PROJECT: The Buyback of Shares as per Companies Act 2013

SUBJECT: Legal Aspects of Business

FACULTY: Amit Tripathi

Submitted by

Sujit Kumar Sahu

UM22366

Section F
BUYBACK OF SHARES:

Buyback of shares refers to the process where a company purchases its own shares from the
existing shareholders of the company. This process is also known as share repurchase. The
company may buy back its shares for various reasons, such as to increase shareholder value, reduce
the number of outstanding shares, or to prevent a hostile takeover.

When a company buys back its own shares, it reduces the number of shares outstanding in the
market. This has the effect of increasing the value of the remaining shares, as the same earnings
and assets are now divided among fewer shares. Additionally, by reducing the number of shares
outstanding, the company can improve financial ratios like earnings per share (EPS) and return on
equity (ROE), which can make the company more attractive to investors.

Buyback of shares can be carried out in different ways, such as through the open market or through
a tender offer. The rules and regulations governing share buybacks vary depending on the country
and jurisdiction in which the company is based. In India, the Companies Act, 2013 and Companies
(Share Capital and Debentures) Rules, 2014 govern the conditions and requirements for carrying
out buybacks of securities.

PROVISIONS RELATED TO THE BUY-BACK OF SHARES AND OTHER SPECIFIED

SECURITIES

Under the Companies Act, 2013, the following conditions and requirements must be met for
carrying out buy-back of securities:

1. The buy-back must be out of free reserves or securities premium account or out of proceeds
of issue of any shares or other specified securities other than the same kind of securities.
2. The company cannot make further issue of the same type of securities as bought back
within six months of buy-back, except as bonus shares or sweat equity shares or discharge
of subsisting obligations like on conversion of warrants, or stock option schemes,
conversion of preference shares or debentures into equity shares.
 3. No offer of buy-back shall be made within a period of one year from the date of the closure
of the preceding offer of buy-back, if any.
4. Where the buy-back is from free reserves/securities premium account, the Company is
required to transfer to Capital Redemption Reserve an amount equal to the nominal value
of the shares bought back, and the details of such transfer shall be disclosed in the balance
sheet. The Capital redemption reserve account may be applied by the company in paying
up unissued shares of the company to be issued to members of the company as fully paid
bonus shares.
5. The buy-back must be authorized by the company's articles.
6. A special resolution must be passed at a general meeting of the company authorizing the
buy-back. No special resolution is required if: a. the buy-back is 10% or less of the total
paid-up equity capital and free reserves of the company and has been authorized by the
Board by means of a resolution passed at its meeting; or b. the buy-back is 25% or less of
the aggregate of paid-up capital and free reserves of the company; provided that in respect
of the buy-back of equity shares in any financial year, the reference to 25% in this clause
shall be construed with respect to its total paid-up equity capital in that financial year.
7. The ratio of the aggregate of secured and unsecured debts owed by the company after buy-
back is not more than twice the paid-up capital and its free reserves. However, the Central
Government may notify a higher ratio of the debt to capital and free reserves for a class or
classes of companies.
8. All the shares or other specified securities for buy-back are fully paid-up.
9. The buy-back of the shares or other specified securities listed on any recognized stock
exchange is in accordance with the regulations made by the Securities and Exchange Board
in this behalf.
10. The buy-back in respect of shares or other specified securities other than those specified in
point 9 above is in accordance with Rule 17 of the Companies (Share Capital and
Debentures) Rules, 2014.

Additionally, the notice of the general meeting at which the special resolution is proposed to be
passed shall be accompanied by an explanatory statement stating full and complete disclosure of
all material facts, including but not limited to:
 • The date of the board meeting at which the proposal for buy-back was approved by the
board of directors of the company.
• The objective of the buy-back.
• The class of shares or other securities intended to be purchased under the buy-back.
• The number of securities that the company proposes to buy-back.
• The method to be adopted for the buy-back.
• The price at which the buy-back of shares or other securities shall be made.
• The basis of arriving at the buy-back price.
• The maximum amount to be paid for the buy-back and the sources of funds from which the
buy-back would be financed.
• The time-limit for the completion of buy-back.

Companies go for buyback of shares for various reasons, some of which are:

To return surplus cash to shareholders: Companies may choose to buy back their own shares as a
means of returning surplus cash to their shareholders. By doing so, the company reduces its cash
holdings and returns it to the shareholders who can then use the funds for other purposes.

To increase earnings per share (EPS): When a company buys back its own shares, the number of
outstanding shares decreases, which increases the earnings per share (EPS). This can be an
attractive option for companies that are struggling to increase earnings through other means.

To signal confidence: A company buying back its own shares can signal to investors that it has
confidence in its financial position and future prospects. This can be seen as a positive sign, which
can help to boost investor confidence and the stock price.

To prevent hostile takeovers: Companies may buy back their own shares as a way of preventing a
hostile takeover. By reducing the number of outstanding shares, the company becomes less
attractive to potential acquirers, as the cost of acquiring a controlling stake becomes higher.

To meet regulatory requirements: In some cases, companies may be required by regulators to

maintain a certain level of capital, which can be achieved through a share buyback.
To provide liquidity to shareholders: Shareholders may be looking to sell their shares in a
company, but there may not be enough demand in the market for these shares. A share buyback
can provide liquidity to these shareholders by allowing them to sell their shares back to the
company at a fair price.

In summary, companies may choose to buy back their own shares for a variety of reasons,
including returning surplus cash to shareholders, increasing EPS, signaling confidence, preventing
hostile takeovers, meeting regulatory requirements, and providing liquidity to shareholders.

In conclusion, share buybacks have become a popular tool for companies to return surplus cash
to shareholders and boost their stock prices in India. While some argue that buybacks can lead to
short-term gains at the expense of long-term investment, others see it as a way to enhance
shareholder value and signal confidence in the company's future prospects. As with any financial
strategy, it is important for companies to carefully weigh the costs and benefits of buybacks and
consider the potential impact on stakeholders. Additionally, regulators should continue to monitor
and regulate share buybacks to ensure transparency and prevent any potential misuse of the
practice. Ultimately, share buybacks will likely remain an important tool for companies in India
to manage their capital structure and optimize shareholder returns.

RECENT BUYBACK OF SHARES:

In the first quarter of 2022, 60 companies announced share buybacks worth a total of Rs. 37,650
crores, which is significantly higher than the Rs. 11,615 crores announced by 33 companies in the
same period in 2021.

Some of the major companies that have recently announced share buybacks include Tata
Consultancy Services, Wipro, Coal India, Bharat Electronics, and Oil India. These companies have
opted for share buybacks as a means of returning surplus cash to their shareholders, and to improve
shareholder value.
The increase in share buybacks can be attributed to several factors, including the economic
recovery from the COVID-19 pandemic, a rise in cash reserves of companies, and the
government's push to promote capital market activities. Additionally, the low-interest-rate
environment has also made share buybacks a more attractive option for companies.

Overall, the trend of companies opting for share buybacks in India is expected to continue in the
coming years, as companies look for ways to deploy their excess cash, improve shareholder value,
and take advantage of favorable market conditions.

The Following Companies have gone for the buyback in the recent past:list attached in the end