Buy-Back from the Open Market
Regulation 13. Buy Back from the Open Market.
When a company proposes to carry out a buy-back through the open market then:
The company must follow all the rules and procedures laid down in this Chapter of the regulations.
It cannot carry out open market buy-back in an arbitrary or informal manner.
The company must comply with every applicable requirement, including:
Pricing rules,
Disclosure requirements, and
Procedural conditions.
Regulation 14. Buy-Back Methods
A company may carry out buy-back from the open market through specified methods.
The company may choose any one of the following methods:
(a). Through stock exchange
The company buys shares directly from the stock exchange platform, such as National Stock Exchange of India or BSE Limited.
Transactions happen like normal market trades.
(b). Through book-building process
The company invites shareholders to submit bids indicating the price at which they are willing to sell.
The final buy-back price is determined based on these bids.
Regulation 15. Minimum Utilisation Requirements
15(i).
Minimum utilisation requirement for buy-back
The company must actually use a substantial portion of the amount set aside for buy-back.
At least 75% of the total amount earmarked for buy-back must be utilised.
The “earmarked amount” refers to the amount specified in:
The Board resolution, or
The special resolution, as the case may be.
The company cannot announce a large buy-back amount and then utilise only a small portion of it.
Example:
ABC Ltd. approves a buy-back of ₹100 crore.
This ₹100 crore is the earmarked amount mentioned in:
The Board resolution or
The special resolution.
As per the rule, the company must utilise at least 75% of ₹100 crore.
15(ii).
Minimum utilisation within first half of buy-back period
The company must ensure early utilisation of the buy-back amount.
At least 40% of the total amount earmarked for buy-back must be utilised within the first half of the buy-back period.
The “earmarked amount” refers to the amount approved in:
The Board resolution, or
The special resolution, as applicable.
“Initial half of the specified duration” means:
If the total buy-back period is 6 months , then at least 40% must be used in the first 3 months.
The company cannot delay most of the buy-back to the later part of the period.
Regulation 16. Buy-back through stock exchange.
16(i).
The company can carry out buy-back only through stock exchanges that have nationwide trading terminals.
So , the exchange must have a trading system accessible across the country, not limited to a local or regional area.
Examples include recognized exchanges like National Stock Exchange of India and BSE Limited.
The company cannot use small, regional, or unrecognized exchanges for buy-back.
Explanation:
Special Window for Buy-Back Transactions
When a company carries out buy-back through the stock exchange method, a special mechanism is used.
The concerned stock exchange, such as National Stock Exchange of India or BSE Limited, must create a separate trading window for this purpose.
This window is used exclusively for buy-back transactions, and not for normal trading.
Shareholders who wish to sell their shares in the buy-back must route their transactions through this special window.
The window remains open only for the duration specified under the regulations.
Once the specified period ends, the window is closed and no further buy-back transactions can take place through it.
16(ii).
When the company is carrying out buy-back through the stock exchange route then:
Suc company is not allowed to buy back shares from promoters.
It is also prohibited from buying back shares from persons in control of the company.
“Persons in control” includes individuals or entities who have control over management or decision-making.
Therefore, promoters and controlling persons cannot participate in stock exchange buy-back.
This objective is to carry a buy-back through the market from only from public shareholders.
16(iii).
Buy-back through the stock exchange must be carried out using the order matching mechanism.
Order matching mechanism means:
Buy and sell orders are matched automatically by the exchange system based on price and time priority.
The company cannot use any other special or selective trading method.
Specifically, the company is not allowed to use the “all or none” order matching system.
“All or none” means an order is executed only if the entire quantity is matched, otherwise it is not executed at all.
Such a system is prohibited because it may lead to unfair or selective execution of trades.
Understanding Buy & Sell Order Matching Mechanism:
The buy & sell order matching mechanism is the system used by stock exchanges to match buyers and sellers automatically.
Every order placed in the market contains Price, and Quantity of shares.
The system matches orders based on Best price first, and If prices are same, then time priority (earlier order gets priority).
Example:
ABC Ltd. is doing a buy-back through stock exchange.
The company places a buy order:
Buy 1,000 shares at ₹100 per share.
