Buyback through tender offer

Buyback of Shares through Tender Offer

Buy-back from existing shares

6. A company may buy-back its shares from its existing share holders on a proportionate basis in accordance with the provisions of this Chapter.

Additional Disclosures

7. The explanatory statement annexed to the notice under section 173 of the Companies Act, shall contain the disclosures mentioned in regulation 5 and also the following disclosures; -

a)The price at which the buy-back of shares shall be made;

b) If the promoter intends to offer their shares,

i) the quantum of shares proposed to be tendered, and
ii) the details of their transactions and their holdings for the last six-months prior to the passing of the special resolution for buy-back including information of number of shares acquired, the price and the date of acquisition.

Filing of offer document,etc.

7. (1) The company which has been authorised by a special resolution shall before buy back of shares make a public announcement in at least one English National Daily, one Hindi National Daily and a Regional language daily all with wide circulation at the place where the Registered office of the company is situated and shall contain all the material information as specified in schedule II.

(2) The public announcement shall specify a date, which shall be the `specified date’ for the purpose of determining the names of the shareholders to whom the letter of offer shall be sent.

(3) The specified date shall not be earlier than thirty days and not later than forty-two days from the date of the public announcement.

(4) The Company shall within seven working days of the public announcement shall file with the Board a draft-letter of offer containing disclosures as specified in schedule III through a merchant banker who is not associated with the company.

(5) The draft letter of offer referred to in sub regulation (4) shall be accompanied with fees specified in schedule IV.

(6) The letter of offer shall be dispatched not earlier than twenty-one days from its submission to the Board under sub-regulation (4).

Provided that if, within twenty-one days from the date of submission of the draft letter of offer, the Board specifies modifications, if any, in the draft letter of offer, (without being under any obligation to do so) the merchant banker and the company shall carry out such modifications before the letter of offer is despatched to the shareholders.

(7) The company shall file along with the draft letter of offer, a declaration of solvency in the prescribed form and in a manner prescribed in sub-section (6) of section 77A of the Companies Act .

Offer procedure

9 (1). The offer for buy back shall remain open to the members for a period not less than fifteen days and not exceeding thirty days.

(2) The date of the opening of the offer shall not be earlier than seven days or later than thirty days after the specified date.

(3) The letter of offer shall be sent to the shareholders so as to reach the shareholders before the opening of the offer.

(4) In case the number of shares offered by the shareholders is more than the total number of shares to be bought back by the company, the acceptances per shareholder shall be equal to the acceptances tendered by the shareholders divided by the total acceptances received and multiplied by the total number of shares to be bought back.

(5) The company shall complete the verifications of the offers received within fifteen days of the closure of the offer and the shares lodged shall be deemed to be accepted unless a communication of rejection is made within fifteen days from the closure of the offer.

Escrow account

10(1). The company shall as and by way of security for performance of its obligations under the regulations, on or before the opening of the offer deposit in an escrow account such sum as specified in sub-regulation (2).

(2). The escrow amount shall be payable in the following manner,-

(i)If the consideration payable does not exceed Rs.100 crores - 25% of the consideration payable;
(ii) if the consideration payable exceeds Rs. 100 crores – 25% upto Rs. 100 crores and 10% thereafter.

(3)The escrow account referred in sub-regulation (1) shall consist of

(a) cash deposited with a scheduled commercial bank or;

(b) bank guarantee in favour of the merchant banker; or

(d) a combination of (a),(b) and ( c) above.

(4) Where the escrow account consists of deposit with a scheduled commercial bank, the company shall, while opening the account, empower the merchant banker to instruct the bank to issue a banker’s cheque or demand draft for the amount lying to the credit of the escrow account, as provided in the regulations.

(5) Where the escrow account consists of bank guarantee, such bank guarantee shall be in favour of the merchant banker and shall be valid until thirty days after the closure of the offer.

(6) The company shall, in case the escrow account consists of securities, empower the merchant banker to realise the value of such escrow account by sale or otherwise and if there is any deficit on realisation of the value of the securities, the merchant banker shall be liable to make good any such deficit.

(7) In case the escrow account consists of bank guarantee or approved securities, these shall not be returned by the merchant banker till completion of all obligations under the regulations.

(8) Where the escrow account consists of bank guarantee or deposit of approved securities, the company shall also deposit with the bank in cash a sum of at least one-percent of the total consideration payable, as and by way of security for fulfilment of the obligations under the regulations by the company.

(9) On payment of consideration to all the shareholders who have accepted the offer and after completion of all formalities of buy back, the amount, guarantee and securities in the escrow, if any, shall be released to the company.

(10) The Board in the interest of the shareholders may in case of non-fulfilment of obligations under the regulations by the company forfeit the escrow account either in full or in part.

(11) The amount forfeited under sub-regulation (10) may be distributed pro rata amongst the shareholders who accepted the offer and balance, if any, shall be utilised for investor protection.

Payment to shareholders

11.(1) The company shall immediately after the date of closure of the offer open a special account with a Bankers to an Issue registered with the Board and deposit therein, such sum as would, together with the amount lying in the escrow account make-up the entire sum due and payable as consideration for buy-back in terms of these regulations and for this purpose, may transfer the funds from the escrow account.

(2) The company shall within seven days of the time specified in sub-regulation (5) of regulation 9 make payment of consideration in cash to those shareholders whose offer has been accepted or return the share certificates to the shareholders.

Extinguishment of Certificate

12.(1) The company shall extinguish and physically destroy the share certificates so bought back in the presence of a Registrar or the Merchant Banker, and the Statutory Auditor within seven days from the date of acceptance of the shares.

(2) The shares offered for buy-back if already dematerialised shall be extinguished and destroyed in the manner specified under Securities and Exchange Board of India (Depositories and Participants) Regulations,1996 and the bye-laws framed thereunder.

(3) The company shall furnish a certificate to the Board duly verified by a. the registrar and whenever there is no registrar through the merchant banker; b.two whole-time Directors including the Managing Director and, c.the statutory auditor of the company, and certifying compliance as specified in sub-regulation (1), within seven days of extinguishment and destruction of the certificates.

(4) The particulars of the share certificates extinguished and destroyed under sub-regulation (1) shall be furnished 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 maintain a record of share certificates which have been cancelled and destroyed as prescribed in sub-section (9) of section 77A of the Companies Act,.

Odd-lot Buy-back

13. The provisions pertaining to buy back through tender offer as specified in this Chapter shall be applicable mutatis mutandis to odd lot shares.

Source : Sebi