DR.

RAM MANOHAR LOHIYA NATIONAL LAW

UNIVERSITY, LUCKNOW
2022-2023
2023-2024

INVESTMENT AND SECURITIES

FINANCIAL MARKETS LAW
PROJECT

TITLE – ‘Buyback of securities in the Indian Securities Market:

Analysis of the 2023 Amendment’

SUBMITTED TO: SUBMITTED BY:

Dr.Visalakshi Vegesna
Dr. Manoj Kumar
Anushri Chaturvedi
Assistant Professor (Law) 9th Semester
Associate Professor (Law) Enrolment number: 190101106
190101106
 CONTENTS

ACKNOWLEDGMENT ......................................................................................................................... 3
OBJECTIVE OF THE STUDY ............................................................................................................... 3
INTRODUCTION................................................................................................................................... 4
Buyback of Securities: An Overview ....................................................................................................... 5
I. Gliding path for the Open Market Buyback Method ............................................................................. 6
II. Discontinuation of Draft Letter of Offer .............................................................................................. 7
III. Restriction to frequently traded securities:.......................................................................................... 8
III. Buybacks via the Book-Building Process ........................................................................................... 8
IV. Timelines linked to Record Date ....................................................................................................... 9
V. Mode of the Public Announcement ................................................................................................... 10
VI. Utilization of the Buy-back Consideration ....................................................................................... 11
CONCLUSION ..................................................................................................................................... 12
BIBLIOGRAPHY ................................................................................................................................. 13
 ACKNOWLEDGMENT

I gratefully acknowledge and express deep appreciation to our mentor and professor, Dr.
DrVegesna
Visalakshi Manoj Kumar,
ma’am for the tremendous support and indulgence shehe provided us with. It
Investment
gives me immense pleasure to present this project on the subject of Financial and Securities Law.
Markets.

Anushri Chaturvedi

OBJECTIVE OF THE STUDY

This study aims to explore the implications of the amended SEBI Buyback Regulations, 2023 on
companies, investors, and the broader market. It will delve into the rationale behind the
amendments, as well as the procedural and compliance requirements that have to be followed by
the companies, like the reduction of procedural timelines and additional compliances. The study
will also address the legal facets, shedding light on the challenges, opportunities, and potential
impacts associated with the revised regulatory framework.
 INTRODUCTION

The landscape of corporate regulations in India witnessed a significant alteration with recent
amendments introduced by the Securities and Exchange Board of India (“SEBI”) in its
regulations governing the buyback of securities. The practice of buyback of securities, a
corporate strategy allowing companies to repurchase their shares or other specified securities
from shareholders is primarily for the purpose of enhancing Earnings per Share (EPS) during
periods of excess cash reserves in the company.

The notable transformations through the enactment of the SEBI (Buyback of Securities)
(Amendment) Regulations, 2023 (“Amended/Buyback Regulations”)1 signify a shift in the
guidelines for buyback activities, aiming to streamline and enhance the efficiency and
transparency of the buyback process. The process has now become more intricate, encompassing
stringent conditions for companies to adhere to.

A key provision set to come into effect from April 1, 2025, is the prohibition for companies to
repurchase their shares from the open market through stock exchanges. Furthermore, the
amendment enforces a gradual reduction in the permissible buyback limit over the financial
years. These changes introduce a framework that restrains the extent to which companies can
conduct buybacks, aiming to bring more precision and control to the buyback process.

SEBI initiated a review of the prevailing buy-back Regulations through a consultation paper
(“Consultation Paper”)2 formulated based on a sub-group recommendations aimed at reforming
the existing framework, including proposed statutory changes. Subsequently, SEBI, during its
board meeting in December 2022, approved the Amended Regulations.

This study discusses the various amendments brought about through Buyback Regulations 2023
through different chapters detailing the rationale and implications of each.

1
https://www.sebi.gov.in/legal/regulations/feb-2023/securities-and-exchange-board-of-india-buy-back-of-
securities-regulations-2018-last-amended-on-07-february-2023-_69229.html.
2
Review of SEBI (Buyback of Securities) Regulations, 2018, November 16 2022, https://www.sebi.gov.in/reports-
and-statistics/reports/nov-2022/review-of-sebi-buyback-of-securities-regulations-2018_65136.html
 Buyback of Securities: An Overview

Buyback of securities refers to the corporate process through which a company repurchases its
own shares from existing shareholders. Typically, this transaction occurs at a price higher than
the prevailing market price. When a company executes a buyback, it effectively reduces the
number of shares available in the market, thereby decreasing the outstanding shares.