In the market, different shareholders place sell orders:
Seller 1: 300 shares at ₹98
Seller 2: 400 shares at ₹100
Seller 3: 500 shares at ₹102
Mechanism of Matching
First, the system matches with the lowest price available.
Seller 1 (₹98) → 300 shares are matched.
Next, it moves to the next best price within the limit.
Seller 2 (₹100) → 400 shares are matched.
Now total matched = 700 shares.
Seller 3 is asking ₹102, which is above the company’s buy price (₹100).
So, no match happens with Seller 3.
After completion of matching , ABC Ltd. buys 700 shares (300 + 400).
Remaining 300 shares of its order stay pending.
Understanding All or None Order Matching Mechanism
The “All or None” (AON) order matching mechanism is a type of order where the trade is executed only if the entire quantity can be matched at once.
If the full quantity is not available at the specified price, no part of the order is executed.
This is different from the normal order matching system, where partial execution is allowed.
Example:
ABC Ltd. places a buy-back order: Buy 1,000 shares at ₹100 on an “All or None” basis.
In the market, sellers are available as follows:
Seller 1: 300 shares at ₹100.
Seller 2: 400 shares at ₹100.
Seller 3: 200 shares at ₹100.
Total available at ₹100 = 900 shares.
Even though 900 shares are available, the system will not execute the order.
This is because the company wanted all 1,000 shares in one go, and that condition is not satisfied.
So, no shares are bought at all.
16(iv).
Disclosures, filing requirements and timelines of public announcement
(a).
Appointment of merchant banker and public announcement (tender offer)
When a company undertakes buy-back through the tender offer method, it must follow certain mandatory steps.
The company must appoint a merchant banker to manage the buy-back process.
The merchant banker is responsible for ensuring:
Compliance with regulations, and
Proper execution of the buy-back.
The company must also make a public announcement of the buy-back.
This public announcement must be made in accordance with regulation 7.
The announcement informs shareholders and the market about:
The details of the buy-back, and
Their right to participate.
(b).
Timeline and contents of public announcement (tender offer)
The company must make a public announcement of the buy-back within 2 working days.
The 2-day period is counted from:
The date of passing the Board resolution, or
The date of declaration of results of the postal ballot (special resolution), as applicable.
The requirement depends on which type of approval is used for the buy-back.
The public announcement must include all disclosures prescribed under Schedule IV of the regulations.
These disclosures contain detailed information about the buy-back, such as terms, pricing, and other relevant details.
(c).
Additional Filing Requirement
When the company makes the public announcement of buy-back, it must also complete a simultaneous filing requirement.
At the same time as the announcement, the company must file a copy of the public announcement.
This filing must be done:
In electronic mode, and
Along with the prescribed fees under Schedule V.
The copy must be submitted to:
The Board (i.e., Securities and Exchange Board of India), and
All stock exchanges where the company’s securities are listed, such as National Stock Exchange of India or BSE Limited.
(ca).
Dissemination of public announcement by stock exchanges
Once the company files the public announcement, the stock exchanges must act immediately.
The stock exchanges, such as National Stock Exchange of India and BSE Limited, are required to forthwith / disseminate (publish) the announcement to the public.
“Forthwith” means the dissemination must be done without delay.
The announcement is made available to:
Investors,
Shareholders, and
The general public.
(cb).
Placing public announcement on websites
A copy of the public announcement must be made easily accessible online.
It must be placed on the websites of:
The stock exchanges where the company is listed, such as National Stock Exchange of India and BSE Limited,
The merchant banker, and
The company itself.
Investors and shareholders can easily access the details of the buy-back at any time.
(d).
Disclosure of brokers and stock exchanges in public announcement
The public announcement must include details of the brokers involved in the buy-back.
It must also specify the stock exchange(s) through which the buy-back will be carried out, such as National Stock Exchange of India or BSE Limited.
This means shareholders are informed about:
Which broker is acting on behalf of the company, and
Where the buy-back transactions will take place.
This disclosure ensures transparency in execution of the buy-back process.
It allows investors to identify the correct platform and intermediary involved in the transaction.
Explanation:
No letter of offer required for open market buy-back
when the company undertakes buy-back through the open market method.
In such cases, the company is not required to prepare or file a draft letter of offer or letter of offer.
