Buyb a c k of own se c u r i t i e s (Se c .

68 ) -

Rea s o n s of Buyb a c k –

Buybac k sha r e s are canc elle d which red uc e s the total num b e r of shar e s
outs t a n d i n g thus improving the Earnin g Per Sha r e and cons e q u e n t ly the
mark e t value of sha r e s incre a s e s .
EPS = Net Profit after Tax and Prefe r e n c e Dividen d / Num b e r of equity
sha r e s
Highe r the EPS the bett e r the Capital Produ c tivity and bett e r the
perfor m a n c e of Comp a ny.

Leg al Provi s i o n s of Buyb a c k (S e c . 68 ) -

1. Sou r c e s of Buyb a c k – Buybac k of secu riti e s may be financ e d out of

free res e rv e s , secu ri tie s pre mi u m accou n t or proc e e d s of any shar e s or
othe r secu ritie s.

2. Capit al Red e m p t i o n Re s e rv e Acco u n t (CRR A/c) – Wher e a

comp a ny resor t s to Buybac k out of free res e rv e s then an amou n t equal to
nomin al value of shar e s so purc h a s e d must be tran sf e r r e d to CRR A/c
which may be utilized for issue of fully paid up bonu s shar e s . (Sec. 69)

3. Cond i t i o n s for Buyb a c k (S e c . 68 ( 2 ) ) –

(i) Buyba ck should be aut h o r i z e d by articles of associ a tion and special
resolutio n.
(ii) Amount involved in Buyba ck sh o u l d not exc e e d 25% of total paid up
capit al and free res e rv e s of comp a n y.

(iii) Buybac k should be of fully paid up sh ar e s .

(iv) Buybac k of listed shar e s should be in accor d a n c e with SEBI
gui d e l i n e s and of unlist e d shar e s in accor d a n c e with pre sc ri b e d
guidelin e s .
(v) Buyba ck should be comple t e d with i n 12 mo n t h s of pas s i n g sp e c i a l
res o l u t i o n .
(vi) There cannot be more than one buyba c k per year.
(vii) The ratio of secu r e d and uns ec u r e d debt s owed by the comp a ny afte r
buyb ac k should not be more than twice the paid up capit al + free
res e rv e s .

4. Met h o d s of Buyb a c k -
(a) From existing secu ri ty holde r s on propo r tio n a t e basis.
(b) From the open mark e t .
(c) By purc h a si n g secu riti e s from employe e s issue d to the m und e r swe a t
equity or ESOS.
5. Dec l a r a t i o n of Solv e n c y – Before Buybac k the comp a ny has to file a
decla r a t io n of solvency signe d by two direct o r s of comp a ny one of whom
shall be MD in the pre s c ri b e d forma t with the SEBI and RoC.

6. Nu m b e r of Days – The offer for Buyba ck shall rem ai n open for not
less tha n 15 days and not exce e di n g 30 days from the dat e of dispa t c h of
lette r of offer. Howeve r , wef 29- 03- 2016, whe r e all the me m b e r s of
comp a ny agre e , offer for Buyba ck may rem ai n open for less than 15 days.

7 . Phy si c a l exti n g u i s h m e n t of se c u r i t i e s – After comple tio n of

Buybac k proc e s s secu ri tie s must be physic ally dest roy e d within 7 days of
last day of comple tion of Buyba ck.

8. No furth e r iss u e – After Buybac k a comp a n y canno t make a furth e r

issue of sam e kind of secu riti es excep t bonus issue within 6 mont h s from
date of comple tio n of Buybac k.

9. Parti c u l a r s of Buyb a c k – A regist e r cont ai ni n g the partic ul a r s of

Buybac k has to be maint ai n e d by the comp a n y. It shall includ e the
consid e r a t i o n paid for secu ri tie s boug h t back, date of canc ella tio n of
secu ri tie s and date of exting ui s hi n g secu riti e s etc.

10. Ret u r n of Buyb a c k – After comple tion of Buybac k a ret u r n of

Buybac k has to be filed with the RoC and SEBI in pre sc ri b e d form within
30 days of such comple tio n.

11. Proh i b i t i o n for Buyb a c k (S e c . 70 ) – A comp a n y is prohibit e d to

purc h a s e its shar e s whet h e r direc tly or indirec tly throu g h :
(a) any subsidia ry includin g its own subsidi a ry comp a n y or
(b) thro u g h any Invest m e n t comp a n y or group of Inves t m e n t comp a ni e s
or
(c) if a default in repay m e n t of deposit s, Inter e s t , rede m p ti o n of
deb e n t u r e s or prefer e n c e shar e s , dividen d, paym e n t of Term Loan is
subsisti n g.
Howeve r , Buyba ck shall be per mi s si bl e after a period of 3 years from the
date such default ceas e d to exist.

