In a bid to boost sagging market sentiment, the government today decided to allow companies to buy back up to 10 per cent of their shares without having to seek the approval of shareholders.

Under the new rules, companies can issue fresh shares after six months of the buyback as against the previous limit of 24 months.

The ordinance seeks to amend Section 77 A of the Companies Act 1956 for this purpose. Previously, as per Section 77 A (2b), a company was authorised to buy back shares only after a special resolution was passed in its general meeting.

The new norms make a special resolution mandatory only if the buyback is over 10 per cent of the company’s paid up capital and free reserves, said Pramod Mahajan, parliamentary affairs and IT & communications minister.

Under the previous guidelines, a special resolution in the shareholders’ meeting was required to buy back up to 25 per cent of the equity.

Mahajan said the move was necessitated in view of the current depressed share market and the recent developments in the United States. “The liberalisation of conditions of buyback are expected to help improve market sentiments,” he said.

Mahajan also said that there would be a one-year lock-in for every board approval of buyback offer.

Relaxing the buyback norms was one among the various proposals including hiking the creeping acquisition limit and fungibility of foreign institutional investors (FII) and foreign direct investment (FDI) limits to usher in liquidity and firmness in the markets. While fungibility was already allowed through a government notification late last month, relaxation of buyback norms were awaiting the Cabinet approval.

The Securities and Exchange Board of India (Sebi) had, however, suggested that companies considering buyback should also be required to seek the shareholders’ approval since it could marginalise small shareholders. The ordinance would allow large shareholders sitting on the board to decide on how to spend the shareholders money without consulting the smaller shareholders.

The law ministry too had reservations on relaxation of buyback norms and had earlier objected to it.

Cabinet discusses FDI in media

The Cabinet today took up the proposal of allowing foreign equity in media. The discussion, however, remained inconclusive.

“All proposals were discussed. We, however, could not arrive at a decision,” parliamentary affairs, communications and IT minister Pramod Mahajan said when asked if the proposal to allow foreign direct investment in media was discussed.

Earlier, replying to a query at the Economic Editors’ Conference, finance secretary Ajit Kumar said, “We are considering some of the proposals for allowing FDI in media.” He, however, refused to elaborate on the nature of the proposals.