SPR065C -S.

77A 77AA, 77B Buying By An Unlisted Public Company And Private Company Of Its Own Securities [Sections 77A 77Aa 77B! TEXT :

Secretarial Practice Recorder No. 65C BUYIN BY AN UN!ISTE" PUB!IC C#$PANY AN" PRI%ATE C#$PANY #& ITS #'N SECURITIES (SECTI#NS 77A, 77AA, 77B) Note: T*i+ Secretarial Practice Recorder deal+ ,it* -./--ac0 o1 +ec.ritie+ -/ .2li+ted 3.-lic co43a2ie+ a2d 3ri5ate co43a2ie+ 6*erei2a1ter re1erred to a+ 7.2li+ted co43a2/78. &or -./--ac0 -/ li+ted co43a2ie+, +ee Secretarial Practice Recorder No. 65A. 9. '*at i+ : are t*e $ea2i2;, o-<ecti5e+ a2d -e2e1it+ o1 -./--ac0 o1 +ec.ritie+= "#" $%e term &-./--ac0& means t%e buying bac' by a company of its s%ares or ot%er securities from t%e %olders t%ereof# It is also refereed to as s%are ( stoc' -./--ac0# )%en a company limited by s%ares or a company limited by guarantee and %aving a s%are capital buys or purc%ases from its s%are%olders t%e s%ares issued by it at a certain price t%ereby returns t%e s%are capital to t%ose s%are%olders# "#* $%e s%are capital boug%t bac' %as t%e effect of reduction of s%are capital to t%e e+tent of t%e face value of t%e s%ares boug%t bac' and t%ere is cas% outflow from t%e company to t%e e+tent of t%e price of t%e s%ares paid to t%e s%are%olders# "#, $%e -./--ac0 of s%ares results into t%e s%are%olders w%ose s%ares are boug%t ceasing to be t%e s%are%olders of t%e company# $%eir names are omitted from t%e -egister of .embers# "#/ B./--ac0 is different from redemption of s%are capital e#g# redemption of redeemable preference s%ares# "#0 B./--ac0 of e1uity s%ares may be driven by any one or more of t%e following ob2ectives3 i# ii# iii# iv# v# vi# vii# viii# i+# $o increase t%e underlying value of t%e s%are4 $o en%ance earnings per s%are 56PS74 $o get rid of t%e e+cess s%are capital4 $o rationalise t%e capital base by writing off t%e capital w%ic% is lost or unrepresented by t%e available assets4 $o pay off surplus cas% not re1uired in t%e business4 $o increase t%e s%are%olding of t%e promoters or t%ose in t%e management control of t%e company4 $o prevent ta'e8over bid4 As part of total financial restructuring4 As part of compromise or arrangement 5including amalgamation7# "#9 A company may be benefited in any one or more of t%e following ways from -./-ac03 "# *# ,# /# 0# 9# 7# :le+ibility to re8organise s%are capital structure4 Improving return on capital net profitability and 6arning Per S%are 56PS74 Servicing t%e remaining s%are capital in a better manner by way of sustained dividend and appreciation of s%are value in t%e long run4 -educing t%e ris' of possible raids owing to lesser volume of s%ares in circulation4 .aintenance of t%e management control stable and continued business policies4 A viable proposition to investors to sell bac' t%e s%ares to t%e company4 Attracting e1uity investments in small businesses# Small businesses w%ic% are mainly family concerns are reluctant to raise capital from outsiders for fear of losing of control of business to outsiders# Outsiders on t%eir part are reluctant to contribute capital to enterprises w%ose s%ares are not easily mar'etable and w%ere t%ere is ris' of being loc'ed8in4

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:acilitating family re8arrangements enabling disgruntled members to realise t%eir investments wit%out t%e remaining family members being re1uired personally to fund t%e purc%ase bac' of t%eir s%ares4 :acilitating buying out discontented s%are%olders or employee s%are %oldings w%en t%e employment ceases4 6liminating fractional s%are %oldings and odd lots#