12. Pe n a l t y – Any defa ult in complian c e of Sec.68 Buybac k provisions

shall attr a c t a fine of Rs.1 lac to Rs. 3 lacs for the comp a ny and for officer
in default impriso n m e n t up to 3 years and fine of Rs.1 lac to Rs.3 lacs or
Both.

Allot m e n t of Sh ar e s –
Me a n i n g - It mea n s division of shar e capit al into define d shar e s of
partic ul a r value and class and assig nin g such shar e s to differe n t perso n s .
When an applic ation for shar e s is acce p t e d , it amou n t s to an allot m e n t .

Leg al Provi s i o n s reg ar d i n g allo t m e n t of sh ar e s –

I. Gen e r a l Provi s i o n s (Un d e r Indi a n Contr a c t Act 18 7 2 ) –

1. Allot m e n t mu s t be ma d e by prop e r aut h o r i ty – By a resolu tion of

boar d of direc t o r s unles s powe r is deleg a t e d to a smaller ‘allotm e n t
com mit t e e’ or man a gi n g direc t o r or man a g e r as per the articles.

2. Allot m e n t mu s t be ma d e with i n rea s o n a b l e tim e – of receiving

applica tion as specified in the applica tion form.
Case Refer e n c e – 6 mont h’s time period for allot m e n t was held to be
unre a s o n a b l e . (Rams g a t e Victoria Hotel Comp a n y Vs Mont efior e)

3. It mu s t be co m m u n i c a t e d – Allotm e n t must be prop e rly

com m u n ic a t e d to the applica n t in orde r to constit u t e a binding cont r a c t .
If a particul a r mode of com m u ni c a ti o n is pre sc ri b e d in the applica tion it
should be followed.

4. Abs ol u t e an d un c o n d i t i o n a l – Allotm e n t must be mad e on sam e

ter m s as stat e d in the applica tion for shar e s . If ther e is a variatio n, the r e
is no cont r a c t unles s subs e q u e n t ly the applica n t expr e s s ly or impliedly
ass e n t e d to the variation.

5. Allot m e n t agai n s t appli c a t i o n only – No valid allot m e n t can be

mad e on an oral requ e s t. (Sec.2 (55)) provide s that for beco min g a
mem b e r , a pers o n should agre e in writing. Thus, no allot m e n t can be
mad e withou t a writt e n applic ation for allotm e n t .

6. Allot m e n t not to be in co n tr a v e n t i o n of any oth e r law – If shar e s

are issue d in a man n e r prohibit e d by foreig n exch a n g e or any othe r
reg ul a tio n s , the issue would be invalid and confer on the allott e e no title
as to shar e s .

II. Stat u t o r y Provi s i o n s (Un d e r Com p a n i e s Act 20 1 3 ) –

1. Re gi s t r a t i o n of Pros p e c t u s (S e c . 26 ( 4 ) ) – A copy of Prosp e c t u s

signe d by every direc t o r or propos e d direct o r shall be filed with the RoC
for regist r a ti o n on or befor e the date of its publica tio n.
Contr av e n t io n of this provision shall attr a c t fine for comp a ny from
Rs.50 0 0 0 to Rs.300 0 0 0 and for the officer respo n s i bl e imprison m e n t of
up to 3 years or fine from Rs.500 0 0 to Rs.300 0 0 0 or both.

2. Appli c a t i o n mo n e y (S e c . 3 9 (2) ) – An amou n t paya bl e on applic ation

on each shar e shall not be less tha n 25% of nomin al value of sha r e .
3. Mini m u m Sub s c r i p t i o n (S e c . 39 (1 & 3)) – No allotm e n t of
secu ri tie s shall be mad e unles s the comp a n y has obtain e d minimu m
subs c rip tio n. If minim u m subsc ri p tio n is not achieve d within 30 days of
issue of pros p e c t u s all applica tio n money has to be retu r n e d within 15
days of closur e of issue (Rule 11 of Comp a ni e s Pros p e c t u s and allotm e n t
of secu riti e s Rules 2014). Upon failure the direc t o r s of comp a n y shall be
jointly and sever ally liable to pay it along with inter e s t @ 15% p.a. The
applica tion money to be refun d e d shall be credit e d only to bank accou n t
from which subs c ri p tio n was remitt e d . In case of comp a ni e s failure to
retu r n the amou n t the comp a n y and its officer in default shall be liable to
a pen alty of Rs.100 0 per day durin g which default contin u e s or Rs.1 lac
which ev e r is less. (Sec.3 9 (5)).

