Meaning of Buy-Back:- Buy-Back of shares generally meant to a situation in which a company

purchases its own shares from the existing shareholders usually at a price which is higher than
the market price of such share. It is a strategy of re-structuring of capital of the company by
which excess paid up share capital can be extinguished.

Reasons/Benefits of Buy-Back:- There are many reasons & benefits to buy-back its shares by a
company, some of them are produced below:-

To Increase Earnings Per Share (EPS) of the Company;

To pay the surplus funds to the shareholders;

To prevent the company from takeover bids by holding the capital in the hands of promoters;

To maintain the debt equity ratio;

To provide an exit route to the shareholders;

To service the equity of the company in more efficient manner;

To increase the return on capital & return on net worth;

A route to reduce the capital of the company without following the long process of approval of
Court/NCLT.

Provisions governing the Buy-Back:-

Act The Companies Act, 2013

Chapter IV- Share Capital and Debentures
Sections 68 to 70
Rule 17 of Companies (Share Capital and Debentures) Rules,
Rules
2014

Sources of Buy-Back:- a company may purchase its shares out of:-

(a) its free reserves;

(b) the securities premium account; or

(c) the proceeds of the issue of any shares or other specified securities.

However, no buy-back of any kind of shares can be made out of the proceeds of an earlier issue
of the same kind of shares.

Prohibitions on Buy-Back:-
No company shall directly or indirectly purchase its own shares:-

 through any subsidiary company including its own subsidiary companies;

 through any investment company or group of investment companies; or
 if a default, is made by the company, in the repayment of deposits accepted either before
or after the commencement of this Act, interest payment thereon, redemption of
debentures or preference shares or payment of dividend to any shareholder, or repayment
of any term loan or interest payable thereon to any financial institution or banking
company, however, the buy-back is not prohibited, if the default is remedied and a period
of three years has lapsed after such default ceased to subsist.

The Company shall not buy-back its shares If the company has not complied with the provisions
of 92 (Annual Return), 123 (Declaration of Dividend), 127 (punishment for failure to distribute
dividend) and section 129 (Financial Statement)

Provisions for Buy-Back of Shares:-

i. Authorization for Buy-Back:- Articles of Association (AOA) of the company Should

authorize Buy-Back, if no provision in AOA then first alter the AOA.

ii. Approval:- The Buy-back can be made with the approval of the Board of directors at a board
meeting and/or by a special resolution (SR) passed by shareholders in general meeting,
depending on the quantum of buy back-

Approval of Board of Directors- up to 10% of the total paid-up equity capital and free reserves
of the company

Approval of Shareholders- up to 25% of the aggregate of paid-up capital and free reserves of
the company

iii. Notice of General Meeting:- The notice of the meeting at which the special resolution is
proposed to be passed shall be accompanied by an explanatory statement in which the particulars
required to be mentioned as per section 68(3) [a to e] and Rule 17(1) [a to n] of Companies
(Share Capital and Debentures) Rules, 2014 should be disclosed.

iv. Methods of Buy-Back:- The Buy-back of shares of private & unlisted public companies may
be –

1. from the existing shareholders on a proportionate basis;

2. by purchasing the securities issued to employees of the company pursuant to a scheme of

stock option or sweat equity.

v. Letter of Offer (Form SH-8):- Before the buy-back of shares, the company shall file with the
Registrar of Companies a letter of offer in e-form SH-8 and the letter of offer shall be dispatched
to the shareholders immediately after filing the same with the Registrar of Companies but not
later than 20 days from its filing with the Registrar of Companies ensuring the matters as
prescribed in the Sub-rule 10 of Rule 17 of The Companies (Share Capital and Debentures)
Rules, 2014.

vi. Declaration of Solvency (Form SH-9):- The company shall file with the Registrar of
Companies, along with the letter of offer, a declaration of solvency in e-Form SH-9.