9. '*at are t*e co43a2/>+ 3o,er to -./--ac0 it+ o,2 +ec.ritie+= *#" 6very company %aving a s%are capital is pro%ibited under Section 77 from buying its own s%ares# [See Secretarial Practice -ecorder >o# 90!# *#* A company cannot purc%ase or cancel its own s%ares unless it complies wit% t%e provisions and follows t%e procedure for reduction of s%are capital under Sections "== to "=/# [See Secretarial Practice -ecorder >o# ;*!# *#, But Section 77A is an e+ception to t%e pro%ibition under Section 77# Section 77A allows companies to -./--ac0 t%eir own s%ares as well as any ot%er securities# It is also an e+ception to Section "==# *#/ B./--ac0 of securities in accordance wit% Section 77A overrides Sections 77 and "== or any ot%er provision of t%e Companies Act# $%is is clear from t%e e+pression ?>otwit%standing anyt%ing contained in t%is Act? in sub8section 5"7# *#0 But it does not override any provision of any ot%er law# $%erefore a company buying bac' its s%ares or ot%er securities must comply wit% any ot%er law if applicable# @i'ewise any provision of .emorandum or Articles of Association of t%e company any 2oint venture loan or any ot%er agreement memorandum of understanding or any ot%er document will override Section 77A# Any terms or conditions stipulated t%erein or any approval or permission re1uired t%ereunder will %ave to be complied wit%# *#9 An unlisted company can under Section 77A -./--ac0 its own s%ares 5e1uity or preference7 or any ot%er securities# Section 77A does not define ?securities? nor is it defined does t%e Act elsew%ere# :or t%e meaning of ?securities? see Secretarial Practice -ecorder >o# *,"# *#7 Aowever under Section 77A a company is not allowed to -./--ac0 any of its securities 5ot%er t%an s%ares7 only if t%ey are ?specified securities?# ?. '*ic* co43a2ie+ ca2 -./--ac0 it+ +ec.ritie+= ,#" Under Section 77A any company limited by s%ares or company limited by guarantee and %aving a s%are capital can -./--ac0 its own securities w%et%er it is a private company public company deemed public company listed company or unlisted company# ,#* In t%e case of unlisted companies t%e -./--ac0 of t%e s%ares or ot%er specified securities must be in accordance wit% t%e B./--ac0 -ules# ,#, 6very unlisted company must comply wit% t%e provisions of t%e B./--ac0 -ules in respect of -./--ac0 of its e1uity s%ares# $%e B./--ac0 -ules are applicable to t%e ?-./--ac0 of e1uity s%ares or ot%er specified securities?# [-ule *!# ,#/ According to Section 77A5*75g7 t%e -./--ac0 of s%ares or ot%er specified securities of an unlisted company s%all be in accordance wit% t%e guidelines as may be prescribed# $%e -./-ac0 securities by unlisted companies must be in accordance wit% t%e Pri5ate !i4ited a2d U2li+ted P.-lic Co43a2/ 6B./--ac0 o1 Sec.ritie+8 R.le+, 9@@@ [%ereinafter referred to as t%e B./ Bac0 -egulations! prescribed by t%e Bepartment of Company Affairs Covernment of India vide /Notification No. G.S.R. 502 (E) dated 6th July 1999.

,#0 $%e provisions of t%e B./ Bac0 -egulations s%all not be applicable w%ere t%e -./ -ac0 is or less t%an "=D of t%e total paid up e1uity capital and free reserves of t%e Company# Suc% -./ -ac0 can be aut%orised by t%e Board by means of a resolution passed at its meeting# [-efer Proviso to Section 77A5*7 inserted by Companies 5Amendment7Act *==" w# e# f# *,("=(*=="!# A. Are t*ere a2/ circ.4+ta2ce+ i2 ,*ic* a co43a2/ 4.+t 2ot -./--ac0 it+ +ec.ritie+= /#" A company s%all not directly or indirectly purc%ase its own s%ares or ot%er specified securities 8 a# t%roug% any subsidiary company including its own subsidiary companies4 or b# t%roug% any investment company or group of investment companies4 or c# if a default is made by t%e company in repayment of deposit or interest payable t%ereon or in redemption of debentures or preference s%ares or payment of dividend to any s%are%older or repayment of any term loan or interest payable t%ereon to any financial institution or ban' is subsisting# [Section 77B5"7!# /#* A company s%all not directly or indirectly purc%ase its own s%ares or ot%er specified securities in case t%e company %as not complied wit% provisions of Sections "0< *=7 and *""# [Section 77B5*7!# 9. '*ic* 4atter+ *a5e a -eari2; o2 t*e deci+io2 o1 -./--ac0= 0#" >on8transferability of s%ares due to t%e condition under an agreement wit% a# a financial or development institution or ban' lending money or providing financial assistance to t%e company4 or b# a venture capital company4 or c# any ot%er party w%ic% %as lent money to t%e company# 0#* >on8transferability of s%ares due to t%e condition under a non8disposal underta'ing given to a financial or development institution lending money or providing financial assistance to t%e company# 0#, >on8transferability of s%ares due to pro%ibition under a s%are%olders or 2oint venture agreement or an instrument setting fort% a family arrangement# 0#/ Purc%ase of any s%ares by a company or sale of s%ares by a s%are%older w%ic% 8 a# would be in contravention of any law rules regulations or conditions of approval given by any aut%ority 5e#g# :IPB -BI BCA etc74 b# would re1uire any permission or approval of financial institution ban' or ot%er aut%orities4 c# is pro%ibited by an order of any court# 0#0 Probability of t%e buying company ceasing to be a subsidiary company 5or "==D subsidiary if as a result of -./--ac0 of e1uity s%ares %eld by t%e %olding company in t%e subsidiary w%ic% proposes to -./ -ac0 t%e s%ares from t%e %olding company# 0#9 If as result of t%e -./--ac0 t%e free reserves will diminis% its effect on t%e limit for acceptance of deposits under t%e Companies 5Acceptance of Beposits7 -ules under Section 0;A4 0#7 Probability of violation due to crossing t%e limit on s%are%olding by a director under -ule ;9 or "=0 of t%e Income $a+ -ules "<9*# 0#; 6ffect of -./--ac0 on 8 a# borrowing capacity of t%e company4 b# debt8e1uity ratio4 c# ot%er financial ratios w%ic% would upset t%e financial parameters w%ic% are usually applied to measure financial structure li1uidity profitability return on capital etc4 d# interest rate on borrowing from financial institution or ban' for wor'ing capital#

