Briefing newspersons after the meeting, SEBI chairman DR Mehta said that the implications on the takeover code and the foreign institutional investors (FII) investment ceilings post-buyback would be taken up by the Bhagwati panel and the government respectively. Issues pertaining to employee stock option and sweat equity would be dealt with by the Verma panel.

He added that in the event of there being certain changes in the provisions of the ordinance when it became an act, the regulations would be suitably amended.

SEBI will be able to take action against violation of the regulations under Section 11 of the SEBI Act. It will be able to take action against the merchant banker who is mandatorilyrequired to be appointed by a company. Violation by the company will be addressed by the department of company affairs (DCA).

The regulations will cover listed companies only. It will be undertaken through the tender-offer route on a proportionate basis, and from odd-lot holders, or the open-market transactions route where a book-building process on the lines of the Dutch auction process, or purchase through the stock exchange, will be adopted.

Shareholders will decide the price at which the offer will be made, and SEBI will not come into the picture.

In purchases made through the stock exchange, the details of the purchases made through buyback will be made available to the bourse on a daily basis, which, in turn, will make this information public regularly.

The regulations have called for stringent disclosures in the explanatory statement to be annexed to the notice for the general meeting and the letter of offer.

Promoters will have to disclose their pre- and post-buyback holdings. They will notbe permitted to participate in the buyback through the stock- exchange mode.

Buyback through negotiated deals, spot transactions or private arrangements will not be permitted. Appointment of merchant bankers will be mandatory, and they will have to give a due-dilligence certificate.

To ensure speedy completion of the process, SEBI has laid down certain time-bound steps at every stage. For example, except in the case of purchase through stock exchanges, an offer for buyback shall not remain open for more than 30 days. The verification of shares received in buyback has to be completed within 15 days of the offer's closure. Payments for accepted securities have to be made within seven days of the completion of verification, and the shares have to be extinguished and physically destroyed within seven days of the date of payment. The extinguishment certificate has to be filed within seven days of the physical destruction of the certificates.

The company making an offer for buyback will have to create anescrow account on the same lines as prescribed under the takeover regulations.

In the event of the public holding going below the 10 per cent level, provisions of the listing agreement are likely to be attracted, and the company will stand to get delisted.

The SEBI board also gave its stamp of approval to the Dhanuka panel. "The board was broadly in agreement with the identification of major areas and the general thrust of the recommendation for strengthening the regulatory powers of SEBI to enable it to discharge its functions effectively for better regulation of the capital market and investor protection," said Mehta.

The panel report, which has talked of a single act for the securities market and other changes in the relevant legislations, will be forwarded to the government for bringing about legislative changes.

The board has also clamped down on brokers not paying their fees on time by making it mandatory for them to pay a 15 per cent per annum interest for the period ofdelay.

INSIGHT
Emphasis is on buyback capability

SEBI's guidelines for buyback of shares emphasises two factors. First, the rules for buybacks should be such as to ensure that only companies capable of buyback will be allowed to exercise the option, and second, once the rules are complied with, pricing is a matter for companies and their shareholders.

The timetable for buyback is short, and indicates that only companies who are serious about making the offer and can cough up the cash will go in for it. All told, companies will have 52 days to make payments (compare dividends, which have to be paid within 45 days of the date of declaration). Destruction of securities has now been effectively reduced to 59 days from the date of the offer, compared to over one year envisaged in the ordinance. Yet another level of supervision has been added. Merchant bankers are to be associated with the process, and they need to furnish a due-diligence certificate. It should be, however, ensured that thecompany discloses the means of finance for the buyback in its explanatory statement.