of the Company;
(b) A special resolution has been passed in the general meeting of the company
authorising the buy-back. In the case of a listed company, this approval is required by
means of a postal ballot. Also, the shares for buy back should be free from lock in
period/non transferability.The buy back can be made by a Board resolution If the quantity
of buyback is or less than ten percent of the paid up capital and free reserves;
(c) The buy-back is of less than fifty per cent of the total paid-up capital and fee reserves
of the company and that the buy-back of equity shares in any financial year shall not
exceed fifty per cent of its total paid-up equity capital in that financial year;
(d) The ratio of the debt owed by the company is not more than twice the capital and its
free reserves after such buy-back;

11

(e) There has been no default in any of the following i. in repayment of deposit or interest
payable thereon, ii. redemption of debentures, or preference shares or iii. payment of
dividend, if declared, to all shareholders within the stipulated time of 30 days from the
date of declaration of dividend or iv. repayment of any term loan or interest payable
thereon to any financial institution or bank;
(f) There has been no default in complying with the provisions of filing of Annual Return,
Payment of Dividend, and form and contents of Annual Accounts;
(g) All the shares or other specified securities for buy-back are fully paid-up;
(h) The buy-back of the shares or other specified securities listed on any recognised stock
exchange shall be in accordance with the regulations made by the Securities and
Exchange Board of India in this behalf; and
(i) The buy-back in respect of shares or other specified securities of private and closely
held companies is in accordance with the guidelines as may be prescribed
OTHER CONDITION
a)
The company which has been authorized by a special resolution shall, before the
buy-back of shares, file with the Registrar of Companies a letter of offer in Form No.
SH.8, along with the fee. b)
Provided that such letter of offer shall be dated and
signed on behalf of the Board of directors of the company by not less than two directors
of the company, one of whom shall be the managing director, where there is one.
c)
The letter of offer shall be dispatched to the shareholders or security holders
immediately after filing the same with the Registrar of Companies but not later than
twenty days from its filing with the Registrar of Companies.
d)
The offer for buy-back shall remain open for a period of not less than fifteen days
and not exceeding thirty days from the date of dispatch of the letter of offer.
e)
In case the number of shares or other specified securities offered by the
shareholders or security holders is more than the total number of shares or securities to be
bought back by the company, the acceptance per shareholder shall be on proportionate
basis out of the total shares offered for being bought back.
f)
The company shall complete the verifications of the offers received within fifteen
days from the date of closure of the offer and the shares or other securities lodged shall be
deemed to be accepted unless a communication of rejection is made within twenty one
days from the date of closure of the offer. g)
The company shall immediately after
the date of closure of the offer, open a separate bank account and deposit therein, such
sum, as would make up the entire sum due and payable as consideration for the shares
tendered for buy-back in terms of these rules.
h)
The company shall within seven days of the time specified in sub-rule (7)- i.
make payment of consideration in cash to those shareholders or security holders whose
securities have been accepted; or ii.
return the share certificates to the shareholders or
security holders whose securities have not been accepted at all or the balance of securities
in case of part acceptance

12

CONCLUSION AND SUGGESTION

Buybacks arent without value. It is crucial, however, for managers and directors to
understand their real effects when deciding to return cash to shareholders or to pursue
other investment options. A buybacks impact on share price comes from changes in a
companys capital structure and, more critically, from the signals a buyback sends.
Investors are generally relieved to learn that companies dont intend to do something
wasteful such as make an unwise acquisition or a poor capital expenditure with the excess
cash. In 2004 companies announced plans to repurchase $230 billion in stock which is
more than double the volume of the previous year
In general, markets have applauded such moves, making buybacks an alluring substitute
improvements in operational performance are elusive. Yet while the increase in earnings
per share that many buybacks deliver help managers hit EPS-based compensation targets,
boosting EPS in this way doesnt signify an increase in underlying performance or value.
Moreover, a companys fixation on buybacks might come at the cost of investments in its
long-term health.
The Regulations have been made more beneficial for the shareholders more so, for the
physical shareholders by providing a separate window and easing the process of
tendering the shares in the buyback offer.
For example, Dells announcement that it would increase its buyback program by an
additional $10 billion didnt slow the decline of its share price, which had begun to slide
because of worries about operating results.

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IMPLICATIONS AND SOLUTIONS

The regulatory requirements in regard to open market offers in India are rather lax. The
company is required to announce a maximum price which has no meaning from the
shareholders viewpoints. The international best practice is that both the maximum price
and the minimum share buyback price should be announced. It may be suggested that the
disclosure of actual buybacks under any buyback programme be made a part of the
companys quarterly reports, as in the U.S. If no buyback under an announced
programme have been made, the quarterly report should say so. A new rule implemented
by the SEC in the U.S. in March 2004 requires companies to make quarterly disclosures
of: (i) the total number of shares purchased during the past quarter; (ii) the average price
paid per share; (iii) the total number of shares purchased as part of a publicly announced
plan or programme; and (iv) the maximum number (or approximate value) of shares that
may yet be purchased under the plan or programme.
In many other countries details of actual buyback transactions have to be reported to
either the stock exchanges or other supervisory/regulatory authorities. For instance, in the
UK, Australia, Netherlands, Japan and Hong Kong, actual buyback reports have to be
filed immediately or within one day on a continuous basis buyback period. In Canada,
France and Italy, reports on actual buybacks have to be submitted on a monthly basis.
Corporate governance requires proper and effective utilization of shareholders funds with
a view to accomplish the objectives of the shareholders/stakeholders and obviously the
company as a whole.
SEBI made
important modifications with the objective of protecting the
investors,
preventing the insider trading and speculative activities in the stock exchanges, to
conduct the merchant banking activities in an organized manner and to streamline
the Buyback regulations and operations of the stock exchanges. The regime of actual
buybacks should in the quarterly reports of companies which in turn can bring the much
needed transparency in the case of open market buyback offers in India
Not the last but Buyback has to be viewed as financial restructuring, through which a
company strengthens its financial position and attempts to create value for the
shareholders by means of ensuring effective and efficient use of funds of the company.

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BIBLIOGRAPHY
BOOKS REFERRED
1. Buyback of Shares in India , By Tanupa Chakraborty
2. A. Ramaya

ARTICLES AND NEWSPAPER REFERRED

1. Article by sagar on Buy-Back of Securities (Unlisted Public Co. and Private Co.)
as per Companies Act, 2013
2. Article by shipra makkar devgun on Modifications To The Existing Framework
For Buy Back Through Open Market Purchase
3. Article by Megha Kapoor on Analysis of SEBI (Buy Back Of Securities)
Amendment Regulations, 2013 In Relation To The Existing Regulations And The
Companies Bill, 2013
4. Economic Times dated 24.2.2015, Business Standard dated 24.2.2015

ACTS REFERRED
1.
2.
3.
4.

The Companies Act, 1956 (Act 1 of 1956)

The Companies Act, 2013 (Act 18 of 2013)
SEBI (Buy-back of Securities) Regulation, 1999
SEBI (Buy-back of Securities) Amendment Regulations, 2013

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