vii. Offer Period:- The offer for buy back shall remain open for a minimum period of 15 days
but not more than 30 days from the date of dispatch of letter of offer (Period may be less than 15
days if all members agreed)

viii. Debt-equity Ratio:- The ratio of the aggregate of secured and unsecured debts owed by the
company after buy-back shall not be more than twice the paid-up capital and its free reserves

ix. Fully Paid-up Shares:- Shares to be bought back must be fully paid up

x. Time limits:- Buy-back shall be completed within a period of 1 (one) year from the date of
passing of SR or Board Resolution, as the case may be. No offer of buy-back shall be made
within a period of one year from the date of the closure of the preceding offer of buy-back, if
any.

xi. Acceptance of Offer:- In case the number of shares offered by the shareholders is more
than the total number of shares to be bought back by the company, the acceptance per
shareholder shall be on proportionate basis out of the total shares offered for being bought back.

xii. Verification:- The company shall complete the the verifications of the offers received within
fifteen days from the date of closure of the offer and the shares lodged shall be deemed to be
accepted unless a communication of rejection is made within twenty one days from the date of
closure of the offer.

xiii. Separate Bank Account:- After the closure of the buy-back offer, the company shall
immediately open a separate bank account and deposit therein, such sum, as would make up the
entire sum due and payable as consideration for the shares tendered for buy-back.

xiv. Payment:- Within 7 days from the date of verification of the offers:

i. Make payment of consideration in cash to those shareholders whose shares have been
accepted.

ii. Return the share certificates to those shareholders whose shares are not accepted at all or the
balance of shares, if partly accepted.

xv. Extinguishment of Shares:- The company shall Extinguish and physically destroy the
shares bought back within 7 days of the last date of completion of buy back.
xvi. Prohibition on further issue of shares:- The company shall not make a further issue of the
same kind of shares including allotment of new shares under clause (a) of sub-section (1)
of section 62 within a period of six months except by way of a bonus issue or in the discharge of
subsisting obligations such as conversion of warrants, stock option schemes, sweat equity or
conversion of preference shares or debentures into equity shares.

xvii. Register of Buy-Back (SH-10):- The Company shall maintain a register of shares which
has been bought back in Form SH-10.

xviii. Return of Buy-Back (SH-11):- The Return of Buy back with the Registrar in Form SH-
11 on completion of buy back along with the certificate in Form SH-15 certifying that the buy-
back of shares has been made in compliance with the provisions of the Act and rules within 30
days of such completion.

xix. Capital Redemption Reserve Account:- If the buy-back of shares is made out of free
reserves or securities premium account a sum equal to the nominal value of the shares so
purchased shall be transferred to the capital redemption reserve account and details of such
transfer shall be disclosed in the balance sheet and the amount of the said reserve may be applied
by the company, in paying up unissued shares of the company to be issued to members of the
company as fully paid bonus shares.

xx. Punishment:- If a company makes any default in complying with the provisions of section
68, then the punishment shall be as follows:-

Fine not less than one lakh rupees but which may extend to three
Company
lakh rupees
Imprisonment for a term which may extend to three years or
Every officer with fine which shall not be less than one lakh rupees but which
may extend to three lakh rupees, or with both

Merger and Amalgamation under CA, 2013

INTRODUCTION

Merger and Amalgamation is a restructuring tool available to Indian conglomerates aiming to

expand and diversify their businesses for various reasons whether it is to gain competitive
advantage, reduce costs or availing of tax benefits. Merger means an arrangement whereby one
or more existing companies merge their identity in to another existing company or form a
distinct new entity. Any proposal of merger or amalgamation begins with the process of due
diligence which is a very essential step in carrying out the whole merger or amalgamation.
Presently, the High Court enjoys powers of sanctioning merger or amalgamation matters under
section 394 of the Companies Act, 1956 but once merger sections covered under Companies Act,
2013 gets notified then this power of sanctioning merger or amalgamation will be exercised by
National Company Law Tribunal (NCLT). Company Law in India is undergoing a complete
change but the provisions relating to mergers covered under Companies Act, 2013 are yet to be
notified.