There is no need to submit such documents to the Board, i.e., Securities and Exchange Board of India.
This is because open market buy-back is carried out through stock exchange transactions, not through a direct offer to shareholders.
Therefore, the detailed offer document required in tender offer method is not applicable here.
16(v).
When the company is carrying out buy-back through the stock exchange route then:
The company can buy back shares only if they are “frequently traded” shares.
“Frequently traded shares” means shares that have regular and sufficient trading volume on the stock exchange.
These shares have active buying and selling, and their price is determined by continuous market transactions.
The company cannot use the stock exchange method for infrequently traded or illiquid shares.
16(vi).
When the company is carrying out buy-back through the stock exchange method then:
The company must follow specific restrictions laid down by the Board, i.e., Securities and Exchange Board of India.
These restrictions relate to how the company places its buy orders in the market.
The company must comply with limits on:
Placement of bids: Rules on how and when buy orders can be placed in the market.
Price: Restrictions on the maximum or permissible price range for buy-back orders.
Volume: Limits on the number of shares that can be bought in a single day or at a time.
The company cannot freely place large or aggressive orders without following these limits.
Regulation 17. Opening of the offer on stock exchange.
17(i)
When the company places a buy-back order on the stock exchange, its identity must be visible on the electronic trading screen.
This means the order should clearly show that the buyer is the company itself.
The company cannot place orders anonymously or through hidden identity.
17(ii).
Opening and closing timeline of buy-back (open market)
The buy-back offer must open within 4 working days from the date of public announcement.
After opening, the buy-back must be completed within specified time limits depending on the period:
(a). If the buy-back is opened on or before March 31, 2023 then the buy-back must be completed within 6 months.
(b). If the buy-back is opened on or after April 1, 2023 and till March 31, 2024 then the buy-back must be completed within 66 working days.
(c). If the buy-back is opened on or after April 1, 2024 and till March 31, 2025 then the buy-back must be completed within 22 working days.
So , the permitted duration of buy-back has been progressively reduced over time.
Restriction on open market buy-back (stock exchange route) after April 1, 2025
Restriction on open market buy-back (stock exchange route)
From April 1, 2025 onwards, companies are not allowed to undertake buy-back through the stock exchange (open market method).
However, there is an exception:
If a buy-back offer was already opened on or before March 31, 2025 then:
It can continue and be completed using the stock exchange method.
The restriction applies only to new buy-back offers starting on or after April 1, 2025.
Companies will have to use other permitted methods (like tender offer) for new buy-backs after this date.
Regulation 18. Subsequent compliances for open market buy-back through stock exchange.
18(i).
Daily reporting of buy-back transactions
The company must submit details of shares or securities bought back on a daily basis.
This information must be provided to the stock exchange where the securities are listed, such as National Stock Exchange of India or BSE Limited.
The details must be submitted in the format specified by the Board, i.e., Securities and Exchange Board of India.
After receiving the information, the stock exchange must immediately upload it on its official website.
18(ii).
Daily disclosure on company website
The company must upload details of shares or specified securities bought back on its website.
This must be done on a daily basis.
The disclosure should cover transactions carried out during that day.
Regulation 19. Buy-back of shares/securities in physical form
19(1).
A company is allowed to buy back shares or specified securities held in physical form.
This buy-back can be carried out through the stock exchange route (open market method).
Even though the shares are in physical form, the company must follow the prescribed procedure under the regulations.
Shareholders holding physical share certificates can participate in the buy-back through the stock exchange mechanism.
The procedure is as follows:
(i).
When the buy-back involves shares or securities held in physical form, a special arrangement is required.
The stock exchange, such as National Stock Exchange of India or BSE Limited, must create a separate trading window for such transactions.
This window is used only for buy-back of physical shares, and not for normal trading.
The window remains open for the entire duration of the buy-back period.
Shareholders holding physical share certificates must use this specific window to participate in the buy-back.
(ii).
The company must carry out such buy-back only through the separate window created under 19(i).
Only eligible shareholders holding physical share certificates can participate through this window.
Before accepting the shares, there must be proper verification of the shareholder.
The verification is done by the broker handling the transaction.