9. &ro4 ,*ic* +o.rce+ ca2 1.2d+ -e .tili+ed 1or -./--ac0= 9#" A company may purc%ase its own s%ares or ot%er specified securities out of 8 i# ii# iii# its free reserves4 or t%e securities premium account4 or t%e proceeds of any s%ares or ot%er specified securities# [Section 77A5"7!#

9#* $%e company must %ave at t%e time of -./--ac0 balance in any one or more of t%ese accounts w%ic% is sufficient to accommodate t%e total value of t%e -./- -ac0# 9#, >o company can -./--ac0 its securities out of t%e proceeds of an earlier issue of t%e same 'ind of s%ares or same 'ind of ot%er securities# [Section 77A5"7!# $%us a company cannot use t%e proceeds of issue of e1uity s%ares to -./ -ac0 e1uity s%ares# It can use proceeds of t%at issue to -./ -ac0 preference s%ares or debentures or any ot%er securities# @i'ewise a company can use proceeds of issue of debentures to -./ -ac0 e1uity s%ares# 9. '*at are t*e 3ro5i+io2+ a+ re;ard+ creatio2 o1 ca3ital rede43tio2 re+er5e acco.2t= 7#" )%ere -./--ac0 is sourced out of free reserves t%en a sum e1ual to t%e nominal value of t%e s%are so purc%ased s%all be transferred to t%e Capital -edemption -eserve Account referred to in clause 5d7 of t%e proviso to sub8section 5"7 of Section ;= and details of suc% transfer s%all be disclosed in t%e balance s%eet# [Section 77AA!# 7#* If redeemable preference s%ares are to redeemed out of distributable profits an amount of profits e1uivalent to t%e nominal amount of t%e s%ares to be redeemed must be transferred to an account titled &Capital -edemption Account&# 7#, According to clause 5d7 of sub8section 5"7 of Section ;= w%ere any suc% s%ares are redeemed ot%erwise t%an out of t%e proceeds of a fres% issue t%ere s%all out of profits w%ic% would ot%erwise %ave been available for dividend be transferred to a reserve fund to be called t%e capital redemption reserve account a sum e1ual to t%e nominal amount of t%e s%ares redeemed4 and t%e provisions of t%is Act relating to t%e reduction of t%e s%are capital of a company s%all e+cept as provided in t%is section apply as if t%e capital redemption reserve account were paid8up s%are capital of t%e company# 7#/ $%is account is similar to s%are capital account in t%at it cannot be applied for any purpose unless t%e provisions regarding reduction of capital are complied wit% as is re1uired in t%e case of paid8up s%are capital wit% one e+ception namely it can be applied for issuing fully paid bonus s%ares# It cannot be applied for distribution as dividend# ?. '*et*er t*e Article+ o1 a++ociatio2 4.+t eB3re++l/ a.t*ori+e -./--ac0 o1 +ec.ritie+= ;#" $%e Articles of Association of t%e company must aut%orise t%e -./--ac0# [Section 77A5*7 5a7!# ;#* $%e articles must contain e+press provision aut%orising t%e -./--ac0# .odel provisions in Articles of Association pro%ibiting and aut%orising -./--ac0 may read as follows3 "# $%e Company s%all not %ave power to buy its own s%ares unless t%e conse1uent reduction of capital is effected and sanctioned in pursuance of Sections "== to "=/ or of Section /=*# *# >otwit%standing anyt%ing contained in t%e preceding Article >o# 88888 but sub2ect to and in accordance wit% t%e provisions of Sections 77A 77AA and 77B or any ot%er of t%e Act and Securities and t%e Private @imited Company and Unlisted Public @imited Company 5B./--ac0 of Securities7 -ules "<<< for t%e time being in force t%e Company may purc%ase any of its own s%ares or ot%er securities#

