Funds to he used for Buy-back [Sec. 77 A(I). The company

purchases its own securities out of

(0) its frec-reserves,

(b) the Securities Premium Account. .

© the proceeds of any shares cr specified securities issued for the

purpose of buy-back. No buy-back shall be allowed out of the proceeds of earlier issues of the same kind of shares or specified securities. In other words.it means, that equity shares cannot be purchased out of the proceeds of issue of equity shares, already issued. However, equity shares can be purchased outof proceeds of issue of preference shares, issued earlier. .‘Free Resen’c’ means free reserve as defined in explanation (b) to Sec 372A. Accordingly free resenrcs mean those reserves which are free for distribution as dividend as per latest audited balance sheet. These include balance to the credit of Securities Premium Account but shall not include share application many (which is due for refund but has not been encashed).

‘SpeciticJ Securities’ includes ‘Employees Stock Option’ or other securities as may be notified by the Central Government from time to time.

2. Crcation of ‘C’I)ital Redemption Rescn’e Account [See 77A (5»). If a company purchases its own shares or securities out of free reserves, then, a sum equal to the hominal value of shares so purchased shall be transferred to ‘Capital Redemplion Reserve Account’ out of free reserves and its details must be disclosed in the Balance Sheet. The Capital Redemption Reserve is a special type of reserve and it is to be treated as share capital for reduction purposes. This reserve maybe utilised only for issue of fully paid bonus shares.

3. Conditions fol’ Purchase of own Shares [Sec. 77 A (2), (3), md (4).

A company can purchase its own shares subject to the following conditions

(i) Buy-backing its own shares or specified securities should be authorised by the Articles of Association (otherwise. Articles will have to be amended first).

(ii) A special resolution approving buy-back should be passed in the general meeting of the company. .

Notice for convening general meeting at which the special resolution. is to be passed must be accompanied by an explanatory statement containing (0) full and complete disclosure of all material facts of the buy-back, (b) the necessity for buy-back. (c) class of securities to be purchased for this purpose. (d)

the amount involved. and (e) the time limit for completion of buy back.

(i ii)The amount involved in the buy-back should not be less than 25% of share paid up share capital and free reserve.

(iv) The debt: equity (capital + free reserves) ratio, after completion of buy-back should not be more than 2 : 1. However, the Central Government may

permit a higher debt-equity ratio for a class or classes of companies.

Debts for this purpose. includes all secured and unsecured debts.

(v) Shares or other specified securities to be brought back should be fully paid up. Partly paid up shares securities cannot be bought back.

(vi) Shares other specified securities should be listed on any recognised stock exchange and should be in accordance with the SEBI regulations. For this

purpose, the SEBI has notified the SEBI back of Securities) Regulation 1998, As regards unlisted shares and specified securities, the buy-back should be in accordance with the guidelines issued

by (the Central Government) for this purpose, The Central Government has notified the Prh’ate Limited Compan)’ and Unlisted Public Limited COmIHID)’