Our company wants to do a buyback of its own shares. Is this allowed under the Companies Act 2013 and what conditions apply?

Detailed Legal Analysis

Yes, a company is allowed to do a buyback of its own shares under the Companies Act, 2013, subject to certain conditions and compliance requirements.

The provisions governing the buyback of shares are primarily found in Section 68 to Section 70 of the Companies Act, 2013. Below are the key points and conditions that a company must adhere to in order to undertake a buyback of its shares:

• Eligibility: Only a company that is not prohibited by its articles of association can undertake a buyback.
• Types of Buyback: Buybacks can be accomplished through:
  • Market purchases
  • Purchases from the shareholders on a proportionate basis
  • Other prescribed methods
• Conditions Under Section 68:
  • The buyback must be authorized by the company’s articles of association.
  • The buyback must be approved by the board of directors via a resolution.
  • In case the buyback exceeds a limit of 25% of the total paid-up capital and free reserves, it requires approval from the shareholders through a special resolution.
• Financial Limits: The buyback cannot exceed:
  • 25% of the paid-up capital of the company in a financial year.
  • The amount of shares bought back must be sourced from the company’s free reserves or securities premium account.
• Compliance Requirements: The company must:
  • File a return of buyback with the Registrar of Companies (RoC) in Form SH-8 within 30 days of the buyback.
  • Maintain a register of the buyback and make it available for inspection.
  • Cancel the shares purchased as part of the buyback.
• Prohibition on Buyback: The company cannot buy back its shares if it is in default of repayment of any deposits or if it has defaulted in the payment of interest or principal on any debt.

In conclusion, while buyback is permissible under the Companies Act, 2013, companies must ensure strict adherence to the laid down conditions and procedural requirements to avoid legal repercussions.