Introduction:

When a company has substantial cash resources , it may like to purchase its own shares from the market particularly when the prevailing rate of its share in the market is much lower than the book value .the legal aspects involved in this connection are described as under:

Under section 77A of the Indian companies Act, 1956, a company may purchase its own shares or other specified securities out of – its free reserves; or the securities premium account; or the proceeds of any shares or other specified securities. but no buy-back of any kind of shares or other particular securities shall be made out of the proceeds of an earlier issue of the same kind of shares or same kind of other specified securities.

    (1)There is also an embargo that no company shall purchase its own shares or other specified securities unless the buy-back is authorized by its articles; a special resolution has been passed in general meeting of the company authorizing the buy-back. However, the buy-back is of less than ten per cent of the total paid-up equity capital and free reserves of the company; and   such buy-back has been authorized by the Board by means of a resolution passed at its meeting then the articles approval and special resolution is not required. A company is prohibited from going for further buy-back within a period of three hundred and sixty-five days, reckoned from the date of the earlier offer of buy-back.

It is very clear that, unless the company enforces strict corporate governance principles it is hard to expect from the company’s board that, it will fairly exercise the power granted to buy back shares upto ten per cent of the of paid up capital and free reserves.

(2) A company cannot buy back its shares from the market more than twenty-five per cent of the total paid-up capital and free reserves of the company at a time. Further, buy-back of equity shares in any financial year shall not exceed twenty-five per cent of its total paid-up equity capital in that financial year, while the debts (of all types) of the company shall not be more than twice the capital and its *free reserves after such buy-back. For certain companies the Central Government may prescribe a higher ratio.

 It gives capricious to the Central Government regarding prescribing a higher ratio for certain companies. The ratio of buyback of shares upto 25% may have been restricted to less than 20%, as the present limit is 1/4th of the capital of the company.

 In case of securities listed in the recognized stock exchange, the company planning for buyback should get the permission of SEBI. It is important to note that, only fully paid up shares can be redeemed. No partly paid up shares can be redeemed.

(3) The notice of the meeting at which special resolution is proposed to be passed shall be accompanied by an explanatory statement stating—

(a)   Full and complete disclosure of all material facts;

  (b)  The inevitability for the buy-back;

  (c)  The class of security intended to be purchased under the buy-back;

 (d)    The amount to be invested under the buy-back; and

  (e)  The time limit for completion of buy-back.

(4) Every buy-back shall be completed within twelve months from the date of passing the special resolution or a resolution passed by the Board under clause (b) of sub-section (2).

(5) The buy-back under sub-section (1) may be—

  (a)  from the existing security holders on a proportionate basis; or

  (b)  from the open market; or

  (c)  from odd lots, that is to say, where the lot of securi­ties of a public company, whose shares are listed on a recognized stock exchange, is smaller than such marketable lot, as may be specified by the stock exchange; or

  (d)  By purchasing the securities issued to employees of the company pursuant to a scheme of stock option or sweat equity.

(6) Where a company has passed a special resolution under clause (b) of sub-section (2) or the Board has passed a resolution under the first proviso to clause (b) of that sub-section to buy-back its own shares or other secu­rities under this section, it shall, before making such buy-back, file with the Registrar and the Securities and Exchange Board of India a declaration of solvency in the form as may be prearranged and verified by an affidavit to the effect that the Board has made a full inquest into the affairs of the company as a result of which they have formed an opinion that it is capable of meet­ing its liabilities and will not be rendered insolvent within a period of one year of the date of declaration adopted by the Board, and signed by at least two directors of the company, one of whom shall be the managing director, if any :

Provided that no declaration of solvency shall be filed with the Securities and Exchange Board of India by a company whose shares are not listed on any recognized stock exchange.

(7) Where a 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 buy-back.

(8) Where a company completes a buy-back of its shares or other specified securities under this section, it shall not make fur­ther issue of the same kind of shares (including allotment of further shares under clause (a) of sub-section (1) of section 81) or other *specified securities within a period of six months except by way of bonus issue or in the discharge of subsisting obligations such as conversion of warrants, stock option schemes, sweat equity or conversion of preference shares or debentures into equity shares.

(9) Where a company buys-back its securities under this section, it shall maintain a register of the securities so bought, the consideration paid for the securities bought-back, the date of cancellation of securities, the date of extinguishing and physi­cally destroying of securities and such other particulars as may be prescribed.

(10) A company shall, after the completion of the buy-back under this section, file with the Registrar and the Securities and Exchange Board of India, a return containing such particulars relating to the buy-back within thirty days of such completion, as may be prescribed. Provided that no return shall be filed with the Securities and Exchange Board of India by a company whose shares are not listed on any recognized stock exchange.

(11) If a company makes default in complying with the provisions of this section or any rules made there under, or any regulations made under clause (f) of sub-section (2), the company or any officer of the company who is in default shall be punishable with imprisonment for a term which may extend to two years, or with fine which may extend to fifty thousand rupees, or with both.

Notes:

  (a)  “Specified securities” includes employees’ stock option or other securities as may be notified by the Central Government from time to time;

  (b)  “free reserves” shall have the meaning assigned to it in clause (b) of Explanation to section 372A.

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“No roads lead into Naxal-affected areas” screamed a headline recently in a national daily. An internal review the other day at the Planning Commission in New Delhi revealed what has been known all these years. Among the 34 districts reviewed by the Plan Panel, Dantewada in the Bastar region of the Chhattisgarh State had the poorest record on road connectivity. The district was the scene of a recent carnage when Maoists, aka Naxalites, killed as many as 76 police personnel in a well planned ambush near Chintalnar village. According to the Panel member secretary, road connectivity is a big issue in Maoists-affected districts. While district officials cannot be easily deployed in these districts, those who are available do the work of village development out of the district headquarters for want of roads.

