SEBI has issued the Securities and Exchange Board of India (Buy-Back of Securities) (Second Amendment) Regulations, 2019 on September 19, 2019. The amendment clarifies the ambiguity that might arise in calculating the maximum limit for buy back of shares by listed companies.
The Regulation did not expressly provide the basis for calculating aggregate of paid-up capital and free reserves. Following changes have been brought in the Regulations:
- Under Regulation 4(i), the maximum limit of any buy-back is 25% or less of the aggregate of paid-up capital and free reserves of the company. The amendment provides that it shall be calculated on the basis of both standalone and consolidated financial statements of the company.
- Regulation 4(ii) has been substituted. The conditions for Buy-Back under the regulations also allows Buy-Back only if the aggregate debt after the Buy-Back is less than half the paid-up capital and free reserves of the company. The amendment provides that this shall be based on both standalone and consolidated financial statements of the company. While calculating the consolidated financial statement for this purpose, the amendment provides for exempting the financial statements of all subsidiaries that are non–banking financial companies and housing finance companies regulated by Reserve Bank of India or National Housing Bank.
- Regulation 4(iv) puts a restriction on the company on buy back of share from open market. No offer of buy-back more than 15% of the paid up capital and free reserves of the company, shall be made. The amendment provides that it shall be calculated on the basis of both standalone and consolidated financial statements of the company.
- As per Regulation 5, a special resolution is required to be passed at a general meeting to authorise a buy-back exceeding ten percent of paid-up capital and free reserves of the company. The amendment provides that in this context also, the aggregate of paid-up capital and free reserves shall be based on both standalone and consolidated financial statements of the company.
Click here to read amendment.
