Indian Kanoon - Search engine for Indian Law

20. The impact of Section 77A which was introduced by the Companies (Amendment) Act, 1999 will have to be considered in the light of the afore stated provisions as interpreted by the Courts. Section 77A was introduced pursuant to the Report of the Working Group which was set up to suggest reforms to the Companies Act. It would be useful to refer to paras 3.9 and 3.10 of the report which read as under -

"3.9 There is an erroneous belief that the sole reason for buyback is to block hostile takeovers. In this connection it is pertinent to list the five reasons why the Bank of England favoured the making of law to allow companies to repurchase their shares, of which blocking takeovers was only one :

a) to return surplus cash to shareholders

b) to increase the underlying share value

c) to support share price during periods of temporary weakness

d) to achieve or maintain a target capital structure.

e) To prevent on inhibit unwelcome take over bids.

3.10 Almost all OECD countries allow companies to buyback shares subject to certain regulations. Unfortunately, Section 77 (read with Section 100) of the Act prevents buyback. In today's context, the Group strongly believes that this section is antiquated, and goes against the long term interests of corporate sector growth and shareholders value. Hence, the Group recommends that:

Provided that nothing contained in this clause shall apply in any case where -

   

 a)       the buyback is or less than then percent of the total paid up equity capital and free reserves of the company ; and  
 

 b)       such buy back has been authorised by the Board by means
 of a resolution passed at its meeting ;  
 

Provided further that no offer of buy back shall be made within a period of three hundred and sixty five days reckoned from the date of the preceding offer of buyback, if any ;

Explanation For the purposes of this clause, the expression "offer Of buy back means the offer of such buy back made in pursuance of the resolution of the Board referred in the first proviso ;

 (c)      the buyback for less than twenty five per cent of the total paid up
capital and free reserves of the company;
  
 

Provided that the buyback of equity shares in any financial year shall not exceed twenty five per cent of its total paid up equity capital in that financial year.

(d) The ratio of the debt owned by the company is not more than twice the capital and its free reserves after such buyback ;