The broker must verify:
Identity proof, and
Address proof of the shareholder.
The company can proceed with the buy-back only after this verification is completed.
(iii).
Pricing of buy-back for physical shares
When the company is buying back shares held in physical form , then:
The price for such buy-back is not decided arbitrarily.
It must be based on the volume weighted average price (VWAP).
The VWAP is calculated based on shares bought back in dematerialised form (not physical form).
The calculation is done for the calendar week in which the physical shares were received by the broker.
So , essentially:
Look at all buy-back transactions (in demat form) during that week,
Compute the average price weighted by volume,
That becomes the price payable for physical shares.
Example:
ABC Ltd. is doing a buy-back through the stock exchange.
During a particular calendar week, the company buys back shares in demat form as follows:
1,000 shares at ₹100
2,000 shares at ₹110
1,000 shares at ₹120
First, calculate total value of transactions:
(1,000 × 100) = ₹1,00,000
(2,000 × 110) = ₹2,20,000
(1,000 × 120) = ₹1,20,000
Total value = ₹4,40,000
Total shares bought = 4,000 shares
VWAP = ₹4,40,000 ÷ 4,000 = ₹110 per share.
So . now, a shareholder submits physical share certificates to the broker during the same week.
The company will pay ₹110 per share for those physical shares.
Pricing for shares tendered in the first week of buy-back
When shares tendered in the first calendar week of the buy-back then:
If During such first week, there are no prior buy-back transactions to calculate VWAP. , a different method is used for pricing.
The price will be based on the volume weighted average market price (VWAP) of the preceding calendar week.
So,
Look at the market trading prices (not buy-back transactions) of the company’s shares in the previous week,
Calculate the VWAP for that week,
That becomes the price for shares tendered in the first week of buy-back.
Example:
ABC Ltd. starts its buy-back on Monday (Week 1).
Since this is the first week, there are no buy-back transactions yet to calculate VWAP.
So, the company uses the previous week’s market trading data (Week 0).
In the preceding calendar week, shares were traded as follows:
1,000 shares at ₹90
2,000 shares at ₹100
1,000 shares at ₹110
Calculate total value:
(1,000 × 90) = ₹90,000
(2,000 × 100) = ₹2,00,000
(1,000 × 110) = ₹1,10,000
Total value = ₹4,00,000
Total shares traded = 4,000 shares
VWAP = ₹4,00,000 ÷ 4,000 = ₹100 per share.
Now, during the first week of buy-back, a shareholder submits physical shares.
The company will pay ₹100 per share.
Exclusion of abnormal price movements for VWAP calculation
While calculating the volume weighted average market price (VWAP), certain abnormal price movements can be ignored.
These are price changes caused by:
Material events, or
Confirmation of previously reported information.
If such events lead to unusual or sharp movement in share price, their impact may be excluded from VWAP calculation.
This exclusion must be done in accordance with the framework specified under Regulation 30(11) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.
The purpose is to ensure that VWAP reflects a normal, fair market price, and not a distorted price due to extraordinary events.
Explanation:
When the company is calculating price for buy-back (VWAP basis) , then:
If no shares are bought back in a particular calendar week, there is no data to compute VWAP for that week.
In such a situation, the company cannot use that week for pricing.
Instead, it must go back to the most recent previous week in which buy-back transactions actually took place.
The VWAP of that earlier week will be used for determining the buy-back price.
Regulation 20. Escrow account for open market buy-back through stock exchange.
20(i).
The company must create an escrow account as a security mechanism for the buy-back.
This must be done within 2 working days from the date of the public announcement.
The purpose of the escrow account is to ensure performance of the company’s obligations under the buy-back regulations.
The company must deposit 25% of the total amount earmarked for the buy-back into this escrow account.
The “earmarked amount” refers to the amount specified in:
The Board resolution, or
The special resolution, as applicable.
20(ii).
The escrow account created under 20 (i)) can be maintained in different forms, subject to appropriate margin requirements specified by the Board.
The company can provide escrow in any of the following forms:
(a). Cash deposit with any scheduled commercial bank.
(b). Bank guarantee issued by a scheduled commercial bank in favour of the merchant banker.
