General Obligations of Companies Buying Back Shares

Obligations of the Company

19.(1) The company shall ensure that, -

(a) the letter of offer, the public announcement of the offer or any other advertisement, circular, brochure, publicity material shall contain true, factual and material information and shall not contain any misleading information and must state that the directors of the company accepts the responsibility for the information contained in such documents;

(b) the company shall not issue any shares including by way of bonus till the date of closure of the offer made under these regulations;

(c) the company shall pay the consideration only by way of cash;

(d) the company shall not withdraw the offer to buy-back after the draft letter of offer is filed with the Board or public announcement of the offer to buy-back is made;

(e) the promoter or the person shall not deal in the shares of the company in the stock exchange during the period the buy-back offer is open.

(2) No public announcement of buy back shall be made during the pendency of any scheme of amalgamation or compromise or arrangement pursuant to the provisions of the Companies Act.

(3) The company shall nominate a compliance officer and investors service centre for compliance with the buy-back regulations and to redress the grievances of the investors.

(4) The particulars of the share certificates extinguished and destroyed shall be furnished by the company to the stock exchanges where the shares of the company are listed within seven days of extinguishment and destruction of the certificates.

(5) The company shall not buy-back the locked-in shares and non-transferable shares till the pendency of the lock-in or till the shares become transferable.

(6) Where the shares have been bought back otherwise than out of the proceeds of an earlier issue other than a fresh issue of shares made specifically for the purpose of buy back then a sum equal to the nominal value of shares bought back out of free reserves shall be transferred to reserve account to be called the capital buy-back reserve account.

Provided that the capital buy back reserve account may be applied by the company in paying up un-issued shares of the company to be issued to members of the company as fully paid bonus shares.

(7) The company shall within two days of the completion of buy-back issue an public advertisement in a national daily, inter alia, disclosing :

(i) number of shares bought;

(ii)price at which the shares bought;

(iii)total amount invested in buy-back;

(iv)details of the shareholders from whom shares exceeding one-per cent of total shares bought back; and,

(v)the consequent changes in the capital structure and the shareholding pattern after and before the buy-back.

(8) The company in addition to these regulations shall comply with the provisions of buy-back as contained in the Companies Act and other applicable laws.

Obligations of the Merchant Banker

20. The merchant banker shall ensure that -

(a) the company is able to implement the offer;

  1. the provision relating to escrow account as referred to in regulation 10 has been made;
     
  2. firm arrangements for monies for payment to fulfil the obligations under the offer are in place;
     
  3. the public announcement of buy-back is made in terms of the regulations;
     
  4. the letter of offer has been filed in terms of the regulations;
     
  5. the merchant banker shall furnish to the Board a due diligence certificate which shall accompany the draft letter of offer;
     
  6. the merchant banker shall ensure that the contents of the public announcement of offer as well as the letter of offer are true, fair and adequate and quoting the source wherever necessary;
     
  7. the merchant banker shall ensure compliance of section 77A and section 77B of the Companies Act, and any other laws or rules as may be applicable in this regard;
  1. upon fulfilment of all obligations by the company under the regulations, the merchant banker shall inform the bank with whom the escrow or special amount has been deposited to release the balance amount to the company;
  1. the merchant banker shall send a final report to the Board in the form specified within 15 days from the date of closure of the buy-back offer.

Action against intermediaries

21.(1) The Board may, on failure of the merchant banker to comply with the obligations or failing to observe due diligence initiate action against the merchant banker in terms of Securities and Exchange Board of India (Merchant Bankers) Regulations, 1992.

(2) The Board may on the failure of a registrar or a broker to comply with the provisions of these regulations or failing to observe due diligence initiate action against the registrar or the broker in terms of the regulations applicable to such intermediaries.

Source : Sebi