A buy-back by a listed company is governed by Section 68 of the Companies Act, 2013, and the SEBI (Buy-Back of Securities) Regulations, 2018. The two regimes operate together, and the buy-back must comply with both. The SEBI regulations prescribe the methods, the disclosure, and the process, while the Act prescribes the limits and the accounting.
The Permissible Methods
The SEBI Buy-Back Regulations permit a buy-back through a tender offer to all the shareholders on a proportionate basis, through the open market, or through a book-building process. The open market route through the stock exchange was phased out and completely discontinued with effect from 1 April 2025, except for offers that commenced on or before 31 March 2025. SEBI has proposed to re-introduce the open market route as an additional mechanism, but the proposal is not yet in force.
The Limits
Section 68(2)(c) limits the buy-back to twenty-five per cent of the total paid-up capital and free reserves. The company cannot buy back more than twenty-five per cent of its paid-up equity capital in any financial year. The post-buy-back debt-equity ratio must not exceed 2:1, and the company must transfer to the Capital Redemption Reserve a sum equal to the nominal value of the shares bought back.
The Process
The buy-back requires the board’s approval and, where the buy-back exceeds ten per cent of the paid-up capital and free reserves, the shareholders’ approval by a special resolution. The company must appoint a merchant banker, open an escrow account, make the public announcement, and file the offer document with SEBI and the stock exchanges. The buy-back must be completed within the timeline prescribed by the regulations, and the shares must be extinguished and destroyed within seven days of the completion.
The Tax
The Finance Act, 2024 changed the tax treatment of buy-backs. The buy-back proceeds are treated as dividend in the hands of the shareholders, and the company is required to deduct tax at source. The cost of acquisition of the shares is treated as a capital loss, which can be set off against capital gains. The tax treatment should be factored into the buy-back pricing and the shareholders’ decision.
A technically sound buy-back is structured to comply with the Section 68 limits, the SEBI process, and the tax regime, and it is completed within the regulatory timeline.
Call to Action
Anuj Desai & Associates advises listed companies on buy-backs—from the Section 68 limits and the SEBI Buy-Back Regulations to the tender offer process, the escrow, and the tax treatment. If you are planning a buy-back, we can help you navigate the dual regime.
📧 office@anujdesaiassociates.com
📞 9619456656
🌐 https://anujdesaiassociates.com
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