COMPANIES ACT, 2013

The new act has different provisions in relation to different types of restructuring processes as
follows:

 Compromise or arrangements under section 230 & 231of the Act;

 Amalgamation including demergers falls within section 232 of the Act;
 Amalgamation of small companies within section 233 of the Act;
 Amalgamation of foreign companies under section 234 of the Act.

Generally, memorandum of association of both the companies should be examined to check the
availability of companies’ power to amalgamate clause. Then, stock exchange of both the
merging and merged companies should be informed about the merger proposal (if listed
company). Draft merger proposal to be approved by Board of Directors. Once the same is
approved by respective boards, each company shall make an application to the high court of the
state where registered office is situated so that companies can follow further procedure as per
section 230 to 234 of the Companies Act, 2013.

BASIC TERMS OF MERGER & AMALGAMATION

 Merger: Where assets and Liabilities of one company are transferred to another and first
company loses its existence.
 Amalgamation: Where two or more companies merge into a third new company and the
existing company loses their existence.
 Horizontal Merger: A merger occurring between companies producing similar products,
goods and offering similar services.
 Vertical Merger: When two or more companies which are complimentary to each other,
join together.
 Conglomerate Merger: It means merger between unrelated business.
  Reverse Merger: It is the opportunity for the unlisted companies to become public listed
company without opting for initial public offer. In this process the private company
acquires the majority shares of public company, with its own name.
 De-Merger: In this a single business is broken into components, either to operate on their
own, to be sold or to be dissolved.

1. SECTION-230- POWER TO MAKE COMPROMISE AND ARRANGEMENT

*An application under Section 230 for compromise/arrangement/amalgamation, have to disclose

following to the NCLT:

 Latest financial position of the company and Latest auditor’s report;

 Any investigation and proceeding against the company;
 Reduction of share capital, if any included in the scheme;
 Scheme of Corporate Debt Restructuring consented by not less than 75% of secured
creditors.

*Notice of proposed meeting required o be sent to All Creditors / Members / debenture holders
(at their registered address),Central Government, Income Tax Authority, RBI, SEBI, ROC,
Respective Stock Exchanges, Official Liquidator, CCI, Sectoral Regulators or Authorities which
are likely to be affected.

*Notice shall also provide an option to vote through postal ballot;

*Only those shareholders can raise objection to the scheme who holds not less than 10% of the
shareholding;

*Only those creditors can raise objection to the scheme who holds 5% of the total outstanding
debt;

*The Tribunal may provide the order for exit option to dissenting shareholders based upon the
valuation by Registered valuer;

*Certificate from Statutory Auditor that accounting treatment complies with prescribed
accounting standards;

*Every company has to file a yearly statement with ROC until the completion of the scheme,
certifying that compliance is as per an order of Tribunal;

2. SECTION-231- POWER OF TRIBUNAL TO ENFORCE COMPROMISE OR

ARRANGEMENT:

 Supervision of Compromise or Arrangement scheme;

 To make modifications in the scheme of compromise or arrangement;
 Suo-motto power to order winding up if the company is unable to pay its debt.
3. SECTION-232- PROCEDURE OF MERGER & AMALGAMATION:

STEPS –[SECTION 232(1)]-

Filing an application to the Tribunal in Form AMG.1 along with Notice of admission supported
by an affidavit for order of meeting under section 230 for sanctioning of scheme of compromise
or arrangement.

 If a meeting is proposed to be called then company shall order a meeting of the creditors
or class of creditors or members or class of members to be called, held or conducted in
the manner as the Tribunal directs.

 The notice of meeting pursuant to the order of Tribunal to be given in the manner as
provided shall be in Form AMG 4 and advertisement of notice in Form AMG. 2.

 A notice of the meeting shall also be sent to Central Government, SEBI, RBI and such
other regulatory authorities in Form AMG. 5.