;#, If t%e articles do contain a provision t%e company may amend t%e articles to insert t%erein suc% a provision# :or t%e procedure to amend t%e articles see Secretarial Practice -ecorder >o# ,;# 9. '*at i+ t*e li4it .3 to ,*ic* a co43a2/ ca2 -./--ac0= <#" $%e ma+imum limit up to w%ic% any company can -./--ac0 its securities is twenty8five per cent of t%e total paid8up capital and free reserves of t%e company# [Section 77A5*75c7!# <#* $%is limit will be calculated wit% reference to t%e last audited Balance S%eet relevant to t%e time of -./--ac0# <#, Aowever in calculating t%is limit t%e amount of securities boug%t bac' by t%e company in t%e past will be deducted# :or e+ample suppose according to t%e Balance S%eet of a company as at ,"st .arc% "<<; t%e aggregate of t%e paid8up s%are capital and free reserves is -s# "== la'%s# If t%e company %ad in t%e past boug%t -ac0 +ec.ritie+ o1 t*e total 5al.e o1 R+. 90 la0*+, t*e co43a2/ ca2 2o, -./ bac' securities up to -s# "0 la'%s# <#/ )it%in t%e overall limit mentioned above a company can in any single financial year -./--ac0 its e1uity s%ares up to twenty8five per cent of its total paid8up e1uity capital in t%at financial year# $%e e+pression ?in t%at financial year? indicates t%at for t%e purpose of t%is limit paid8up capital can be ta'en at t%e time of t%e -./--ac0 so t%at any increase between t%e last financial year end and t%e proposed -./--ac0 is included to compute t%e limit# $%is limit is applicable only to t%e -./--ac0 of e1uity s%ares4 it is not applicable to t%e -./--ac0 of ot%er securities# <#0 Paid up s%are capital will include bot% e1uity and preference s%are capital# :ree reserves s%all %ave t%e meaning assigned to it in clause 5b7 of E !lanation to Section ,7*A# [:or detailed discussion on free reserves see Secretarial Practice -ecorder >o# *,"!# <#9 Proviso to sub8section 5*7 inserted by t%e Companies 5Amendment7 Act *==" w# e# f# *,("=(*==" aut%orises t%e Board of Birectors to -./--ac0 upto ten percent of t%e total paid8up e1uity capital and free reserves of t%e company# Clause 5A7 of t%e proviso specifically states only e1uity capital and t%erefore w%ile calculating t%e ma+imum amount t%at can be boug%t8-ac0 .2der t*i+ 3ro5i+o, 3re1ere2ce ca3ital +*all -e eBcl.ded. ?. '*at +*o.ld -e t*e 3o+t -./--ac0 de-t-eC.it/ ratio= 90.9 A co43a2/ 3ro3o+i2; to -./ -ac0 a2/ +ec.ritie+ 4.+t e2+.re t*at a1ter t*e -./ bac' it will %ave debt8e1uity ratio of * 3 " namely t%e debt owed by t%e company is not more t%an twice t%e capital and its free reserves after suc% -./-ac0# [Section 77A5*75d7!# "=#* Bebt includes unsecured and secured debts# [6+planation to Section 77A5*75d7 !# "=#, $%e Central Covernment may prescribe a %ig%er ratio of t%e debt t%an t%at specified under t%is clause for a class or classes of companies# [Proviso to Section 77A5*75d7!# A. '*et*er 3artl/ 3aid-.3 +ec.ritie+ ca2 -e -o.;*t--ac0= 99.9 All t*e +*are+ or ot*er +3eci1ied +ec.ritie+ 1or -./8-ac0 4.+t -e 1.ll/ 3aid-.3 at t*e ti4e o1 -./8bac'# [Section 77A5*75e7!#

