Buyback of shares is initiated via a special resolution of the shareholders of the Company or a Board resolution, depending on the percentage of shares to be bought back, and then a public announcement should be made, followed by disclosures and draft letter of offer filing with SEBI. This letter of offer would then have to be sent to members of the company. Also the buyback offer shall remain open for a period of not less than 15 days and not more than 30 days. But the biggest question remains; whether there is some minimum limit up to which a company has to buy-back? As far as legal requirement is concerned, though there is no mandatory methodology purported by SEBI for computation of the minimum limit, yet the same
AKItA AGRAWAL has to be specified in the buyback offer document.
Pnrtna, Amarchand
Mangaldas "These days SEBI has given clear indication to Companies that they should disclose and agree to
acquire a minimum number of shares pursuant to a buy back offer. The SAT judgment in the case of Sasken Communication Technologies Limited makes it clear that a minimum offer size has to be disclosed and this minimum offer size is usually taken as 1 % of the maximum number of shares to be bought back. However, it is possible for a Company to insert a condition in its offer document that any obligation to acquire the minimum number of shares is subject to such shares being tendered at or below the maximum price offered by the Company." says Akila Agrawal, Partner, Amarchand Mangaldas, a renowned legal firm. "Considering that Companies usually draft their offer documents with adequate legal safeguards, in the event that the market price of the shares continues to be higher than the maximum price offered by the Company, it is possible for them to make a case as to why the minimum number of shares were not acquired in the course of the offer." she adds. Now if that is the legal position of buyback offer then it is of utmost importance that investors should pay proper attention to the offer document to protect their interest and should not invest in companies blindly based upon just buyback cues.
AKItA AGRAWAL has to be specified in the buyback offer document.
Pnrtna, Amarchand
Mangaldas "These days SEBI has given clear indication to Companies that they should disclose and agree to
acquire a minimum number of shares pursuant to a buy back offer. The SAT judgment in the case of Sasken Communication Technologies Limited makes it clear that a minimum offer size has to be disclosed and this minimum offer size is usually taken as 1 % of the maximum number of shares to be bought back. However, it is possible for a Company to insert a condition in its offer document that any obligation to acquire the minimum number of shares is subject to such shares being tendered at or below the maximum price offered by the Company." says Akila Agrawal, Partner, Amarchand Mangaldas, a renowned legal firm. "Considering that Companies usually draft their offer documents with adequate legal safeguards, in the event that the market price of the shares continues to be higher than the maximum price offered by the Company, it is possible for them to make a case as to why the minimum number of shares were not acquired in the course of the offer." she adds. Now if that is the legal position of buyback offer then it is of utmost importance that investors should pay proper attention to the offer document to protect their interest and should not invest in companies blindly based upon just buyback cues.
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