RESTRICTION ON PURCHASE OF ITS OWN

SHARES BY A COMPANY

Section 77(1) of the Companys Act

provides that a company limited by
shares or a company limited by
guarantee having a share capital cannot
buy its own shares
 BUY BACK OF SHARES / SECURITIES
NOW PERMITTED BY:

The Companys (Amendment) Act, 1999 (vide

sections 77A, 77AA and 77B) effective from 31-10-
1998 and as amended by Companys ( Amendment )
Act, 2002. (Effective from 23-10-2001)

GUIDELINES ISSUED BY
-SEBI, and
-Deptt. Of company affairs
 SOURCES TO BUY-BACK
- Free reserves
- Securities premium account
- Proceeds of any shares or other
Specified securities. However no buy-back shall be made
out of the proceeds of an earlier issue of the same kind of
Shares/securities.
- 77A(I))
NOTE:
In case shares are bought back out of free reserves then an
equal sum shall be transferred to Capital Redemption
Reserve Account . This can be used for issue of fully paid
bonus shares.
- ( 77AA)
 CONDITIONS FOR BUY-BACK
NO COMPANY SHALL PURCHASE ITS OWN
SHARES/SECURITIES UNLESS:

A) THE BUY-BACK IS AUTHORIZED BY ITS ARTICLES

B) A SPECIAL RESOLUTION PASSED
NOT APPLICABLE IF THE BUY-BACK IS LESS THAN 10%
OF THE TOTAL PAID UP EQUITY CAPITAL & FREE
RESEVES OF THE CO.
SUCH BUY-BACK IS AUTHORIZED BY A BOARDS
RESOLUTION
NO OFFER OF BUY-BACK IS MADE WITHIN ONE YEAR OF
THE PRECEDING OFFER
C) THE BUY-BACK IS OR LESS THAN 25% OF THE TOTAL PAID
UP CAPITAL AND FREE RESERVES OF THE CO.
- IN ANY F.Y. NOT TO EXCEED 25% OF ITS TOTAL PAID-UP
EQUITY CAPITAL IN THAT F. Y.
Contd.

D. THE RATIO OF DEBT OWED BY THE CO. IS NOT

MORE THAN TWICE THE CAPITAL AND ITS FREE
RESERVES.
CENTRAL GOVERNMENT MAY PRESCRIBE A
HIGHER RATIO FOR A CLASS OR CLASSES OF
COS.
E. SHARES/SECURITIES ARE FULLY PAID-UP.
F. FOR LISTED SHARES AS PER GUIDELINES ISSUED
BY SEBI
G. FOR UNLISTED SHARES GUIDELINES CAN BE
PRESCRIBED
- (SEC 77A(2)
 NOTICE OF THE MEETING
THE NOTICE OF THE MEETING AT WHICH SPECIAL
RESOLUTION IS PROPOSED TO BE PASSED SHALL
BE
ACCOMPANIED BY AN EXPLANATORY
STATEMENTS
STATING:
a) A FULL & COMPLETE DISCLOSURE
b) THE NECESSITY FOR THE BUY-BACK
c) THE CLASS OF SECURITY OF BUY-BACK
d) THE AMOUNT TO BE INVESTED ; AND
e) THE TIME LIMIT FOR COMPLETION OF BUY-
BACK
- (SEC 77A(3)
 SOURCES OF BUY-BACK

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 ; OR
d) BY PURCHASING THE SECURITIES ISSUED
TO EMPLOYEES OF THE CO. PURSUANT TO A
SCHEME OF STOCK OPTION OR SWEAT
EQUITY
-SEC 77A(S)
 DECLARATION OF SOLVENCY
-DECLARATION OF SOLVENCY TO BE FILED WITH
THE
a) REGISTRAR OF COMPANY ; AND
b) SEBI (FOR LISTED COS. ONLY)

THAT IT IS CAPABLE OF MEETING ITS LIABILITIES

AND WILL NOT BE RENDERED INSOLVENT WITHIN
ONE YEAR OF THE DATE OF DECLARATION
ADOPTED BY THE BOARD

THIS DECLARATION IS TO BE SIGNED BY AT

LEAST TWO DIRECTORS OF THE CO. ONE OF
WHOM SHALL BE M.D., IF ANY
 DESTRUCTION OF THE SECURITIES

THE COMPANY SHALL EXTINGUISH AND

PHYSICALLY DESTROY THE SECURITIES SO
BOUGHT BACK WITHIN 7 DAYS OF COMPLETION
OF BUY-BACK
- SEC 77A (7,)
 FURTHER ISSUE OF SHARES
ON COMPLETION OF BUY-BACK OF SHARES /
SECURITIES, THE COMPANY SHALL NOT MAKE
FURTHER ISSUE OF THE SAME KIND OF
SHARES/SECURITIES WITHIN A PERIOD OF SIX
MONTHS
EXCEPT:

a) BONUS SHARES; OR
b) CONVERSION OF WARRANTS, OR
c) STOCK OPTION SCHEMES OR SWEAT EQUITY, OR
d) CONVERSION OF PREFERENCE SHARES OR DEBENTURES
INTO EQUITY SHARES
- SEC. 77A (8)
 MAINTENANCE OF REGISTER
COMPANY SHALL MAINTAIN A REGISTER OF THE :

a) SECURITIES SO BOUGHT,
b) CONSIDERATION PAID,
c) DATES OF CANCELLATION, EXTINGUISHING AND
PHYSICALLY DESTROYING OF THE SECURITIES,
AND
d) OTHER PARTICULARS AS PRESCRIBED.

- SEC 77A (9,)

 FILING A COMPLETION RETURN
A COMPANY SHALL FILE A COMPLETION RETURN
WITHIN 30 DAYS OF COMPLETION OF BUY-BACK
OF WITH THE ROC AND SEBI (FOR
LISTED COS.) WITH PARTICULARS AS
PRESCRIBED.

- (SEC. 77A (1 0)
 PENALTIES
FOR DEFAULT:-

A) IMPRISONMENT UPTO 2 YEARS; OR

B) FINE UPTO RS. 50,000; OR
C) BOTH
-SEC. 77A (11)
 PROHIBITION FOR BUY-BACK

NO COMPANY SHALL DIRECTLY OR INDIRECTLY PURCHASE ITS OWN

SHARES / SECURITIES:

a) THROUGH ANY SUBSIDIARY CO. INCLUDING ITS OWN SUBSIDIARY

COS. OR
b) THROUGH ANY INVESTMENT CO. OR GROUP OF INVESTMENT COS.;
OR
c) IF A DEFAULT, BY THE CO,. IN REPAYMENT OF DEPOSIT OR
INTEREST

PAYABLE THEREON, REDEMPTION OF DEBENTURES OR PREFERENCE

SHARES OR PAYMENT OF DIVIDEND TO ANY SHARE HOLDER OR
REPAYMENT OF ANY TERM LOAN, OR INTEREST PAYABLE THEREON
TO
ANY BANK OR ANY FINANCIAL INSTITUTION IS SUBSISTING
Contd..
2. IN CASE SUCH COMPANY HAS NOT COMPLIED WITH PROVISIONS
OF:

a) SECTION 159 (ANNUAL RETURN TO BE MADE BY CO. HAVING SHARE

CAPITAL)
b) SECTION 207, (PENALTY FOR FAILURE TO PAY DIVIDEND WITHIN 30
DAYS)
c) SECTION 211, (FORM & CONTENT OF B/S & P&L ACCOUNT)
- (SEC. 77B)