""#* If any of t%e securities w%ic% are proposed to be boug%t -ac0 are 3artl/ 3aid, +te3+ 4.+t -e ta0e2 to 4a0e t*e4 1.ll/ 3aid -e1ore -./8bac' of securities# ""#, $%e s%ares or ot%er securities w%ic% are partly paid up s%ould be made fully paid up by ma'ing a call on t%e %olders of t%ese securities before ta'ing any steps for -./-ac0 and it is only after t%e date stipulated for ma'ing t%e payment of t%e call t%at a company can proceed for -./--ac0# If any s%are%older %as not made t%e payment till suc% date t%ose s%ares s%ould be forfeited before any steps are ta'en to implement t%e proposed -./--ac0 sc%eme ( programme# [:or t%e procedure for forfeiture of s%ares see Secretarial Practice -ecorder >o# 9/A# D. '*ic* +ec.ritie+ ca2 -e -o.;*t--ac0= 9?.9 A .2li+ted co43a2/ ca2 -./8bac' its securities8 a# from t%e e+isting security %olders on a proportionate basis4 or b# by purc%asing t%e securities issued to employees of t%e company pursuant to a sc%eme of stoc' option or sweat e1uity# [Section 77A507 E -ule , of t%e B./--ac0 -ules!# "*#* An unlisted company cannot -./ -ac0 its securities in any ot%er manner# 9. '*at are t*e 5ario.+ +a2ctio2+ reC.ired to -./--ac0 +ec.ritie+= ",#" $%e process of -./--ac0 of s%ares 5or ot%er securities7 begins wit% t%e approval of t%e Board of Birectors of t%e company# $%e Board will pass resolutions approving t%e proposal of -./--ac0 and certain ot%er resolutions# A model resolution is given below# ?-6SO@F6B $AA$ sub2ect to t%e provisions of Sections 77A 77AA 77B and suc% ot%er provisions as may be applicable t%e Private @imited Company and Unlisted Public @imited Company 5B./--ac0 of Securities7 -ules "<<< and sub2ect to t%e approval of t%e s%are%olders by special resolution t%e Company do purc%ase 888 [t%e number!888 of its e1uity s%ares of -s# "= eac% fully paid8 up#E 9; RESOLVED FURTHER THAT an extraordinary general meeting of the member of the !om"any be #on$ened to be held on %%%&day ' date( %%% at %%%&time(%%% at %%%&"la#e(%%%to #on ider and if tho)ght fit to "a *ith or *itho)t modifi#ation a "e#ial re ol)tion the re ol)tion et o)t in the draft noti#e of the meeting "la#ed on the table+ *hi#h i hereby a""ro$ed; RESOLVED FURTHER THAT ,r- ...+ !om"any Se#retary be and i hereby a)thori ed to i )e the noti#e of the extra%ordinary general meeting and to do )#h other a#t + thing and deed a may be ne#e ary in that #onne#tion-/ ",#* 6very -./--ac0 of any securities must be approved by a special resolution passed in general meeting of t%e company# [Section 77A5*75b7!4 :or t%e meaning of and procedure for passing special resolution see Secretarial Practice -ecorder >o# ",,!# A model resolution is given below3 -6SO@F6B $AA$ sub2ect to and in accordance wit% t%e provisions of Sections 77A 77AA 77B and suc% ot%er provisions as may be applicable t%e Private @imited Company and Unlisted Public @imited Company 5B./--ac0 of Securities7 -ules "<<< approval be and is %ereby accorded to t%e Company purc%asing 888 [t%e number!8888 of its e1uity s%ares of -s# "= eac% fully paid8 up in accordance wit% t%e Sc%eme of B./--ac0 as set out in t%e e+planatory statement anne+ed to t%is notice4

RES#!%E" &URTEER TEAT t%e Board of Birectors of t%e Company be and is %ereby aut%orised to modify t%e Sc%eme of B./--ac0 if re1uired in any manner and to do suc% ot%er acts t%ings and deeds as may be necessary to give effect to t%is resolution#? a# ",#, A special resolution aut%oring -./--ac0 of securities may be passed at an annual general meeting or at an e+tra8ordinary general meeting# [:or t%e procedure to convene an annual general meeting see Secretarial Practice -ecorder >o# ""74 for t%e procedure to convene an e+tra8ordinary general meeting see Secretarial Practice -ecorder >o# ""<!# ",#/ $%e notice of t%e general meeting at w%ic% special resolution is proposed to be passed s%all be accompanied by an e+planatory statement stating3 b# c# d# e# f# a full and complete disclosure of all material facts4 t%e necessity for t%e -./--ac04 t%e class of security intended to be purc%ased under t%e -./--ac04 t%e amount to be invested under t%e -./--ac04 and t%e time limit for completion of buy8bac