4. Clos i n g of su b s c r i p t i o n list – Unde r SEBI regul a tio n s 2018

subs c rip tio n list for public issue mus t be kept open for 3- 10 working
days.

5. Per m i s s i o n to de al on a sto c k exc h a n g e (S e c . 4 0 ) – Every comp a n y

makin g a public offer shall befor e such offer make an applic ation to one
or more stock excha n g e s and obtain per mis sion for secu riti e s to be dealt
ther ei n.

6. Ret u r n as to allot m e n t – has to be filed to the RoC (Sec.3 9 (4)). In

case of defa ult the comp a ny and its officer in default shall be liable for
fine of Rs.10 0 0 per day during which default contin u e s or Rs.1 lac
which ev e r is less.

7. Und e r w r i t i n g – U/S 26 Comp a ny’s prosp e c t u s shall stat e the details

of unde r w ri ti n g of issue. Unde r w ri ti n g com mis sion shall be paid as per
the comp a n y’s article s. The rate of com mis sio n shall not exce e d 5% of
issue price or as autho riz e d by article s whichev e r is less. A copy of
und e r w r i tin g cont r a c t shall be deliver e d to the RoC along with
pros p e c t u s for regis t r a tio n.

8. Brok e r a g e – A broke r brings a bar g ai n betw e e n the comp a ny and the

allott e e and gets the broke r a g e . The amou n t of broke r a g e paid should be
disclos e d in the prosp e c t u s .

Sh ar e Certifi c a t e –

Defi n i t i o n of Sh ar e Certifi c a t e –

A Sha r e Certificat e is a regis t e r e d ‘evide nc e of title’ to the shar e s , issue d

by the comp a n y unde r its com m o n seal, duly sta m p e d and signe d by one
or more direc to r s and count e r si g n e d by the Comp a ny Secre t a r y as per
the articles of comp a n y. It decla r e s that the pers o n nam e d the r ei n is the
ben eficial owne r of a specified num b e r of shar e s in the capit al of
comp a ny.

Leg al Provi s i o n s of Sh ar e Certifi c a t e –

1. Tim e of iss u e of Sh ar e Certifi c a t e (S e c . 56 ) – Sec. 56 (4) provide s

that every comp a n y shall unles s prohibit e d by law, tribu n al or othe r
aut ho rity, deliver the certifica t e s of all the secu ritie s allott e d, tra n sfe r r e d
or tra n s m i t t e d :

(a) within a period of 2 mont h s from the dat e of incorpo r a ti o n in case of

subs c rib e r s to mem o r a n d u m .

(b) within a period of 2 mont h s from the date of allot m e n t in cas e of

allotm e n t of any of its shar e s .
(c) within a period of 1 mont h from the dat e of receip t by the comp a ny of
the instr u m e n t of tra n sfe r or intim a tio n of tran s mi s s io n.
Wher e the securi tie s are dealt within a deposito ry, comp a n y shall
intim a t e the details, of allot m e n t of secu ri tie s to the deposito ry
imme di a t e ly on allotm e n t of such secu ritie s.

2. Sig n i n g of Shar e Certifi c a t e – Rule 3 of Comp a ny’s (Sha r e Capit al &

Debe n t u r e s ) Rules 2014 as ame n d e d by comp a n y’s (Sha r e Capital &
Debe n t u r e s ) Amend m e n t Rules 2018 provide that every sha r e certifica t e
shall specify the shar e s to which it relat e s and amou n t paid ther e o n and
shall be signe d by 2 direc to r s or by a direct o r and a Comp a n y Secr e t a r y
whe n e v e r the comp a ny has appoint e d a Comp a ny Secr e t a r y. Com mo n
seal shall be affixed in the pre s e n c e of pers o n s signing the certifica t e . A
direct o r shall be dee m e d to have signe d the sha r e certifica t e if his
signa t u r e is print e d ther e o n by mea n s of any mac hin e , equip m e n t or
othe r mec h a ni c a l mea n s.

3. Pe n a l t y – In case of default of above provisions the comp a n y shall be

fined from Rs.250 0 0 to Rs.5 Lacs and officer in defa ult shall be fined
from Rs.100 0 0 to Rs. 1 Lac.

4. Lega l effe c t s of Sh ar e Certifi c a t e –

(i) Est o p p e l as to titl e to th e sh ar e s – A Sha r e certifica t e is a prim a

facie evide n c e of title (Sec.46). It is a declar a ti o n by the comp a n y that
the pers o n in whos e nam e the certifica t e is mad e out, is a shar e h ol d e r in
the comp a n y. It estop p e s the comp a n y from denyin g the title of the
pers o n to the shar e s whos e nam e is men tion e d the r ei n provide d he
acquir e s the shar e s in good faith for value and und e r a gen uin e tran sfe r.