(c). Deposit of frequently traded and freely transferable equity shares or other securities with the merchant banker, along with appropriate margin.
(d). Government securities.
(e). Units of mutual funds invested in gilt funds or overnight schemes.
(f). Combination of any of the above forms.
Explanation:
With respect to the cash portion of the escrow account:
The cash component must be maintained in accordance with specific regulatory requirements.
These requirements are provided in the Explanation to Regulation 9(xi)(c).
The company cannot maintain cash in escrow in any arbitrary manner.
It must follow the prescribed manner, conditions, and safeguards mentioned in that explanation.
20(iii).
With respect to the portion of the escrow account maintained as cash deposit with a scheduled commercial bank , certain rules apply.
At the time of opening the escrow account, the company must give specific authority to the merchant banker.
The company must empower/give authority to the merchant banker to instruct the bank directly.
The merchant banker can direct the bank to release funds from the escrow account.
This release is allowed only for meeting obligations arising out of the buy-back.
The company cannot retain exclusive control over the escrow funds.
20(iv).
(a).
Where the escrow account is maintained in the form of a bank guarantee then:
The bank guarantee must be issued in favour of the merchant banker.
The guarantee must remain valid for a specified period.
It must be valid for 30 working days after the expiry of the buy-back period.
Alternatively, it must remain valid until all obligations under the buy-back regulations are fully completed, whichever is later.
(b).
The same shall not be returned by the merchant banker till completion of all obligations under the regulations.
20(v).
Minimum cash requirement in escrow (when non-cash forms are used
When the escrow account is partly maintained in forms other than cash (e.g., bank guarantee, securities, etc.) then:
In such cases, the company must still deposit a minimum cash component.
The company must deposit at least 2.5% of the total amount earmarked for buy-back in cash.
This cash must be deposited with a scheduled commercial bank.
The “earmarked amount” refers to the amount specified in:
The Board resolution, or
The special resolution, as applicable.
This cash acts as security for fulfilling the company’s obligations under the buy-back regulations.
Even if most of the escrow is in non-cash form, this rule ensures there is some liquid cash readily available.
20(vi)
Release of escrow amount with minimum balance condition
The company can use (release) the escrow amount to make payments to shareholders participating in the buy-back.
However, there is a minimum balance requirement that must always be maintained.
At least 2.5% of the total amount earmarked for buy-back must remain in the escrow account at all times.
The “earmarked amount” refers to the amount specified in:
The Board resolution, or
The special resolution, as applicable.
So , the company can withdraw funds for payment , but it cannot reduce the escrow balance below 2.5% at any point.
20(vii).
After the company has completed its obligations under regulation 15:
Once all buy-back obligations are fully fulfilled, the escrow account is no longer required as security.
Any remaining amount in the escrow account can be released.
Any bank guarantee or other security provided in escrow can also be released.
The release is made back to the company.
This happens only after ensuring that all payments and regulatory requirements are completed.
20(viii).
Under circumstances , the obligations under Regulation 15 have not been complied with then:
The Board may direct the Merchant Banker to forfeit the escrow account.
That said , there is a limit on forfeiture: It can be up to a maximum of 2.5% of the amount earmarked for buy-back.
The “earmarked amount” refers to the amount specified in:
The Board resolution, or
The special resolution, as applicable.
There are situations where the forfeiture may not be applicable:
(a).
If the volume weighted average market price (VWAMP) of the shares during the buy-back period is higher than the buy-back price, then:
The company may not be penalized by forfeiture.
This must be:
Certified by the merchant banker, and
Based on data provided by stock exchanges.
Reason for exception:
If market price is higher than buy-back price, shareholders may choose not to participate in the buy-back.
So, failure to complete buy-back may not be due to company fault.
(b).
If the company placed buy orders properly in the market, but still could not complete the buy-back, this condition may apply.
The reason must be that sell orders from shareholders were insufficient.
In simple terms:
The company was ready to buy,
But shareholders were not willing to sell enough shares.
This situation must be:
Certified by the merchant banker, and
Based on data provided by the stock exchanges.
If this condition is satisfied, then:
The failure to complete buy-back is not considered the company’s fault, and
Escrow forfeiture may not be imposed.
(c).
where the company fails to complete obligations, but the reason is not due to its fault.