'# [Section 77A5,7!# ",#0 Besides information on t%e above points t%e e+planatory statement to be anne+ed to t%e notice of t%e meeting must comply wit% t%e re1uirements laid down in Section "7, of t%e Companies Act in relation to t%e special resolution for -./--ac0 of securities# [:or c%ec'list on Section "7, see Secretarial Practice -ecorder >o# "*,!# ",#9 $%e e+planatory statement must contain disclosures as specified in Sc%edule I to t%e B./--ac0 -ules see -ule /!# $%e matters to be disclosed as per Sc%edule I are as follows3 i# ii# iii# iv# v# vi# vii# viii# t%e date of t%e Board meeting at w%ic% t%e proposal for -./ -ac0 was approved by t%e Board of Birectors of t%e company4 t%e necessity for t%e -./--ac04 t%e class of security intended to be purc%ased under t%e -./--ac04 t%e met%od to be adopted for t%e -./--ac04 t%e ma+imum amount re1uired under t%e -./--ac0 and t%e sources of funds from w%ic% t%e -./ -ac0 would be financed4 t%e basis of arriving at t%e -./ -ac0 price4 t%e number of securities t%at t%e company proposes to -./ -ac04 t%e time limit for t%e completion of -./--ac04 a# t%e aggregate s%are%olding of t%e promoter and t%e directors of t%e promoters w%ere t%e promoter is a company and of persons w%o are in control of t%e company as on t%e date of t%e notice convening t%e Ceneral .eeting4 aggregate number of e1uity s%ares purc%ased or sold by persons including persons mentioned in 5a7 above during a period of si+ mont%s preceding t%e date of t%e Board .eeting at w%ic% t%e -./ -ac0 was approved from date till date of notice convening t%e general meeting4 c# t%e ma+imum and minimum price at w%ic% purc%ases and sales referred to in 5b7 above were made along wit% t%e relevant date4 intention of t%e promoters and persons in control of t%e company to tender s%ares for -./--ac0 indicating t%e number of s%ares details of ac1uisition wit% dates and price4 a confirmation t%at t%ere are no defaults subsisting in repayment of deposits redemption of debentures or preference s%ares or repayment of term loans to any financial institutions or ban's4 a confirmation t%at t%e Board of Birectors %as made a full en1uiry into t%e affairs and prospects of t%e company and t%at t%ey %ave formed t%e opinion 8 a# t%at immediately following t%e date on w%ic% t%e Ceneral .eeting is convened t%ere will be no grounds on w%ic% t%e company could be found unable to pay its debts4 b#

i+# +# +i#

+ii#

as regards its prospects for t%e year immediately following t%at date t%at %aving regard to t%eir intentions wit% respect to t%e management of t%e company&s business during t%at year and to t%e amount and c%aracter of t%e financial resources w%ic% will in t%eir view be available to t%e company during t%at year t%e company will be able to meet its liabilities as and w%en t%ey fall due and will not be rendered insolvent wit%in a period of one year from t%at date4 and c# in forming t%eir opinion for t%e above purposes t%e directors s%all ta'e into account t%e liabilities as if t%e company were being wound up under t%e provisions of t%e Companies Act "<09 5including prospective and contingent liabilities74 a report addressed to t%e Board of Birectors by t%e company&s auditors stating t%at G a# t%ey %ave in1uired into t%e company&s state of affairs4 t%e amount of t%e permissible capital payment for t%e securities in 1uestion is in t%eir view properly determined4 and c# t%e Board of directors %ave formed t%e opinion as specified in clause 5+ii7 on reasonable grounds and t%at t%e company %aving regard to its state of affairs will not be rendered insolvent wit%in a period of one year from t%at date# t%e price at w%ic% t%e -./ -ac0 of s%ares s%all be made4 if t%e promoters intend to offer t%eir s%ares G a# t%e 1uantum of s%ares proposed to be tendered4 and b# t%e details of t%eir transactions and t%eir %oldings for t%e last si+ mont%s prior to t%e passing of t%e special resolution for -./ -ac0 including information of number of s%ares ac1uired t%e price and t%e date of t%e ac1uisition# b#

b#

+iii# +iv#

",#7 $%e special resolution s%all be filed wit% t%e -egistrar of Companies wit%in ,= days after t%e general meeting# [Section "<*4 for a detailed procedure see Secretarial Practice -ecorder >o# ",04 for model special resolution see Anne+ I!# 9. '*at are t*e 3ro5i+io2+ a+ re;ard+ "eclaratio2 o1 Sol5e2c/= "/#" After passing a special resolution but before ma'ing -./--ac0 t%e company must file wit% t%e -egistrar of Companies a declaration of solvency in :orm >o# /A prescribed under -ule 0C of t%e Companies 5Central Covernment&s7 Ceneral -ules E :orms "<09# "/#* $%e declaration must be verified by an affidavit to t%e effect t%at t%e Board %as made a full in1uiry into t%e affairs of t%e company as a result of w%ic% t%ey %ave formed an opinion t%at it is capable of meeting its liabilities and will not be rendered insolvent wit%in a period of one year of t%e date of declaration adopted by t%e Board and signed by at least two directors of t%e company one of w%om s%all be t%e managing director if any# [Section 77A597!# "/#, $%e declaration of solvency re1uired under Section 77A597 is similar to t%e one under Section /;; of t%e Companies Act w%ic% provides t%at w%ere it is proposed to wind8up a company voluntarily its directors or in case t%e company %as more t%an two directors t%e ma2ority of t%e directors may at a meeting of t%e Board ma'e a declaration verified by an affidavit to t%e effect t%at t%ey %ave made a full in1uiry into t%e affairs of t%e company and t%at %aving done so t%ey %ave formed t%e opinion t%at t%e company %as no debts or t%at it will be able to pay its debts in full wit%in suc% period not e+ceeding t%ree years from t%e commencement of t%e winding up as may be specified in t%e declaration# "/#/ >o declaration of solvency is re1uired to be filed wit% t%e S6BI by a company w%ose s%ares are not listed on any recognised stoc' e+c%ange# [Proviso to Section 77A597!#

