Centre clears buyback

The ordinance has also allowed Infrastructure Development Finance Company Ltd to be declared as a financial institution.

In a press note here the government stated that the Companies Bill, 1997, now pending before Parliament, will be taken up for consideration and passed.The ordinance had been sent to president K R Narayanan forhis assent on Wednesday afternoon after the cabinet cleared the amendments to the Act during meeting on October 26.

Buyback of shares has been permitted with a number of riders. Companies have been allowed to buyback their share to the extent of 25 % of the paid up capital and free reserves. The buyback can be transacted out of the company’s free reserves, securities premium account or proceeds of any earlier issue specifically made for buyback purpose. Significantly, the ordinance has barred companies which have defaulted in repayment of deposits, redemption of debentures or preference shares and in repayment to financial institutions from buying back its shares.

Companies would be allowed to buyback shares only if its articles of association permits it to do so. A special resolution is also required to be passed in a general meeting to proceed with the buyback.

The buyback of shares will have to be completed within 12 months from the date of special resolution and the shares bought back will have tobe "extinguished and physically destroyed" within seven days from the date of buyback.

In addition, the companies will not be allowed to make any further issue of shaes within a period of 24 months from the day of completing buyback except by way of bonus issue and conversion of warrants/preference share/debentures. The new regulations further requires the companies to give details such as necessity for buyback, class of securities to be purchases, amount to be invested for buyback and the time frame for completion of the process in the notice of the meeting for passing a resolution on buyback.

On the inter-corporate deposits, companies now have the full freedom to make inter-corporate investments and loans to other body corporates without seeking prior approval of the central government.

Where the investment or loan exceeds 60 per cent of the companies paid up share capital and free reserves, it will have to pass a special resolution specifying the limits, particulars of the body corporate in which theinvestment is proposed to be made or loans given, the purpose of the investment and sources of funding. Sweat equity can be issued to directors or employees of companies once a special resolution has been passed at a general meeting. The issue of sweat equity would be subject to Securities and Exchange Board of India guidelines. These equities can be issued either at a discount or for consideration other than cash for know how or intellectual services provided.