The situation must involve circumstances beyond the control of the company.
These could include unforeseen or exceptional events that prevent proper execution of buy-back.
The company must demonstrate that it acted in good faith and complied as far as possible.
The final decision lies with the Board, i.e., Securities and Exchange Board of India.
The Board must form an opinion that the circumstances genuinely deserve consideration.
If the Board is satisfied, then:
Escrow may not be forfeited, and
The company may be relieved from penalty.
20(ix).
Forfeiture of escrow and deposit to Investor Protection Fund
When the company fails to fulfill its obligations under 20 (viii) , then in such cases:
The escrow amount (full or part of it) may be forfeited.
“Forfeiture” means the company loses its right over that amount due to non-compliance.
The forfeited amount is not returned to the company.
Instead, it must be deposited into the Investor Protection and Education Fund (IPEF) of the Securities and Exchange Board of India.
Regulation 21. Extinguishment of certificates for open market buy-back through stock exchange.
21(i).
When a company completes a buy-back under this Chapter (open market method), it must cancel and destroy the shares it has bought back.
Instead of creating a completely new procedure, the law says the company should follow the same rules that are used in tender offer buy-backs (regulation 11).
So, the company simply applies that existing framework for extinguishment of share certificates.
However, before doing that, the company must check 21(ii) and 21(iii).
If these sub-regulations contain any special conditions or modifications, then those will override the general rule.
If not, the company continues with the standard extinguishment process as followed in tender offers.
21(ii).
After the company completes the payout to shareholders in the buy-back, the process is not yet fully over.
The company must then verify all the acceptances of shares that were tendered.
This means checking whether:
The shares received are valid,
The shareholders are eligible, and
The transfer and documents are properly in order.
This verification must be completed within 15 working days from the date of payout.
21(iii).
After completing the buy-back, the company must cancel (extinguish) and physically destroy the share certificates it has bought back.
This must be done for all shares bought during a particular month.
The destruction must take place on or before the 15th day of the next (succeeding) month.
The process cannot be done privately; it must be carried out in the presence of authorised persons.
Specifically, it must be done in the presence of:
A merchant banker, and
The secretarial auditor of the company.
Extinguishment of all Securities in 7 Days
The company shall ensure that all the securities bought-back are extinguished within seven working days of expiry of buy-back period.
Regulation 22. Buy-back through book building.
A company is allowed to carry out buy-back through the book-building process.
In this method, the buy-back is done from existing shareholders or security holders.
The company does not fix a single price in advance.
Instead, shareholders are invited to submit bids indicating the price at which they are willing to sell their shares.
Based on these bids, the company determines the final buy-back price.
The price is usually decided at a level where the company can buy the desired number of shares.
It allows shareholders to participate actively by quoting their preferred selling price.
The process promotes fairness and transparency in determining the buy-back price.
Regulation 22A. Disclosures, filing requirements and timelines for public announcement.
22A(i).
Appointment of merchant banker and public announcement (book-building)
Once the buy-back is approved, either by:
The Board of Directors, or
The shareholders (special resolution),
The company must take immediate next steps.
It must appoint a merchant banker to manage and oversee the buy-back process.
The company must also make a public announcement of the buy-back.
This announcement must be made within 2 working days from:
The date of Board approval, or
The date of shareholder approval, as applicable.
22A(ii).
Disclosures in public announcement (book-building)
When the company makes a public announcement for buy-back, it must include specific disclosures.
These disclosures must be prepared in accordance with Schedule II of the regulations.
Schedule II prescribes the format and detailed information that must be disclosed.
The company cannot provide incomplete or arbitrary information.
22A(iii).
After the company makes the public announcement, the buy-back process must begin promptly.
The book-building process must start within 7 working days from the date of the public announcement.
The company cannot delay the commencement of the process indefinitely.
22A(iv).
Methodology disclosure for pre-opening intimation (book-building)
The public announcement must explain how prior intimation will be given before the buy-back opens.
This methodology must be detailed and clearly described.
The disclosure must follow the requirements specified in Schedule VI.
It should explain:
What information will be communicated,
How it will be communicated, and
When it will be communicated before the opening of the offer.