?. '*at are t*e 3ro5i+io2+ a+ re;ard+ !etter o1 #11er to -e +e2t to t*e +*are*older+= "0#" $%e company w%ic% %as proposed to -./--ac0 securities must send every s%are%older w%o is entitled to offer %is s%ares under t%e -./--ac0 sc%eme a letter of offer# "0#* $%e company w%ic% %as proposed to -./--ac0 securities must send to every s%are%older w%o is entitled to offer %is s%ares under t%e -./--ac0 sc%eme a letter of offer# $%e following points s%ould be noted3 a# $%e letter of offer s%all contain t%e information specified in Sc%edule II to t%e B./-ac0 -ules# b# $%e letter of offer s%ould be dated and signed by t%e Board of Birectors of t%e company# c# A draft letter of offer s%ould be filed wit% t%e -egistrar of Companies# d# $%e letter of offer s%all be despatc%ed immediately after filing it wit% t%e -egistrar of Companies but not later t%an *" days from its filing wit% -egistrar of Companies# "0#, $%e company s%all file alongwit% t%e letter of offer a declaration of solvency in :orm >o# /A prescribed under t%e Companies 5Central Covernment&s7 Ceneral -ules and :orms "<09 and in accordance wit% provisions of sub8section 597 of Section 77A of t%e Companies Act "<09# "0#/ $%e Company w%ic% %as been aut%orised by a special resolution s%all before t%e -./-ac0 of s%ares file wit% t%e -egistrar of Companies a draft letter of offer containing particulars specified in Sc%edule II# [B./--ac0 -ules -ule 0!# "0#0 $%e letter of offer s%all be dispatc%ed immediately after filing wit% -egistrar of Companies but not later t%an *" days from its filing wit% -egistrar of Companies# [ B./--ac0 -ules -ule 95"7!# "0#9 $%e Company s%all file alongwit% t%e letter of offer a declaration of solvency in :orm >o# /A prescribed under t%e Companies 5Central Covernment&s7 Ceneral -ules and :orms "<09 and in accordance wit% provisions of sub8section 597 of Section 77A of t%e Companies Act "<09# [B./--ac0 -ules -ule 05*7!# [:or details as to t%e declaration of solvency see para G "/ above!# 9. '*at are t*e 3ro5i+io2+ a+ re;ard+ acce3ta2ce o1 o11er F ot*er related 1or4alitie+= "9#" $%e Offer for buybac' s%all remain open to t%e members for a period not less t%an "0 days and not e+ceeding ,= days from t%e date of dispatc% of letter of offer# [B./--ac0 -ules -ule 95*7!# "9#* In case t%e number of s%ares offered by t%e s%are%olders is more t%an t%e total number of s%ares to be boug%t -ac0 -/ t*e co43a2/, t*e acce3ta2ce 3er +*are*older +*all -e o2 3ro3ortio2ate -a+i+. (B./8bac' -ules -ule 95,7!# "9#, $%e company s%all complete t%e verifications of t%e offers received wit%in "0 days from t%e date of closure of t%e offer and t%e s%ares lodged s%all be deemed to be accepted unless a communication of re2ection is made wit%in *" days from t%e closure of t%e offer# [B./--ac0 -ules -ule 95/7!# "9#/ $%e Company s%all immediately after t%e date of closure of t%e offer open a special ban' account and deposit t%erein suc% sum as would ma'e up t%e entire sum due and payable as consideration for t%e -./--ac0 in terms of t%ese rules# [B./-ac0 -ules -ule 75"7!# "9#0 $%e company s%all wit%in 7 days of t%e time specified in sub8rule 5/7 of -ule 9 ma'e payment of consideration in cas% or ban' draft ( pay order to t%ose s%are%olders w%ose offer %as been accepted or return t%e s%are certificates to t%e s%are%olders fort%wit%# [B./--ac0 -ules -ule 75*7!#

