3rd June 2016                                                                                  By Varun Chauhan

Assistant Associate

Anil Grover and Associates, New Delhi


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Buy-Back of shares or other specified securities is a process by which a company re-purchases its securities as such from its shareholders or security-holders as the case may be. It is one of the corporate financial strategies to enhance capital return by optimising the capital structure to suit the current market environment.


The concept of Buy-Back was forbidden under The Companies Act, 1956 until its amendment in 1999. Section 77A, 77AA and 77B were introduced to help companies plan their capital requirements by cancelling their share capital accordingly. New statute, i.e. The Companies Act, 2013 also carried forward the concept of Buy-Back with minor changes in the rules and procedure to be followed.

Section 68, 69, and 70 of The Companies Act, 2013 along with Rule 17 of The Companies (Share Capital and Debentures) Rules, 2014, governs the procedure of Buy-Back of shares and other specified securities by Unlisted Companies. Unlisted companies are those companies whose shares are not listed on a recognised stock exchange and therefore not available for trading by the general public. An unlisted company can be a Private or Public company.

For a clear understanding of the Buy-Back procedure to be followed in case of an unlisted company, a detailed tabular presentation has been created. The following table shows the step-by-step procedure in a comprehensive manner:

Step No. Description Time Limit Observation/Explanation

(a) Buy-Back by Board of Directors without Special Resolution.



At least 7 days’ notice to Directors.

·         Only when Buy-Back is ten percent (10%) or less of the total paid up equity capital and free reserves of the company.

·         Buy-Back shall be authorized by the Board by a general resolution at its meeting.

·         No special resolution needs to be passed


  (b) Buy-Back approved in General Shareholders’ Meeting with Special Resolution

·         When Buy-Back is more than ten percent (10%) and up to twenty-five percent (25%) of the aggregate of paid up capital and free reserves of the company.

·         In respect of Buy-Back of Equity Shares the reference to 25% in this clause shall be construed with respect to total paid-up Equity Capital in that Financial Year.

·         Convene a Board Meeting as above and decide details of proposed Buy-Back and fix date, time, place and agenda for convening a general meeting to pass a special resolution.

·         A special resolution needs to be passed at the forthcoming general meeting of the company authorizing Buy-Back.


  Note: Steps no. 2 and 3 are required only in case of Buy Back with a special resolution in 1(b) above.  
  2. Notice of General Meeting accompanied by Explanatory Statement for passing a special resolution as in 1(b) above.

At least 21 Days’ Notice to shareholders



Information that needs to be annexed with the Explanatory Statement and notice of GM:

·         The date of Board meeting at which the proposal for buyback was approved by the Board of Director of the Company;

·         Necessity for the Buy Back;

·         Class of security intended to be purchased under the buy back;

·         The number of securities that the company proposes to Buy-Back;

·         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;

·         The aggregate of shareholding of promoter and the director as on the date of the notice convening the General Meeting;

·         Aggregate number of equity shares purchased or sold by persons including promoter and director during a period of twelve (12) months preceding the date of Board Meeting at which Buy-Back was approved till the date of the notice convening the General Meeting;

·         The maximum and minimum price at which purchase and sales referred to above made along with the relevant date;

·         Intention of the promoter and person in control of the Company to tender shares for Buy-Back:

(i)          indicating the number of shares, details of acquisition with date and price;

(ii)         Details of their transactions and their holdings for the last twelve (12) months prior to the date of board meeting at which Buy-Back was approved.

·         A confirmation that there is no default subsisting in repayment of deposits, redemption of debenture or preference shares or repayment of term loan to any financial institution or banks;

·         A confirmation that the Board of Directors has made full enquiry into the affairs and prospects of the Company. And there are no grounds on which the company could be found unable to pay its debts;

·         In the view of Board of Directors company shall be able to meet its liabilities as and when they fall due and shall not be rendered insolvent within a period of one year from that date;

·         The directors have taken into account the liabilities(including prospective and contingent liabilities), as if the company were being wound up under the provisions of the Companies Act, 2013;

·         A report to the Board of Directors by the Company’s auditors stating that:

(i)          They have inquired into the Company’s state of affairs;

(ii)         The amount of permissible capital payment for the securities in question is, in their view, properly determined;

(iii)       The audited accounts on which calculation with reference to Buy-Back is done not more than six (6) months old from the date of offer document.

(iv)       The Board of directors have formed the opinion on reasonable grounds and that the company, having regard to its state of affairs, shall not be rendered insolvent within a period of one year from that date.



Filing Special Resolution with ROC in form No. MGT-14


Within 30 days of passing of special resolution

·         Must be filed with a copy of the special resolution and explanatory statement.

·         Must be certified by a CA, CS or any Cost Accountant of the company with digital signatures.