This strategic move offers shareholders an opportunity to sell their shares back to the company,
allowing them to exit their investment in the business. The buyback process is legally governed
by section 68 of the Companies Act, 20133, within the regulatory framework of India. For such
listed companies, the buyback of securities is specifically regulated by the SEBI (Buyback of
Securities) Regulations, 20184.

The buyback of securities is a mechanism that companies often use to return surplus funds to
shareholders, adjust their capital structure, enhance shareholder value, or prevent potential
takeovers by consolidating ownership 5. The purpose of the issuance of a buyback lies in
achieving strategic objectives for companies, better understood as follows:

 Enhancing Earnings per Share (EPS)

 Utilizing excess cash reserves efficiently
 Providing shareholders with confidence during periods of declining stock prices
 Increasing promoter shareholding to mitigate potential takeover risks
 Improving returns on capital and net-worth
 Returning surplus cash to shareholders.

The Amendment Regulations came into force from March 9, 2023. The emphasis of several of
the amendments was on simplifying the buyback process, by eliminating certain methods of
buyback and reducing overall timelines. The amendments are discussed in the upcoming
chapters.

Maximum limit of any buy-back is 25% or less of the aggregate of paid-up capital and free
reserves of the company6[,based on the standalone or consolidated financial statements of
the company, whichever sets out a lower amount.

3
‘Back of Shares As Per Companies Act, 2013’, Pooja Toshniwal, https://taxguru.in/company-law/buy-shares-
companies-act-2013.html.
4
Regulation 9(xi)(c) substituted by SEBI (Buy-Back of Securities) (Amendment) Regulations, 2023 w.e.f.
09.03.2023.
5
‘Amendments in SEBI (Buyback of Securities) Regulations, 2023’, https://www.linkedin.com/pulse/amendments-
sebi-buyback-securities-regulations-2023-simplybizindia/.
6
Regulation 4(i), substituted by SEBI (Buy-Back of Securities) (Amendment) Regulations, 2023 w.e.f. 09.03.2023.
 I. ‘Gliding path’ for the Open Market Buyback Method

Modes of buy back

The Buy-back Regulations7, delineate various modes for the buyback of securities, including:

 Tender offer to existing shareholders on a proportionate basis;

 Open market mechanism through
a. Book building process
b. Stock exchange
 Purchase of shares from odd-lot holders.8

Tender offer is by far the most preferred method for buy-back of securities, as it gives equal
participation to all shareholders, as it provides a proportionate basis for all those shareholders
who tender their shares for buyback. On the other hand, open market buy-back, especially
through stock exchanges, (“Open Market Buyback method”)9 has been criticized due to
several limitations.

Shortcomings of the Open Market Buyback Method

The open market buyback method that is conducted through stock exchanges has encountered
criticism and been thoroughly examined in the Consultation Paper, leading to a proposed gradual
removal through a suggested 'glide path.' A. It departs from the principle of equitable treatment
for all shareholders, as it lacks the concept of proportionate participation and offers limited
opportunities for shareholder involvement. 10 B. Moreover, this method has the potential to
artificially inflate share prices during the buyback period, hindering efficient price discovery by
exaggeration of shares prices. C. Such artificial demand could also lead to market manipulation
for sale of company's securities.

In response to the identified limitations, there was a proposal to gradually reduce the maximum
limit for buybacks and the offer period through such means. This reduction aims to phase out the
method entirely by April 1, 2025. The buy-back from the open market through stock
exchanges, based on the standalone or consolidated financial statements of the company,
whichever is lower.11

