Prohibition on purchase by company of its own shares

Prohibition on purchase by company of its own shares

(1) No company shall purchase its own shares (buy-back) or lend money

against the security of its own shares.

(2) Notwithstanding anything contained in Sub-section (1), in the following circumstances, a company may buy back its shares out of its free reserves available for being distributed as dividends, by giving information to the Office:

• (a) Where the shares issued by the company are fully paid up;

• (b) Where the shares issued by a public company have been listed on the Securities Board;

• (c) Where the buy-back of shares is authorized by the articles of association of the concerned company;

• (d) Where a special resolution has been adopted at the general meeting of the concerned company authorizing the buy-back;

• (e) Where the ratio of the debt owed by the company is not more than twice the capital and general reserve fund after buy-back of shares;

Explanation: For the purposes of this Clause, “debt” means all amounts of secured or unsecured debts borrowed by a company.

• (f) where the value of shares to be bought back by a company is not more than twenty percent of the total paid-up capital and the general reserve fund of that company;

• (g) Where the buy-back of shares is not in contravention of the directives issued by the Office in this respect.

(3) A resolution to be presented at the general meeting pursuant to Clause (d) of Sub-section (2) shall state the following matters:

• (a) The reason and necessity for the buy-back of shares;

• (b) A statement of the evaluation of possible impacts of the financial situation of the concerned as a result of the buy-back of shares,

• (c) The class and number of shares intended to be bought back;

• (d) The maximum or minimum amount required to buy back shares as referred to in Clause (c) and financial source of such amount;

• (e) The time limit for the buy-back of shares;

• (f) The mode of the buy-back of shares;

• (g) Such other necessary matters as specified by the Office and as required to be disclosed under the prevailing law, in respect of the buy-back of shares.

(4) Where a special resolution as referred to in Sub-section (3) is adopted by the general meeting, the concerned company may buy back its shares in any of the following manners within a period of twelve months of the adoption of that resolution:

• (a) Purchasing from the stock exchange;

• (b) Purchasing from the concerned employee of the company the shares allotted to him/her,

• (c) Purchasing from the existing shareholders on a proportionate basis.

(5) where a company buys back its own shares pursuant to Subsection (4), it shall file with the Office a return containing the number of shares bought back, the amount paid for the same and other necessary details within thirty days of the date of such buy-back.

(6) There shall be established a separate capital redemption reserve fund, to which a sum equal to the nominal value of the shares bought back pursuant to Sub-section (4) shall be transferred; and the amount of such fund shall be maintained as if it were the paid-up capital.

(7) Where a company buys back its shares pursuant to Subsection (4), it shall cancel the shares so bought back within one hundred twenty days of the date of such buy-back.

(8) Once a company buys back any class of shares pursuant to this Section, the company shall not re-issue the shares of that class, except for the issue of bonus shares or payment of its liability, prior to the expiration of two years after such buy-back.

(9) Notwithstanding anything contained elsewhere in this Section, no public company shall buy back its shares in a manner that such minimum number of shareholders or minimum paid-up capital as required to be maintained by that company becomes less or lower.

(10) Other conditions where a company cannot buy back its shares and other terms required to be complied with in the buying back of its shares shall be as prescribed.