The company cannot leave this vague; it must provide a clear procedure for pre-opening intimation.
Regulation 22B. Offer procedure.
Regulation 22C. Payment to holders of shares or other specified securities.
22(c)(i).
After the buy-back offer closes, the company must complete the payment to shareholders.
The payment must be made to all eligible shareholders who have tendered their shares or securities.
This payment is called the consideration for buy-back.
The company must complete this payment within 5 working days from the date of closure of the buy-back offer.
The company cannot delay payments beyond this period.
Regulation 22D. Retail and Promoter participation.
22D(i).
s in case of buy-back through the book-building process.
Retail investors are given a specific benefit and flexibility.
They have the option to bid directly at the buy-back price determined by the company.
This means:
They do not need to quote different prices,
They can simply choose to sell at the final buy-back price.
This makes participation simpler for small investors.
Example:
Explanation:
For the purposes of this chapter:
Retail investors are those security holders whose total holding value is up to ₹2,00,000.
The value of their holding is calculated based on the closing market price of the shares or securities.
This price is taken as on the identified date specified in Schedule VI.
So, it is not based on purchase price, but on the market value on that specific date.
If the value of holdings is ₹2 lakh or less → the person is treated as a retail investor.
If it exceeds ₹2 lakh → they are not treated as retail investors under this Chapter.
22D(ii).
buy-back through the book-building method.
Promoters of the company are not allowed to participate in this type of buy-back.
Their associates are also prohibited from participating.
“Associates” includes persons or entities connected or related to the promoters.
Therefore, neither promoters nor their connected persons can submit bids in the book-building process.
Regulation 22E. Methodology of acceptance of bids.
22E(i).
uy-back through the book-building process.
The buy-back offer must remain open for at least 2 trading days.
“Trading days” means days when the stock exchange is open and operational.
The company cannot close the offer before completing this minimum period.
22E(ii).
buy-back through the book-building process.
Security holders are allowed to submit bids to sell their shares or securities.
They can bid for any number of shares, depending on how many they hold.
However, the quantity cannot exceed the total number of shares they own in that category.
The bid must be placed within the price range specified by the company.
This means:
Shareholders cannot quote a price below or above the allowed range.
Within that range, shareholders are free to choose their preferred selling price.
22E(iii).
when total bids received from shareholders exceed the buy-back size.
This means:
The company wants to buy a certain number of shares,
But shareholders have offered more shares than required.
(a) Determination of buy-back price
The company arranges all bids from lowest price to highest price.
It then starts adding the quantity of shares at each price level.
The point at which the total reaches 100% of the buy-back size is identified.
The price at that level becomes the buy-back price.
This is the final price at which shares will be bought.
(b) Acceptance of shares
All shares tendered at or below the buy-back price are eligible for acceptance.
However, since total bids exceed the required size, not all shares can be accepted fully.
Therefore, shares are accepted on a proportionate basis.
This means:
Each shareholder gets a proportionate acceptance based on total demand vs. buy-back size.
All accepted shares are paid at the same buy-back price, regardless of the price at which they bid.
22E(iv).
buy-back through the book-building process.
Sometimes, the total bids received from shareholders may be less than the buy-back size announced by the company.
This means:
The company wants to buy, say, 1,00,000 shares,
But shareholders have offered only, say, 70,000 shares.
In such a case, there is no need to reject or proportionately accept bids.
The company will accept all the shares that have been tendered.
All accepted shares will be paid at the highest bid price discovered in the process.
This ensures that:
22E(v).
Once the company makes the public announcement of the buy-back, the process becomes binding.
The company cannot withdraw or terminate the buy-back offer after this stage.
This ensures that the company remains committed to completing the buy-back.
Similarly, shareholders who have placed bids cannot withdraw their bids.
Once a bid is submitted, it becomes final and binding on the bidder.
Regulation 23. Extinguishment of certificates.
When a company completes a buy-back through the book-building method, it must cancel the shares it has bought back.
Instead of creating a separate procedure, the law says to follow the same extinguishment rules used for tender offers.
The term “mutatis mutandis” means:
Apply the same rules,
But make necessary adjustments to fit the book-building method.
So, the company follows the tender offer extinguishment process, with minor changes wherever required.