7
Regulation 4(iv), SEBI (Buy-Back of Securities) Regulations, 2018.
8
Regulation 4(iv)(c), omitted by SEBI (Buy-Back of Securities) (Amendment) Regulations, 2023 w.e.f. 09.03.2023.
9
Regulation 4(iv)(b)(ii), SEBI (Buy-Back of Securities) Regulations, 2018.
10
‘Changing Landscape of Buy-Back of Securities’, Tejas Geetey, https://www.cbflnludelhi.in/post/the-changing-
landscape-of-buy-back-of-securities.
11
Regulation 4(iv), substituted by SEBI (Buy-Back of Securities) (Amendment) Regulations, 2023 w.e.f.
09.03.2023.
Parameter w.e.f. 2022-2023 w.e.f. April 2023 w.e.f. April 2024 w.e.f. April 2025
Maximum Limit 15% 10% 5% 0%
Of paid up
capital and free
reserves
Time Period for 6 months 66 working days 22 working days NA
completion of
buyback offer

However, there may be questions on viability of conducting a buyback through the open market
mode if the offer's closing extends to a date on or after April 1, 2025. It has been expressly
clarified that the option of utilizing this method will remain available if the offer has been
opened on or before March 31, 2025.12

II. Discontinuation of Draft Letter of Offer

An explanation has been inserted to clause (i) of Regulation 16 of the Buy-back Regulations that
mandates the establishment of a dedicated window by the relevant stock exchange to facilitate
buybacks conducted through stock exchanges. This change was proposed with the aim of
reducing confusion among shareholders and provide clear distinction between shares sold
through the stock exchange platform as part of the buyback offer and shares sold in the open
market.

The Buy-back Regulations, 2018 previously mandated the review of the draft Letter of Offer, by
SEBI, necessitating the incorporation of SEBI's comments by merchant bankers into the final
letter of offer. Recognizing the time-consuming nature of this process, the recent amendment has
eliminated the requirement for SEBI's review. Instead, the Amendment Regulations require
companies to directly file the final Letter of Offer with SEBI.

Mode of dispatch: Furthermore, the amendment in the explanation to clause (ii) of Regulation
913 on the mode of dispatch of the Letter of Offer now mandates that a public announcement
must specify that dispatch of Letter of Offer shall be in electronic mode and within 2 working
days from the Record Date."

12
https://www.lawrbit.com/article/evaluation-of-amended-procedure-and-compliance-requirements-for-buying-
back-of securities/.
13
Regulation 9(ii), explanation given by the SEBI (Buy-Back of Securities) (Amendment) Regulations, 2023 w.e.f.
09.03.2023.
 III. Restriction to frequently traded securities:

Buy-back through stock exchanges will be restricted exclusively to “Frequently Traded

Shares”14, meaning of which shall be derived from the SEBI (Substantial Acquisition of
Securities and Takeover) Regulations, 2011. The rationale behind this restriction is the practical
impossibility of price discovery for infrequently traded stocks, which are fundamental to the
open market buyback process through stock exchanges.

VOLUME AND PRICE RELATED RESTRICTIONS:

The Amendment Regulations specify that the buy-back through stock exchanges shall also be
subject to the restrictions on placement of bids, price and volume as specified by SEBI as will be
notified separately through specific circulars to this effect.

III. Buybacks via the Book-Building Process

One of the primary objectives outlined by SEBI in the Consultation Paper was to streamline the
process of buybacks from the open market through the book-building process and stock
exchanges, with the aim of ensuring a shareholder-friendly process. To achieve this, SEBI
introduced new provisions governing buybacks via the book-building process15. These include-

 Providing pricing norms for both frequently and infrequently traded shares;
 defining specific price ranges within which shareholders can place bids;
 and imposing restrictions on promoter participation in such buybacks.

1. Retail investors will have the option to bid at the buy-back price.
2. If the bid size is more than the buy-back size, the price at which 100% buy price is reached
will be the buy-back price and shares or other securities tendered at or below buy-back price
will be accepted at the buy-back price and in proportion to bids size received.
3. If the bids are less than the buy-back size, all the shares or other specified securities will be
accepted at the highest bid price.
4. The SEBI has prescribed the price range for the buy-back in case of frequently traded and
infrequently traded securities.

14
Regulation 2(i)(ga), inserted by the Securities and Exchange Board of India (Buy-Back of Securities)
(Amendment) Regulations, 2023 w.e.f. 09.03.2023.
15
https://www.pwc.in/assets/pdfs/news-alert/regulatory-
insights/2023/pwc_regulatory_insights_21_february_2023_buy_back_of_securities_regulations_amended.pdf
 IV. Timelines linked to Record Date

The purpose of the “Record Date”16 is to determine the entitlement and names of the
shareholders of the company who are eligible to participate in a buyback. Several key dates are
now linked to it. Record Date is when the eligible shareholders of the company for the offer are
determined.

