It is suggested that the terms "free reserve" and "specified securities" are defined, and that the debt will mean all long-term loans including debentures or any other instrument by which loan is raised by the company. SEBI rules may prescribe that such debt/equity ratio shall be maintained at least for one year from the date of closure of the offer. SEBI regulations in respect of buyback are exhaustive. In some respects, particularly the information to be given in the explanatory statement accompanying the notice for approval of buyback by shareholders as also the letter of offer sent to shareholders is repetitive. Both these documents are targeted at shareholders, and as per the scheme laid down in the regulations, there is not much time gap between the date of passing ofthe resolution approving buyback and the date of offer. This needs to be reviewed to avoid repetitive statements.

Section 77 (6) requires a company to file with SEBI a declaration of solvency in prescribed form signed by two directors, one of whom shall be the managing director verified by an affidavit to the effect that the board has made full inquiry into the affairs of the company, as a result of which it is capable of meeting its liabilities and will not be rendered insolvent within a year of the date of declaration adopted by the board. Any company in an explanatory statement annexed to the notice is required to give an almost similar declaration by directors, contents of which are substantially same as also in the letter of offer sent to shareholders. SEBI regulations on buyback require a company to create a "buy back reserve account" equal to the nominal value of shares bought back out of free reserves. Such a reserve is not a free reserve which can be utilised for payment of dividend. This is asalutary provision, and SEBI regulations should provide that such a reserve will be created in a financial year during which the share buyback is completed. It may be noted that creation of such a reserve is a charge on the disposable surplus of the company.

The phrase "lead manager" appearing in item 11 of schedule II giving "contents of the public announcement" and item 12 of schedule III giving "disclosures to be made in the letter of offer" be substituted by the phrase "merchant banker" as the word `lead manager' is not defined in the regulations.

While the ordinance provides for prior consent of public financial institutions and banks which have given term loans and are outstanding in respect of investment made or loans or guarantees to be given by company, under Section 372A, there is no provision for prior consent of term-lending financial institutions in respect of share buyback. It is suggested that suitable provisions to that end be made in the SEBI regulations.

The purpose of Section 77B isnot clear. A marginal note to the section says "Prohibition for buyback in certain circumstances". The section stipulates a company cannot acquire its own shares through any subsidiary company including its own subsidiary, or through an investment company or group of investment companies. Section 42 of the Companies Act, 1956, prohibits the company after it becomes a subsidiary to acquire shares of a holding company. If the buyback is meant to extinguish the shares, the question of buying through the subsidiary does not arise. It is suggested that sub-clause (a) and (b) of Section 77B be deleted, and sub-clause (c) of that section be shifted to Section 77A.

In Section 371 A it is suggested that loans given by a company to its 100 per cent subsidiary be exempted from the provisions of Section 372A (2). Further, it is suggested that suitable clarifications be given by explanation to state that the bank rate mentioned in the section means the RBI rate.

A plain reading of Section 372A (3) gives the impressionthat so long as loans, guarantees given or investments made are within the limit specified in Section (1) of Section 372 A, prior consent of public financial institutions, where term loans subsist, and of all directors present at the meeting is not required. it is suggested that words "in pursuance of sub- section (1)" in sub-section (3) be deleted. It is well known that obtaining consent of financial institutions is time consuming. A limit be provided in the section so that if no adverse communication is received by a company from financial institutions within 30 days from the date of receipt of application, it can proceed with its proposal.

By inserting Section 1094, the ordinance has provided for nomination to shareholders, debenture holders and depositors. Ideally, such a facility is needed when shares are held in a single name. To avoid hardships to legal heirs or secured creditor of a deceased shareholder, it is suggested that after sub-clause (3) of Section 1094, the following be added, "Payment bycompany in accordance with the provisions of this section shall constitute a full discharge to the company of its liability in respect of such shares, debentures or deposit in the company, provided that nothing contained in this sub-clause shall affect the right or claim any person may have against the person to whom the payment is made under this clause".

To facilitate appointment of a nominee, the format of the present transfer form needs be changed to provide for nomination.

The ordinance by insertion of Section 79A has provided for issue of sweat equity share. SEBI regulations on the issue of sweat equity shares should provide for the following (i) Issue of sweat equity shares is authorised by articles of association of the company (ii) The maximum limit, as percentage of total equity capital, to which sweat equity can be raised (iii) Number of times and time interval between two issues (iv) Criterion for selecting directors or employees to whom sweat equity capital can be issued (v) Lock-in period tobe prescribed for holders of such shares (vi) Maximum sweat equity shares which an employee or director can be allotted at the time of each issue of such shares, and maximum sweat equity shares which an employee or director can hold as percentage of sweat capital (vii) Rules regarding transfer of such shares on resignation, retirement and death of holder.