?. '*at are t*e ;e2eral o-li;atio2+ o1 t*e co43a2/ i2 ca+e o1 -./--ac0 o1 +ec.ritie+= "7#" According to -ule ; of t%e B./--ac0 -ules t%e company buying -ac0 it+ +ec.ritie+ 4.+t co43l/ ,it* t*e ;e2eral o-li;atio2+ ,it* re;ard to t*e -./ 8 -ac0 o1 +ec.ritie+. A. '*at i+ t*e 3eriod li4it ,it*i2 ,*ic* -./--ac0 4.+t -e co43leted= 9G.9 E5er/ -./8-ac0 +*all -e co43leted ,it*i2 t,el5e 4o2t*+ 1ro4 t*e date o1 3a++i2; t*e +3ecial re+ol.tio2 a.t*ori+i2; t*e -./8-ac0. (Sectio2 77A6D8). D. '*at are t*e 3ro5i+io2+ a+ re;ard+ ret.r2 o1 -./--ac0 o1 +ec.ritie+= 9@.9 A1ter t*e co43letio2 o1 t*e -./8-ac0, t*e co43a2/ 4.+t 1ile ,it* t*e Re;i+trar o1 Co43a2ie+, a ret.r2 co2tai2i2; 3artic.lar+ relati2; to t*e -./ 8 bac'# [Section 77A5"=7!# "<#* $%e return s%all be filed wit%in t%irty days of t%e completion of t%e -./- -ac0# [Section 77A5"=7!# "<#, >o return s%all be filed wit% t%e Securities and 6+c%ange Board of India by an unlisted company w%ic% %as boug%t bac' its securities# [Proviso to Section 77A5"=7!# "<#/ $%e return s%all be in t%e form prescribed under Anne+ure A to t%e B./--ac0 -ules# 5. '*at are t*e 3ro5i+io2+ a+ re;ard+ eBti2;.i+*4e2t o1 certi1icate+= *=#" -ule "= of t%e B./--ac0 -ules lays down t%e following re1uirements regarding e+tinguis%ment of certificates of t%e securities w%ic% %ave been boug%t bac' by t%e company3 5"7 $%e company s%all e+tinguis% and p%ysically destroy t%e s%are certificates so boug%t bac' in t%e presence of t%e Company Secretary in w%ole8time practice wit%in 7 days from t%e date of acceptance of t%e s%ares# 5*7 $%e company s%all furnis% a certificate to t%e -egistrar of Companies duly verified by 5a7 two w%ole8time directors including t%e .anaging Birector and 5b7 Company Secretary in w%ole time practice certifying compliance of t%ese rules including t%ose specified in sub8rule 5"7 above wit%in 7 days of t%e e+tinguis%ment and destruction of t%e certificates# 5,7 $%e company s%all maintain a record of s%are certificates w%ic% %ave been cancelled and destroyed wit%in 7 days of -./--ac0 of s%ares# 6. '*et*er t*e co43a2/ ca2 i++.e 2e, +ec.ritie+ a1ter -./--ac0= *"#" A company w%ic% %as boug%t bac' any securities cannot ma'e any issue of t%e same 'ind of securities in any manner w%et%er by way of public issue rig%ts issue private placement issue up to Hsi+ mont%s from t%e date of completion of t%e -./--ac0# [Section 77A5;7!# [Section 77A5;7!# H6arlier t%e limit was twenty four mont%s w%ic% was revised by t%e Companies 5Amendment7 Act *==" w# e# f# *,("=(*=="# *"#* Aowever t%e following types of issues are not pro%ibited a# bonus issue of s%ares4 b# issue of s%ares or ot%er securities arising due to t%e disc%arge of subsisting obligations suc% as conversion of warrants stoc' option sc%emes sweat e1uity or conversion of preference s%ares or debentures into e1uity s%ares# [Section 77A5;7!#

9. '*at are t*e 3ro5i+io2+ a+ re;ard+ Re;i+ter o1 Sec.ritie+ -o.;*t--ac0= **#" A company buying8bac' its securities s%all maintain a register w%ic% may be in a computer or floppy or disc#5-ule ""7 **#* After t%e completion of -./--ac0 t%e company s%all enter in a register t%e following particulars 8 a# b# c# d# t%e consideration paid for t%e securities boug%t8bac'4 t%e date of cancellation of t%e securities4 t%e date of e+tinguis%ing and p%ysically destroying t%e securities4 and suc% ot%er particulars as may be prescribed# [Section 77A5<7!#

**#, $%is register s%all be in :orm /B of t%e Companies 5Central Covernment7 Ceneral -ules E :orms 5as set out in Anne+ure B to t%e B./--ac0 -ules7 [-ule ""!# A22eB I $odel +3ecial re+ol.tio2 +a2ctio2i2; -./--ac0 o1 +*are+ ?-6SO@F6B $AA$ sub2ect to and in accordance wit% t%e provisions of Sections 77A 77AA 77B and suc% ot%er provisions as may be applicable t%e Private @imited E Unlisted Public @imited Company 5B./--ac0 of Securities7 -ules "<<< approval be and is %ereby accorded to t%e Company purc%asing 8 [t%e number!88 of its e1uity s%ares of -s# "= eac% fully paid8up in accordance wit% t%e Sc%eme of B./--ac0 as set out in t%e e+planatory statement anne+ed to t%is notice4 -6SO@F6B :U-$A6- $AA$ t%e Board of Birectors of t%e Company be and is %ereby aut%orised to modify t%e Sc%eme of B./--ac0 if re1uired in any manner and to do suc% ot%er acts t%ings and deeds as may be necessary to give effect to t%is resolution#? ACTS F SECTI#NS RE&ERENCE :

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