* The company's articles of association must give authority to the board of directors to buy back shares.

* The buyback does not exceed 25 per cent of the paid-up capital and free reserves of the company purchasing its own shares, or other specified securities.

* All the shares or other specified securities are fully paid.* The buyback is in accordance with regulations made by the Securities & Exchange Board of India.

* The buyback is to be completed within 12 months from the date of passing the special resolution. In the bill, the period provided was 15 months from the date of passing the special resolution.

*Where the company buys back its own securities, it shall extinguish and physically destroy the securities so bought back within seven days of the last date of completion of buyback. In the bill, the company was required to extinguish shares bought back forthwith.

* When a company completes a buyback of its securities, it shall not make further issue of securities within a period of 24 months except by way of a bonus issue, or in the discharge of subsisting obligations like conversion of warrants, stock-option scheme, sweat equity or conversion of preference shares or debentures into equity shares. The bill provided a time limit of 12 months for issue of shares.

* A firm shall after completion of buyback, file with the registrar and Sebi a return containing such particulars relating to the buyback within 30 days of such completion as may be prescribed.

The ordinance has added a new section, 77B, which states that no company shall purchase its own shares or other specified securities through anysubsidiary company including its own subsidiary company, or through any investment company or group of investment companies, or if a default in repayment of deposit redemption of debenture, or preference share, or repayment of term loans to any financial institution or bank is subsisting.

It may be mentioned that the ordinance has deleted Section 69(4)(d) of the Companies Bill, 1997, which provided that shares may be bought back through negotiation, or other arrangement subject to the conditions that no votes are cast in favour of the special resolution by any person whose securities are proposed to be bought by such negotiation or other arrangement. The provision was analogous to the provision in "off market purchases" under Section 164 of the English Companies Act.

It can be seen that the ordinance has made some useful provisions to safeguard the interests of shareholders, and avoid misuse and abuse of buyback provisions. However, the following aspects need to be considered:* Buyback is restricted to25 per cent of the paid-up capital and free reserves. Such a provision was not in the bill. This is a welcome concept. It is suggested that buyback be restricted to 25 per cent of paid-up capital only to maintain a healthy relationship of capital with its total assets.

* The bill should provide that after buyback is completed, the ratio of equity capital to reference capital should not be less than 3:1.* It should also provide that if a company has issued (a) employees stock option or sweat capital, or (b) capital with differential voting rights, then the ratio of the above types of capital to equity capital after buyback is completed should remain same as before.

* The company's resolution authorising buyback of shares must clearly state the number of shares in each class of security to be bought.

* The explanatory statement accompanying the notice must also give means of financing buyback.

* The company must obtain consent of secured creditors before buyback is considered.

* The registermaintained under Sub-Section (9) should be open for inspection.

* In Section 77 B(c), default in payment of interest to depositors, debentureholders, or on term loans to financial institution be included. It is suggested that the section be shifted to Section 77A as it has direct relation with share buyback. Sebi is required to provide rules and regulations regarding buyback of shares. Sebi may devise a formula for a price range within which the buyback has to be effected by the company. It is common knowledge that in depressed market conditions, the market price of a share is often lower than its book value. Hence, some adjustments will have to be made. The price could be a certain fixed percentage above the average ruling price of the scrip on the bourses during the previous six months, and as close as possible to the book value of the share. The buyback of shares by a company is to some extent analogous to a takeover bid. Sebi may provide that services of merchant bankers registered with it may beavailed to decide modus operandi of purchase of shares. If a company proposes to buy back shares through a negotiated deal, the deal must be made public if the shares to be purchased are more than a certain fixed percentage of the number of shares to be bought back by the firm. Public financial institutions hold major holdings in the company. The directors may negotiate with public financial institutions for purchase of their holding even by paying a higher price than the prevailing market price if the quantity of shares is significant. In case of share buyback, services of merchant banker be enlisted to lend transparency to the transactions. Sebi may direct that a committee of directors consisting of non-executive directors and a nominee of a financial institution be formed to supervise buyback of shares. The periodical information be submitted to Sebi in prescribed format, inter alia, giving the name of the shareholder, the number of shares purchased, price paid by the company, date of completion oftransaction, share certificate number, and the distinctive number of shares bought certified by the firm's auditors, or a practicing company secretary. Copy of the same be submitted to the stock exchange where the company's shares are listed.

Periodic information be released by way of advertisement in a leading newspaper giving the number of shares bought, and the average price paid by company. This will be useful to shareholders to take a view on the matter.