 The report shall state accurately the number of creditors or class of creditors or the
number of members or class of members, as the case may be, who were present and who
voted at the meeting either in person or by proxy, their individual values and the way
they voted. The report shall be in FORM NO. AMG.6

[SECTION 232 (2)]-

Circulation of following documents for the meeting:

 Proposed draft scheme adopted by the directors of merging companies;

 Confirmation of filing the draft copy of scheme with the Registrar;
 Valuation Report, if any;
 Report adopted by the directors of the merging companies explaining the effect of the
compromise;
 Supplementary accounting statement if the last annual accounts of any of the merging
company relate to a financial year ending more than six months before the first meeting
of the company summoned for the purposes of approving the scheme.

[SECTION 232 (3)]-

The Tribunal may by order sanction the Scheme of merger or amalgamation in Form AMG. 10,
if satisfied that the procedure specified in sections 232(1) & 232(2) has been complied or the
Tribunal can make provisions for the following matters by giving subsequent orders:

 To transfer the whole or any part of the undertaking property or liabilities to the
Transferor company to the Transferee Company;
 To allot or appropriate any shares, debentures or other like instruments under the merger
or amalgamation by the Transferee Company to or for any person;
  Dissolution , without winding-up of any Transferor company;
 The continuation of any legal proceedings by or against any Transferor company or
Transferee company;
 The provisions for any persons who are dissent from the scheme of merger or
arrangement;
 The allotment of shares of the Transferee company to the non- resident shareholder shall
be in the manner specified in the order;
 Transfer of employees of the Transferor company to the Transferee company;
 Such incidental, consequential and supplemental matters as are deemed necessary to
secure that the merger or amalgamation is fully effective and carried out;

The Companies Act, 2013 requires that all companies must obtain an auditor’s certificate and
shall also file with the Tribunal that the scheme is in conformity with the accounting standards.

[SECTION 232 (4)]-

If the Tribunal order to transfer any property or liabilities then that properties and liabilities shall
be transferred to the Transferee Company by the Transferor Company.

[SECTION 232 (5)]-

Filing a certified copy of the order with the Registrar for registration within thirty days of the
receipt of the certified copy of the order.

[SECTION 232 (6)]-

Scheme shall indicate clearly the Appointed Date from which it shall be effective.

[SECTION 232 (7)]-

A statement certified by a Company Secretary or Chartered Accountant or Cost Accountant in

practice indicating whether the scheme has complied with the orders of the Tribunal every year
until the completion of scheme shall be filed in Form AMG.11.

[SECTION 232 (8)]-

If any of the company contravenes the provisions of this section shall be punishable with fine not
less than Rs. 1, 00,000/- may extend to Rs. 25, 00,000/- and every officer in default shall be
punishable with fine not less than Rs. 1, 00,000/- may extend to Rs. 3, 00,000/- or imprisonment
which may extend for a term of 1 year or with both.

4. SECTION-233- MERGER & AMALGAMATION OF CERTAIN COMPANIES:

[Section 233(1)]
It a merger between two or more companies or between holding and its wholly owned subsidiary
company subject to the following conditions:

 A notice of the scheme is to be given in Form AMG.12 for inviting objections or

suggestions from Registrar or Official Liquidator;
 Approval of scheme after receiving objections/suggestions by members at a general
meeting holding at least 90% of total number of shares;
 Filing of declaration of solvency in Form AMG. 13 by the merging companies with the
registrar;
 Approval of scheme by 9/10th in value of the creditors or class of creditors in the general
meeting convened by giving 21 days notice along with the scheme

[Section 233(2)]

Filing a copy of approved scheme in Form AMG. 14 along with the report of the result with the
Central Government, Registrar and Official Liquidator.

[Section 233(3)]

If there is no objection to the Registrar or Official Liquidator then Central Government after
registering the same will issue the confirmation in Form AMG.15.

[Section 233(4)]

If there is any objection to the Registrar or Official Liquidator, communicate this to Central
Government within 30 days.

[Section 233(5)]

After receiving opinion of Central government that scheme is not in public interest or creditors’
interest, file an application before Tribunal within 60 days to consider scheme.