Dispatch of letter of offer & Offer Period: In the context of a buyback under the tender offer
route as well as open market under the stock exchange route, dispatch of the letter of offer to
shareholders shall be within two working days of the Record Date and opening of the offer
period for the buyback shall be within four working days of the Record Date, which was earlier 5
days.

Reduction in the offer period: The Amended Regulations provide for a reduction in the number
of days for which the tendering period is open for participation by eligible shareholders from 10
working days to 5 working days.

The timeline for payment of consideration to the shareholders whose shares have been bought
back has been reduced from existing 7 working days from closure of offer to 5 working days
from closure of offer.

ESCROW ACCOUNT DEPOSIT: TIMELINE AND MODE

The previous Buy-back Regulations mandate that the buy-back consideration must be deposited
in the escrow account in cash or through other permitted forms, before the offer opens. The
recent amendment, however, stipulates a revised timeframe for this deposit requirement. A listed
entity shall now, within two working days of the public announcement, create an escrow account
for such escrow amount and make the deposit within 2 working days from the date of the Public
Announcement. This amendment allows companies an extended window to fulfill this
obligation.

MINIMUM ESCROW DEPOSIT IN CASH

Previously, the company was obligated to deposit in cash an amount equal to 1% of the total
consideration payable as security for fulfilling its obligations under the regulations. However, the
amendment has now increased this sum to 2.5% of the total amount earmarked for buyback,
when part of the escrow account is in a form other than cash. This adjustment significantly raises

16
‘Buyback – Everything One Needs to Know About Stock’, April 7, 2018, Shabbir Bhimani,
Buybackshttps://shabbir.in/buyback/#:~:text=What%20is%20Buyback%20record%20date,account%20on%20the%
20record%20date.
the cash deposit required as security for ensuring compliance with buyback obligations under the
regulations. 17

ADDITIONAL MODES OF DEPOSIT:

SEBI has also now permitted additional methods of escrow deposit. These are:

 Cash including bank deposits with any scheduled commercial bank;

 Deposit of frequently traded and freely transferable securities;
 Government securities;
 Units of mutual funds invested in gilt funds and overnight schemes; or
 A combination of foregoing.

V. Mode of the Public Announcement

Apart from the newspaper publications, companies are now obliged to file the public
announcement directly with SEBI and the stock exchanges where their shares or specified
securities are listed. Additionally, this announcement must be published on the websites of these
stock exchanges, the company itself, and the merchant banker involved in the buyback process 18.
These added measures aim to expand the dissemination of the buyback announcement across
multiple online platforms and regulatory bodies.

Responsibility of Merchant Banker: A certificate shall be issued by the merchant banker,

who is not an associate of the company, certifying that the buy-back offer is in
compliance of the Amended regulations.19 Thus, additional responsibility has been placed on
Merchant Banker which earlier the company had.

Amendment Regulations have eliminated the prior obligation of physically submitting

documents to SEBI and instead mandates electronic filing in a digitally signed form by the
Company Secretary or an individual authorized by the company's board conducting the buyback.

Emphasizes the need for clear disclosure and consent regarding lender approvals, another
amendment is provided. In cases where a company's buyback offer necessitates approval from its
lenders, such requirements are now mandated to be explicitly specified in the public
announcement, offer letter, and explanatory statement provided to the shareholders. Additionally,
prior written consent from the lenders is required in case of any breach of covenants with such
lenders.

17
‘CAPITAL MARKETS HOTLINE: SEBI (BUY-BACK OF SECURITIES) (AMENDMENT) REGULATIONS, 2023’,
https://www.nishithdesai.com/NewsDetails/8507.
18
Regulation 7(ii), substituted by SEBI (Buy-Back of Securities) (Amendment) Regulations, 2023 w.e.f. 09.03.2023.
19
 VI. Utilization of the Buy-back Consideration

The amended Buy-back Regulations stipulate that a minimum of 75%20 of the reserved buyback
earmarked amount in a separate escrow account must be actually utilized for the buyback offer.
This has increased the threshold, compared to the prior 50%. Failure to meet this requirement
leads to a potential forfeiture of a portion of the escrow amount, however, it is subject to certain
exemptions.