(ii) Est o p p e l as to pay m e n t – If the sha r e certificat e stat e s that the full
amou n t on sha r e s has bee n paid the comp a n y is estop p e d from alleging
that the sha r e s are not fully paid up.
5. Iss u e of Dupli c a t e Shar e Certifi c a t e (S e c . 4 6 ( 2 ) ) – The direct o r s
are empow e r e d to issue new duplic at e shar e certificat e in place of
original one if such certifica t e:
 Is prove d to have bee n lost or dest roy e d
 Having being defac e d or torn is surr e n d e r e d to the comp a n y.
As per comp a n y’s (Sha r e Capital & Debe n t u r e s ) Rules 2014, whe r e a
duplic at e shar e certifica t e is issue d, it shall be stat e d promin e n tly on the
face of it and be recor d e d in the regis t e r maint ai n e d for the purpo s e, that
it is “duplic at e issue d in lieu of shar e certifica t e no….” and the word
“duplica t e ” shall be sta m p e d or print e d promin e n tly on the face of shar e
certifica t e . A comp a ny can issue duplica t e sha r e certifica t e only to a
regist e r e d sha r e h ol d e r .
 If a co m p a n y with an int e n t to defra u d iss u e s a dupli c a t e
certi fi c a t e of shar e s , the comp a ny shall be punis h a bl e with fine
which shall not be less tha n 5 time s the face value of shar e s
involved in the issue of duplica t e certifica t e but which may exte n d
to 10 time s the face value of such sha r e s or Rs.10 crore s which ev e r
is more and every officer of comp a n y who is in defa ult shall be
liable for action u/s 447 i.e., impriso n m e n t from 6 mont h s to 10
years and fine of amou n t involved in fraud up to 3 times amou n t
involved in fraud.
 If any per s o n obt ai n s certifi c a t e frau d u l e n t l y , he may be liable
for punis h m e n t with an impriso n m e n t from 1 year to 3 years with
fine from Rs.1 lac to Rs.5 lacs (Sec. 57).

Sh ar e Warra n t –

Defi n i t i o n of Sh ar e Warra n t (Un d e r Com p a n i e s Act, 19 5 6 ) –

A Shar e Warr a n t is a bear e r docu m e n t of title to the shar e s issue d by the

comp a ny unde r its com m o n seal, duly stam p e d and signe d by one or
more direc t o r s of the comp a ny as per the article s.
It is just like a negoti a bl e instr u m e n t and repr e s e n t s a bear e r shar e
which may be tran sfe r r e d by mer e delivery and any bonafid e holde r for
value will obtain a perfec t title to the sha r e s .

Dis ti n c t i o n bet w e e n Shar e Certifi c a t e and Sh ar e Warra n t -

(Ba s e d on Com p a n i e s Act, 19 5 6 )
Poi n t of Dis ti n c t i o n Shar e Certifi c a t e Shar e
Warra n t
___________________________________________________________________________
_
1. Authority Both Public and Privat e By Public Ltd.
Comp a ni e s only.
Comp a ni e s can issue.
2. Issue of For both fully paid up and for only fully paid up
sha r e s .
Sha r e s Partly paid up shar e s .

3. Approval Not req ui r e d By Articles and

Cent r al
Govern m e n t .

4. Nam e Bears the nam e, add r e s s etc no nam e is ente r e d

Of a shar e h ol d e r as ente r e d in
The regis t e r of me m b e r s .

5. Regist e r of nam e of holde r to be ent e r e d no such

details are to be ent e r e d
Mem b e r s in the regis t e r of mem b e r s of
Comp a ny.

6. Transfe r Requir e s regist r a ti o n of tra n sf e r Transfe r is comple t e

just by
With the comp a ny delivery.

7. Mem b e r s hi p norm al right s of mem b e r s h i p norm al right s may

or may not be
Given dep e n d s on articles

8. Dividen d Paid thro u g h divide n d Paid thro u g h bea r e r

divide n d
Warra n t s by post or elect ro nic coupo n s atta c h e d to
it.
Mode.

9. Title Prim a facie evide n c e of title. Conclusive

eviden c e of title.

10. Qualifica tion Sha r e s eviden c e d by shar e cert. canno t be so

includ e d .
Sha r e s can be includ e d in the qualificatio n
Sha r e s of a direc t o r.

*_________________________________________________________________________*