Virtually, like rediscovering the wheel, the Planning Commission, with the help of the National Informatics Centre (NIC), has stumbled upon the fact that the country’s worst developed districts include its most Naxal-hit ones. It sounds somewhat strange that this realisation has dawned upon the Planning Commission now when the Maoists have carved out an extensive “red corridor” for themselves covering eight states of the Union, pushing the Indian State out of the territories occupied by them. That there was a strong correlation between the lack of development and rise of Naxalism has been known all these years, though the recent revelations at the Commission may have been backed up by more solid data collected by the NIC.

In order to overcome the problems born out of lack of development the Commission plans to launch an Integrated Action Plan which seeks to speed up the process of filling up of the developmental gaps in the 34 districts spanning 8 states. Looks like, the Commission is serious this time as it proposes to convince the states to focus on these gaps and provide feedback on expenditure on centrally funded schemes. Perhaps, the recent massacre of police personnel has prompted the urgency.

Likewise, around the same time the Home Minister, P Chidambaram, while speaking at the national conference of the Confederation of Indian Industry, felt there couldn’t be any end to the Naxal problem without winning people’s trust. In the prevailing conflict-situation people were in deep distress and the “government model was unable to deliver”. He said that Maoists were destroying with a design schools and anything symbolic of the government. In the process, according to him, they are happy as people cannot read (for lack of schools), people cannot communicate (for lack of telephones) and nothing can move in or out (for want of roads). “We have a formidable adversary whereas we have a weak administration (State governments)” said the Minister. By the admission of the state governments, the Minister said, one-third of the funds for developmental work could not be spent in the affected areas for a variety of reasons.

Wondering whether development should precede police action, Chidambaram underscored the difficulties of delivery in areas where the government could not even enter. He said “we have to be practical. In some areas it is possible, in some areas it is not … The government would continue with its two pronged strategy of carrying forward its development effort and a calibrated and controlled police action in order to assert civilian authority in the affected areas.”

Neither the Planning Commission nor the Home Minister seems to be aware of how under the leadership of a gritty collector Maoists were pushed back in the badly affected Balaghat district of Madhya Pradesh. For his extraordinary achievements the collector, Gulshan Bhamra, was also bestowed with the Prime Minister’s Excellence Award in April 2010. Bhamra’s is a singular example of winning the trust of the people and bringing them back into the mainstream. Sheer inspired leadership, teamwork and grit won him spectacular results.

Balaghat district in Madhya Pradesh bordering on Chhattisgarh and Maharashtra was one of the 223 districts in the country that were severely affected by Naxalism. Infiltrating from Rajnandgaon district of Chhattigarh and Bhandara district of Maharashtra in the early 1990s, the Naxals quickly consolidated their hold in the largely forested district. Many of its villages, estimated to be around 400, were “liberated” and the State’s writ did not run in them. Killings and destruction of government property were commonplace events. A cabinet minister of the then Digvijay Singh government, LR Kavre, was killed in his house in his own village and the chief minister was not very sure whether he should take the risk of attending the funeral.

Things were so bad. Even Bhamra, after he was posted as collector, is reported to have assumed charge only after good deal of procrastination. However, once he joined, he gave to the job whatever he had and during his three-year tenure achieved results that were amazing and should have been trumpeted all over the country. Road connectivity in the district shot up from 520 km to 2,228 km. With roads rapidly coming up, telecom companies started installing cell-phone towers improving the connectivity with the wider world.  About 28000 hectares of new lands were brought under irrigation. Harvesting of forest produce that had been suspended was resumed and the works of collection of tendu leaves and bamboo felling was re-started. The revenue from forest produce doubled from 28 crore in 2006-07 to 55 crore in 2008-09. As people got jobs closer home, migrations out of villages dropped from 4217 in 2005-06 to 2840 in 2008-09. The result of all these activities was progressive fall in Naxal activities. The number of attacks fell from 21 in 2005 to 7 in 2006 and, amazingly, none in 2009.

It is not that the government model failed everywhere, as Chidambaram lamented. It works but it depends on the genius of the district-head. In Balaghat, Bhamra went only after what was hurting the people most and resultantly exploited by the Maoists – non-availability of healthcare and medicines, lack of jobs, lack of roads and connectivity. He got it all from the people whom he would meet at the village “haats” (weekly markets). Besides, Bhamra adopted the integrated approach that Planning Commission has decided upon only now. For instance, instead of using the funds received under the National  Rural Employment Guarantee Scheme in isolation, he integrated the developmental funds available under various central and state schemes and pumped them into the process of development. The works progressed fast and were further speeded up as the powers to monitor and supervise them were given to the people through the panchayats (the elected village administrative bodies). More importantly, he led by example and the entire district administration lined up behind him to contribute to the common cause – the welfare of the people in order to defeat the Maoists. And, true enough they were beaten back, not by force but by the sheer will of an increasingly happier and contented people.

Balaghat’s is a model that is a welcome change for a nation so bedevilled by the Maoist violence. It should be tried elsewhere in the State where many districts offer fertile grounds for rise of Naxalism. It can even be replicated in other affected states, though maybe, it will not work in areas where the state has no presence. Elsewhere, however, similar approaches, founded on local needs, could be attempted to gradually wrest as many districts as possible from the hold of the Maoist’s. What is required is a firm political will at the top and, at the district level, an inspired leadership with commitment to the wellbeing of the people.



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