SEBI Guidelines

The Securities and Exchange Board of India, has issued the following guidelines with regard to buy- back of shares or other specified securities by companies, having been empowered to do so by the Companies (Amendment) Act, 1999. These guidelines came into effect from 14-11-1998.

Modes of Buy-Back:

Buy-back is permissible:

(a) from the existing security holders on a proportionate basis through the tender offer; or

(b) from the open market through i. Book-building process, ii. stock exchange;

(c) from odd lots, that is to say, where the lot of securities of a public company whose shares are listed on a recognized 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.

Where a company proposes to buy-back its own shares. It shall after passing the special resolution or resolution of its Board of Directors make a public announcement in at least one English National Daily one Hindi National Daily and Regional Language Daily with wide circulation at the place where the registered office of the company is located.

The public announcement shall specify a date which shall be the ‘specified date’ for the purposes of determining the names of the shareholders to whom the letter of offer shall be sent. The specified date cannot be earlier than 30 days and not later than 42 days from the date of such public announcement. The letter of offer shall be despatched not earlier than 21 days from the submission of its draft with SEBI through the merchant banker. The date of opening of the offer shall not be earlier than 7 days or later than 30 days after the specified date. Companies buying back through the tender offer have to open an escrow account.

A company cannot buy-back its shares from any person:

Ø through negotiated deals whether on or off the stock exchange; or

Ø through spot transactions; or

Ø through any private arrangements.

Price at which shares shall be bought back has to be determined by shareholders through a special resolution. A copy of their resolution has to be filed with the SEBI as well as the stock exchanges where the shares of the company are listed, within 7 days from the date of passing the resolution. Companies buying back through stock exchanges should disclose purchases daily. Buy-back offer shall remain open for not less than 15 days and not more than 30 days. The verification of shares bought back has to be completed within 15 days of the closure of the offer and payments made within 7 days. The onus of complying with the SEBI guidelines is on the merchant banker who has to file a ‘due diligence certificate’ with the SEBI.