Exemption to the 75%21 limitation: The exemptions include situations where the buyback offer
becomes unattractive due to pricing or other reasons not within the company's control, such as
insufficient interest from existing shareholders for the buyback.

Additionally, upon the effective implementation of the Amendment Regulations, companies are
required to ensure that at least 40% of the earmarked amount is utilized within the initial half of
the specified duration. This adjustment applies to tender offers as well as open market buyback
offers, conducted through stock exchanges or the book-building process.

20
https://www.khuranaandkhurana.com/2023/04/25/buy-back-of-securities-under-the-companies-act-
2013/#:~:text=Section%2068%20of%20the%20Companies,any%20other%20kinds%20of%20securities.
21
SEBI Board Meeting, PR No. 37/2022, https://www.sebi.gov.in/media/press-releases/dec-2022/sebi-board-
meeting_66407.html.
 CONCLUSION

The Amended Buyback Regulations, 2023 primarily aim to enhance the efficiency of the
buyback process for securities of listed companies, addressing existing loopholes of long process
and low transparency with shareholders. These changes are geared towards offering convenience
to listed companies while safeguarding the interests of stakeholders, especially public
shareholders, providing them an equitable right over sale of shares during buyback. Notably,
some favorable proposals initially put forward in the Consultation Paper have been excluded in
the current amendment.

A key provision set to come into effect from April 1, 2025, was the prohibition for companies to
repurchase their shares from the open market through stock exchanges. The amendment,
however, enforced a gradual reduction in the permissible buyback limit over the financial years
by 2025. These changes introduce a framework that restrains the extent to which companies can
conduct buybacks, aiming to bring control to the market manipulation caused by purchase of
buyback at market price after a period of public announcement. Through the amendment, the
SEBI has announced its intention to restrict buyback of shares from open market through stock
exchange and to reduce the period for closure of the buyback transaction at the earliest.

In particular, the proposal for an increase in the limits of the maximum buyback size, which
could have enabled mature companies to effectively distribute surplus funds to existing
shareholders and adjust their scale accordingly, has not been implemented. This proposal is
currently pending consultation with the respective ministries. The decision to exclude this
proposal signifies a cautious approach, ensuring a balance between facilitating companies and
preserving the interests of shareholders.
 BIBLIOGRAPHY

ARTICLES

1. Simplifications and Eliminations: A Synopsis of the Amended Buyback Regulations,

February 20, 2023, Yash J. Ashar & Aditya Prasad,
https://corporate.cyrilamarchandblogs.com/2023/02/simplifications-and-eliminations-a-
synopsis-of-the-amended-buyback-regulations/

2. SEBI’s revised framework brings relaxation under buy-back norms, November 19, 2023,
Payal Agarwal, https://vinodkothari.com/2022/11/ease-of-corporate-slimming-sebi-
proposes-substantial-relaxation-of-buy-back-norms/

3. Capital Markets Hotline: Sebi (Buy-Back Of Securities) (Amendment)

Regulations, 2023, Khyati Dalal & Ratnadeep Roychowdhury,
https://www.nishithdesai.com/NewsDetails/8507

4. Buyback of Securities under the Companies Act, 2013,

https://www.khuranaandkhurana.com/2023/04/25/buy-back-of-securities-under-the-
companies-act-
2013/#:~:text=Section%2068%20of%20the%20Companies,any%20other%20kinds%20o
f%20securities.

Primary sources: SEBI Papers and Regulations

5. Discussion Paper on Review of SEBI (Buyback of Securities) Regulations, 1998 and

SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011.

6. Securities and Exchange Board of India (Buy-back of Securities) Regulations 2018 [Last
amended in 2023]
7. Securities and Exchange Board of India (2018) Buyback of Securities,
https://www.sebi.gov.in/legal/circulars/may-2018/buyback-of-securities_38924.html

8. Institute of Company Secretaries of India. (2019). Buyback of Securities.

https://www.icsi.edu/media/portals/0/Buyback%20of%20Securities.pdf