The Securities and Exchange Board of India [SEBI] has issued SEBI (Buy back of Securities) Amendment Regulations, 2013 [hereinafter referred to as "New Regulations"] vide notification No. LAD-NRO/GN/2013- 14/16/6348 dated 8th August, 2013 amending the existing SEBI (Buy back of Securities) Regulations, 1998 [hereinafter referred to as "Regulations"/ "Old/Earlier Regulations"]. Also, recently the Companies Bill, 2013 [hereinafter referred to as "Companies Bill"] has been passed by the Rajya Sabha. Considering the above New Regulations, Regulations and the Companies Bill an analysis has been done discussing the various provisions. The changes have been discussed point wise as follows:
- Ceiling prescribed for buy back from open market: Regulation 4 of the Regulations state that a company may buy-back its shares or other specified securities from the existing security-holders on a proportionate basis through tender offer or from the open market offer. The existing regulations do not prescribes any cap on the amount on buy back of securities. However, with the issue of new regulations, a provision has been added to Regulation 4 which provides that buy-back offer from the open market shall not be made for 15% or more of the paid up capital and free reserves of the company. In this regard, clause 68 of the Companies Bill, recently approved by Rajya Sabha provides that the buy-back of securities shall be limited to 25% of total paid-up capital and free reserves. Provided that in case of buy-back of equity shares it is 25% of total paidup equity capital in a financial year.
- Lock in period on further buy-back : The existing regulations do not provide for any lock in period between two buy back offers. However, the new regulations has issued a sub-regulation 4 after sub-regulation 3 of Regulation 4 which provides that no offer of buy-back shall be made by any company within a period of one year from the date of closure of the preceding offer of buy back. The Companies Bill in this regards also provides that no offer of buy-back shall be made within a period of one year from the date of closure of preceding offer of buy-back.
- Minimum Buy Back limit: The newly introduced sub regulation 3 of Regulation 14 of the new regulations provides that atleast 50% of the amount set aside for buy-back shall be utilized for buying back shares or other specified securities. There was no such limit prescribed in the existing regulations. Further, the Companies Bill is also silent with respect to such limit.
- Public Announcement (PA): Regulation 15(d) of the said regulations provided that the PA shall be made at least 7 days prior to the commencement of buy back. However, the new regulations has modified the said regulation and provides that the PA shall be made within 7 working days from the date of passing the resolution authorizing buy-back. It is to be noted that there is no such condition relating to the same has been provided in the Companies Bill.
- Filing of copy of PA with SEBI: The regulations provided that copy of PA shall be filed with SEBI within 2 days of making such announcement. The same has now been modified and the companies shall now be required to ensure that copy of PA shall be filed with SEBI simultaneous with the issue of public announcement.
- Submission of information pertaining to buy-back : Regulation 15(i) in the regulations provided that the company shall submit the information pertaining to buy-back on daily basis to Stock Exchange and publish the same in a national daily on a fortnightly basis. However, as per the amended regulation (i) of Regulation 15, the company shall be required to submit the information regarding the shares or securities bought back to stock exchange on daily basis in specified form and the stock exchange shall upload the same on its website. Further, newly inserted sub regulation (ia) of Regulation 15 provides that the company shall upload the information regarding the shares or other securities bought-back on its website on a daily basis.
- Period of buy back offer: The newly inserted sub regulation (k) of Regulation 15 provides that the buy-back offer shall open not later than seven working days from the date of public announcement and shall close within six months. No such condition was prescribed under the existing regulations. However, the Companies Bill provides that the buy-back shall be required to be completed within a period of 1 year from the date of passing of resolution authorizing buyback.
- Buying back physical shares/ specified
securities: Regulation 15A has been inserted in the new
regulation which deals with buy-back of physical shares or other
specified securities. Following are some of the key points:
- a separate window shall be created by the stock exchange, which shall remain open during the buy-back period, for buyback of shares or other specified securities in physical form.
- Before proceeding with buy-back, verification of the identity proof and address proof needs to undertaken by the broker.
- the price at which the shares will be bought back shall be the
volume weighted average price of the shares or other specified
securities bought-back, other than in the physical form, during the
calendar week in which such shares or other specified securities
were received by the broker
- Escrow Account : New Regulation 15B has been inserted which provides that before opening of the buy-back offer, the company shall create an escrow account towards security and shall deposit 25 % of the amount earmarked for the buy-back in such escrow account. No such condition was/is there either in the regulations or Companies Bill.
- Extinguishment of Certificates : The newly inserted sub regulation 3 of Regulation 16 provides that the company shall be required to extinguish and physically destroy the security certificates so bought back during the month in the presence of a Merchant Banker and the Statutory Auditor, on or before 15th day of the succeeding month. Further, the company shall ensure that all the securities bought-back are extinguished within seven days of the last date of completion of buyback. Earlier there was no such provision under the regulations. The Companies Bill however, provides that the certificates shall be extinguished within 7 days of the last date of completion of buy-back.
- Restriction on dealing in Shares or specified securities: Regulation 19(1)(e) has been modified so as to specifically mention the period during which the promoters or the person shall be restricted to deal in shares or specified securities. As per the said regulation, the promoter or the person shall not be allowed to deal in the shares or other specified securities of the company in the stock exchange during the period or off- market, including inter-se transfer of shares among the promoters during the period from the date of passing the resolution relating to buyback. As per the earlier regulations, such restriction was for during the period when buy back offer is open. No such condition as prescribed in the Companies Bill.
- Raising of further capital : As per the newly inserted Regulation 19(1)(f ), the company shall not raise further capital for a period of 1 year from the closure of buy-back offer, except in discharge of its subsisting obligations. However, as per the Companies Bill, a period of 6 months has be prescribed for the purpose of raising further capital except by way of bonus issue or in discharge of its subsisting obligation.
The amendments made to the existing legal framework of Buy Back Regulations have been done considering the overall interests of the various stakeholders. However, there are certain provisions in the new regulations which are in conflict with the recently passed Companies Bill and will require some kind of clarification.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.