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Buyback of Shares A Judiciary Prospective

Corporate Laws / Banking / SEBI - By: - Mandar Rane - Dated:- 8-8-2016 Last Replied Date:- 30-12-1899 - Buyback of Shares - A Judiciary Prospective Introduction When a Company has excess cash they may either use it for Investment, Acquisition of another company, repay debt or Buyback of shares. Buyback of shares in common parlance may be described as a procedure followed by a Company wherein it offers to purchase shares from its shareholders. Buyback of share is an indicator that a company belie .....

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wn in the provision. The section provides a detailed framework for a Company to Buyback its own shares. There is a clear distinction of the fund from which a buy-back can be financed. A buy-back exercise can be carried out only up to an amount up to 25 per cent of the paid-up equity capital in that financial year of the Company and the debt to paid up capital and free reserves ratio should not go beyond 2: 1.The shares to be bought back should be fully paid. There should be authorization in the .....

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olidating the stake and averting such bids. Exit opportunity to shareholders:-Buyback of shares would provide an exit opportunity to institutional shareholders/large retail shareholders, which may otherwise not be available whilst at the same time safeguarding the interest of continuing shareholders as provided in Re: Abbott India Limited1 buyback casein 2007 where price at which the buy-back is proposed is ₹ 650/- and is higher than the book value of ₹ 141.65 per share Increase in E .....

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assuming full acceptance of Buyback offer. Return to shareholders:- If there is no profitable utilization of the reserves, returning back its money to the shareholders out of its surplus funds and if the best possible price is being paid, than it would benefit the shareholders who would opt to divest their shares in the buy back. Pitfalls in Buyback of shares Lack of Growth:-Buyback of shares is a signal to the Investors that there are no more profitable opportunities of Growth available in Busi .....

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ments regarding buyback of shares even when the company was not performing well. The announcement was issued with a view to create investor interest in the scrip even though the Company did not have sufficient resources to meet the buyback obligations. Procedural Aspect:-The procedure set out in the Act shall be adhered strictly to protect the stakeholders. In case if any provision are not adhered to than it would attract penalty and officer in default are punishable with imprisonment. In Essar .....

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accomplice (i.e. person acting in concert) of the Managing Director of the Company heavily traded using the Buyback information after issuance of advertisement causing spurt in pricing of shares.Favourable conditions were created to operate in the market in the backdrop of such advertisements and sell the shares of the Company to the gullible public thereafter, another aspect that was pointed out was that the whole funding of Buyback was been accrued in future from a proposed technology transfer .....

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equity shares in accordance to provision of Section 391 read with Sections 100 to 103 of Companies Act 1956,which constituted 30% of issued , subscribed and paid up capital of the Company. The Regional Director via an affidavit dated October 1, 2014 had raised objection and opposed sanction of the Scheme. Regional Director raised objection on grounds that buyback of shares can be effected only under Section 77A of Companies Act 1956/Section 68 of the Companies Act 2013. The Regional Director fu .....

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ties have not broached any objections. Further it was argued that it is open for the Company to follow either of the procedure out of two available to effectuate Buy Back of shares and since the Company wants to buyback 30% paid up capital and free reserve it would not be possible under Section 77A/Section 68 as it is only permissible to buyback 25% of paid up capital and reserves of the Company, thus the Company can buyback only by following the procedure under Section 391 read with Sections 10 .....

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ision which enables companies to Buyback their shares without having to approach the court and Prior to the introduction of section 77A, the only manner in which a company could buyback its shares was by following the procedure set out under sections 100 -104 and section 391 of Companies Act 1956. Thus Hon ble High court sanctioned the Scheme of Arrangement with clarification the issues relating to Income tax that may arise out of the Scheme are left open to be dealt with and decided by the Inco .....

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1956 the said tax obligation was not triggered. Thus, Finance Act 2016 has amended Section 115QA of Income Tax wherein the provision will be applicable to buy back of unlisted share undertaken by the company in accordance with the provisions of the law relating to the Companies and not necessarily restricted to section 77A of the Companies Act, 1956. Buyback of shares - Unilateral Purchase of Shares? Here we analyze Godrej Industries Ltd. s Case7 adjudicated at National Consumer Disputes Redress .....

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k of shares. The Complainant further stated such an act amounted to a unilateral purchase of share and amounted to compulsory acquisition of shares. The Complainant had stated that option form stated by GIL has not been received thus question of intimation would not arise and there is no evidence of actual delivery of the form. The Complainants counsel further argued that holding shares in Company is similar to possessing a property and the same could not be purchased by GIC in the manner, state .....

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Scheme.GIC further contended that The Company had, therefore, acted in accordance with provisions of the Scheme and the procedure laid down in the Companies Act. The decision was in favour of GIC wherein it was directed to make the payment along with interest. Noting s: - The basic issue in the said case revolved around whether a shareholder can be made to sell shares of a Company without consent and is the scheme unfair and against the interest of the shareholders. For the first instance in gi .....

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steps to apprise shareholders about the Scheme. Buyback of shares - Reduction of Capital? In the present case of Income Tax Appellate Tribunal - Mumbai, Goldman Sachs (India) Securities on 12 February, 2016 [ 2016 (3) TMI 118 - ITAT MUMBAI ]8which was a wholly owned subsidiary of Goldman Sachs (Mauritius) LLC. The Indian entity of Goldman Sachs had remitted certain amount to its parent entity under Buy Back of Shares Scheme which was over and above the face value as approved in General Meeting. .....

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f the Act. Even If the Buy Back transaction in said scenario leads to non-payment or lesser payment of Tax it cannot be held as a Colourable transactions. Can Assesse be held in default for non-deduction of Tax at source? Profit arising out of Buy Back is taxed as Capital Gain, the said Capital Gain arised is taxable at hands of parent company in Mauritius however under Indo - Mauritius Treaty capital gain is not taxable to parent Company. Since the Assesse is not liable to deduct tax as per pro .....

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ssesses accumulated profits. Section 46A on other hand asserts the difference between the cost of acquisition and value of consideration received by the shareholder or the holder of others specified securities, as the case may be, shall be deemed to be the capital gains arising to such shareholder or holder of specified securities. Thus we conclude after considering both sections of the Act that Buyback of shares and reduction of capital are two different concepts and Buyback of shares by Corpor .....

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