Share Buyback Rules After Bill Is Passed

The Securities & Exchange Board of India may frame guidelines for buy-back of shares of companies that are listed on bourses. The department of company affairs will regulate the buy-back of shares of unlisted companies.

Sources say Sebi would move in this direction only after the new companies bill is passed by both the Houses of Parliament. According to the new bill, all matters related to the issue of capital will come under the purview of Sebi. Logically speaking, buy-back needs to come under the Sebi purview too. However, we have to wait till the bill is passed in Parliament, sources said.

A debate was witnessed on the issue of buy-back at a seminar on the draft companies bill organised by the Federation of Indian Chambers of Commerce & Industry in Mumbai yesterday. There was no clear statement by any working group member on the authority that will regulate buy-back of shares.

The Sebi guidelines are likely to focus mainly on the operational aspect which will include the pricing formula, negotiated deals for buy-back and open market operations. However, companies are not required to seek permission from any regulatory authority for buying their shares back.

There will be an overall supervision of the newly set up company law tribunal. A set of recommendations given to participants has a statement that says: The jurisdiction of buy-back of shares and disputes arising from solvency certificates or failure of companies in a buy-back will lie with the company law tribunal.

Ficci secretary (law) S B Gupta feels that the minimum debt-equity ratio of 2:1 required to be maintained in case of buy-back of shares should be made flexible.