[Section 233(6)]

After receiving application from Central Government if Tribunal is of the opinion to consider the
scheme again, it may direct accordingly to modify scheme or confirm scheme by passing such
order.

[Section 233(7)]

The confirmation order of the scheme issued by the Central government or Tribunal shall be
filed with the Registrar in Form AMG.16 and after registering it will issue a confirmation to the
companies.

[Section 233(8)]
Dissolution of Transferor company without process of winding up after registration of scheme
with the Registrar.

[Section 233(9)]

Effects after Registration of Scheme:

 Transfer of property or liabilities of the Transferor company to the Transferee company ;

 Charges of Transferor company shall become charges of Transferee Company;
 Legal proceedings of Transferor company shall continue by or against Transferee
company and;
 If any amount unpaid by dissenting shareholders shall become liability of Transferee
company.

[Section 233(10)]

The Transferee company shall not hold shares in its own name or in name of its subsidiary or
associate company and if there will be any such shares they will stand cancelled or extinguished
on the merger or amalgamation.

[Section 233(11)]

The Transferee company shall file an application along with such fees as may be specified on the
revised authorized capital.

[Section 233(12)]

The provisions under this section shall apply as it is to the companies referred in section 230 or
in section 232.

[Section 233(13)]

The Central government may provide for merger or amalgamation of companies in such manner
as may be prescribed.

[Section 233(14)]

Companies covered under this section may use the provisions of section 232 for the approval of
any scheme.

5. FAST TRACK MERGER

The Companies Act, 2013 provides a fast track merger for small companies or holding and
subsidiary companies.

Fast track Merger process involves approval from the following person:
  Creditors or class of creditors;
 Members or class of members;
 Registrar of companies;
 Official Liquidator;
 High Court.

In this type of merger, there is no need to make an application to NCLT for finalizing the
scheme`, in spite of this only 90% of each class of members and creditors must approve the
scheme and rest the procedure is same like section 233.

MCA21
The Ministry of Corporate Affairs (MCA), Government of India, has initiated the MCA21
project, which enables easy and secure access to MCA services in an assisted manner for
corporate entities, professionals, and general public. The MCA21project is designed to fully
automate all processes related to enforcement and compliance of the legal requirements under
the Companies Act, 1956.

The project further seeks to achieve inter-operability with the National e-Governance Services
Delivery Gateway (NSDG), which will help extend MCA services to businesses via multiple
front-end delivery channels, and which will also help provide other value-added services over
and above the base services offered by MCA21.

Securities Exchange Board of India (SEBI) was set up in 1988 to regulate the functions of
securities market. SEBI promotes orderly and healthy development in the stock market but
initially SEBI was not able to exercise complete control over the stock market transactions.

It was left as a watch dog to observe the activities but was found ineffective in regulating and
controlling them. As a result in May 1992, SEBI was granted legal status. SEBI is a body
corporate having a separate legal existence and perpetual succession.

Reasons for Establishment of SEBI:

With the growth in the dealings of stock markets, lot of malpractices also started in stock
markets such as price rigging, ‘unofficial premium on new issue, and delay in delivery of
shares, violation of rules and regulations of stock exchange and listing requirements. Due to
these malpractices the customers started losing confidence and faith in the stock exchange. So
government of India decided to set up an agency or regulatory body known as Securities
Exchange Board of India (SEBI).

Purpose and Role of SEBI:

SEBI was set up with the main purpose of keeping a check on malpractices and protect the
interest of investors. It was set up to meet the needs of three groups.

1. Issuers:

For issuers it provides a market place in which they can raise finance fairly and easily.

2. Investors:

For investors it provides protection and supply of accurate and correct information.

3. Intermediaries:

For intermediaries it provides a competitive professional market.

Objectives of SEBI:
The overall objectives of SEBI are to protect the interest of investors and to promote the
development of stock exchange and to regulate the activities of stock market. The objectives of
SEBI are:

1. To regulate the activities of stock exchange.

2. To protect the rights of investors and ensuring safety to their investment.

3. To prevent fraudulent and malpractices by having balance between self regulation of business
and its statutory regulations.