  4. File Letter of Offer in Form No. SH 8 with ROC  

·         Dated and signed on behalf of the Board of directors of the company by not less than two directors of the company, one of whom shall be the managing director, with the following attachments:


(i)                 Details of the promoters of the company;

(ii)                Declaration by auditor(s);

(iii)              Copy of the board resolution;

(iv)              Copy of the notice issued under section 68(3) along with the explanatory Statement thereto;

(v)               Audited financial statements of last three years;

(vi)              Buy back details of last three years;

(vii)            List of holding and subsidiary companies of the company;

(viii)           Unaudited financial statement (if applicable);

(ix)              Statutory approvals received (if any);

(x)               Details of the auditor, legal advisors, bankers and trustees (if any);

(xi)              Confirmation of opening of Separate Bank Account.



Declaration of Solvency in Form No. SH-9 to be filed along with Letter of Offer mentioned under step no. 4, with ROC



·         Signed by at least two directors of the company, one of whom shall be the managing director, if any, and verified by an affidavit as specified in the said Form.




Dispatch copy of Letter of Offer to Shareholders/ Security holders


Not later than 21 days from the date of filing with ROC

·         The offer for Buy-Back shall remain open for a period of not less than fifteen days and not exceeding thirty days from the date of dispatch of the letter of offer.



Deposit of money in the Separate Bank Account for Buy Back payments


Immediately after closure of offer of Buy Back ·         Deposit such sum, as would make up the entire sum due and payable as consideration for the shares tendered for Buy-Back.  

Verification, Acceptance and Rejection of Shares/ Securities


Within 15 days from the date of closure of offer

·         Acceptance of buy back shall be on pro rata basis if number of shares offered for Buy-Back is more than the total number of shares so approved to be bought back.

·         The shares or other securities lodged shall be deemed to be accepted unless a communication of rejection is made within twenty one days from the date of closure of the offer.



Payment of Consideration Amount


Within 7 days of verification/ acceptance ·         Payment in cash only, to those shareholders whose shares/securities have been accepted.  
  10. Return of share certificates where shares/ securities not accepted for Buy-Back. Within 7 days of Rejection ·         Return share certificates to the shareholders or security holders whose securities have not been accepted at all or the balance of securities in case of part acceptance on pro rata basis.  

Extinguish and physically destroy shares/ securities bought back


Within 7 days from the last date of completion of Buy-Back    

Maintain Register of shares/securities bought back



·         The register of shares or securities bought-back shall be maintained at the registered office of the company and shall be kept in the custody of the secretary of the company or any other person authorized by the board in this behalf.

·         The entries in the register shall be authenticated by the secretary of the company or by any other person authorized by the Board for the purpose.

·         Register shall contain all the particulars as mentioned under Form No. SH-10.



Filing Return of Buy-Back with ROC


Within 30 days of Completion of Buy-Back


·         After the completion of the Buy-Back, file with the Registrar, a return in Form No. SH.11 with the following attachments:

(i)          Description of shares or other specified securities bought back;

(ii)         Particulars relating to holders of securities before Buy-Back;

(iii)       Copy of the special resolution passed at the general meeting;

(iv)       Copy of the board resolution and Balance sheet of the company.



Filing of Compliance Certificate with ROC along with the Return


Within 30 days of Completion of Buy-Back(annexed with Form NO. SH-11)

·         Annexed to the return filed with the Registrar in Form No. SH.11, a certificate in Form No. SH.15 signed by two directors of the company including the managing director, if any, certifying that the Buy-Back of securities has been made in compliance with the provisions of the Companies Act and the Companies (Share Capital and Debentures) Rules.





*Please note that provisions of Section 115QA, Income Tax Act, 1961 applies to the Buy-Back of shares by an unlisted company. Accordingly, the company needs to pay distribution tax @ 20% on the amount of Distributed Income** within fourteen (14) days of payment of consideration to shareholders.

**Distributed Income means the consideration amount paid for Buy-Back less (-) sum received at the time of issue of such shares.

About the Author: Varun Chauhan is a graduate from Amity Law School, Noida. He did his PG Diploma in Corporate Laws and Management from Indian Law Institute, New Delhi. He presently works for the Additional Advocate General, Haryana as Assistant Associate in his New Delhi office. He works in the drafting department and mainly handles corporate and environment matters. The present research work was done during his internship at Trilegal, New Delhi where he assisted Senior Associates in the Private Equity Team.

Disclaimer: Due care has been taken by the author while making the above mentioned submissions. However, any averment or information should not be relied upon as the sole source of information. Prior consultation with an expert for his opinion is advised in matters where any reader plans to act on behalf of such information.


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  1. Thank you for the information. My company is a private limited company. What shall be the pricing criteria for buy back of shares of private limited company and if the company does not want to buy back its shares in fair market value of shares then how much can it deviate from the fair value?



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