4. To regulate and develop a code of conduct for intermediaries such as brokers, underwriters,
etc.

Functions of SEBI:
The SEBI performs functions to meet its objectives. To meet three objectives SEBI has three
important functions. These are:

i. Protective functions

ii. Developmental functions

iii. Regulatory functions.

1. Protective Functions:
These functions are performed by SEBI to protect the interest of investor and provide safety of
investment.

As protective functions SEBI performs following functions:

(i) It Checks Price Rigging:

Price rigging refers to manipulating the prices of securities with the main objective of inflating or
depressing the market price of securities. SEBI prohibits such practice because this can defraud
and cheat the investors.

(ii) It Prohibits Insider trading:

Insider is any person connected with the company such as directors, promoters etc. These
insiders have sensitive information which affects the prices of the securities. This information is
not available to people at large but the insiders get this privileged information by working inside
the company and if they use this information to make profit, then it is known as insider trading,
e.g., the directors of a company may know that company will issue Bonus shares to its
shareholders at the end of year and they purchase shares from market to make profit with bonus
issue. This is known as insider trading. SEBI keeps a strict check when insiders are buying
securities of the company and takes strict action on insider trading.

(iii) SEBI prohibits fraudulent and Unfair Trade Practices:

SEBI does not allow the companies to make misleading statements which are likely to induce the
sale or purchase of securities by any other person.

(iv) SEBI undertakes steps to educate investors so that they are able to evaluate the securities of
various companies and select the most profitable securities.

(v) SEBI promotes fair practices and code of conduct in security market by taking following
steps:

(a) SEBI has issued guidelines to protect the interest of debenture-holders wherein companies
cannot change terms in midterm.

(b) SEBI is empowered to investigate cases of insider trading and has provisions for stiff fine and
imprisonment.

(c) SEBI has stopped the practice of making preferential allotment of shares unrelated to market
prices.

2. Developmental Functions:
These functions are performed by the SEBI to promote and develop activities in stock exchange
and increase the business in stock exchange. Under developmental categories following
functions are performed by SEBI:

(i) SEBI promotes training of intermediaries of the securities market.

(ii) SEBI tries to promote activities of stock exchange by adopting flexible and adoptable
approach in following way:

(a) SEBI has permitted internet trading through registered stock brokers.

(b) SEBI has made underwriting optional to reduce the cost of issue.

(c) Even initial public offer of primary market is permitted through stock exchange.

3. Regulatory Functions:

These functions are performed by SEBI to regulate the business in stock exchange. To regulate
the activities of stock exchange following functions are performed:

(i) SEBI has framed rules and regulations and a code of conduct to regulate the intermediaries
such as merchant bankers, brokers, underwriters, etc.

(ii) These intermediaries have been brought under the regulatory purview and private placement
has been made more restrictive.

(iii) SEBI registers and regulates the working of stock brokers, sub-brokers, share transfer
agents, trustees, merchant bankers and all those who are associated with stock exchange in any
manner.

(iv) SEBI registers and regulates the working of mutual funds etc.

(v) SEBI regulates takeover of the companies.

(vi) SEBI conducts inquiries and audit of stock exchanges.

The Organisational Structure of SEBI:

1. SEBI is working as a corporate sector.

2. Its activities are divided into five departments. Each department is headed by an executive
director.

3. The head office of SEBI is in Mumbai and it has branch office in Kolkata, Chennai and Delhi.

4. SEBI has formed two advisory committees to deal with primary and secondary markets.
5. These committees consist of market players, investors associations and eminent persons.

Objectives of the two Committees are:

1. To advise SEBI to regulate intermediaries.

2. To advise SEBI on issue of securities in primary market.

3. To advise SEBI on disclosure requirements of companies.

4. To advise for changes in legal framework and to make stock exchange more transparent.

5. To advise on matters related to regulation and development of secondary stock exchange.

These committees can only advise SEBI but they cannot force SEBI to take action on their
advice.