Definitions
Regulation 1. Short Title & Commencement
1(1).
These regulations are formally named the Securities and Exchange Board of India (Buy-Back of Securities) Regulations, 2018.
1(2).
These regulations become effective from a specific date.
This effective date is the date on which they are published.
The publication must be in the Official Gazette of India.
Therefore, the regulations come into force immediately upon such official publication.
Regulation 2. Definitions
2(i).
The definitions provided apply throughout these regulations.
These definitions are to be used for interpreting terms used in the regulations.
However, this applies only unless the context requires a different meaning.
So , in special situations, the meaning of a term may change based on context.
(a). Act
Act means the Securities and Exchange Board of India Act, 1992.
(b). Associate
Associate refers to a person connected with the company in certain ways.
(i).
It includes a person who directly or indirectly exercises control over the company.
Such control may be exercised: Individually, or Together with relatives.
(ii).
It also includes a person whose employee, officer, or director is:
Also an employee, or
An officer, or
A director of the same company.
(c). Board
Board refers to the Securities and Exchange Board of India (SEBI).
It is the regulatory authority established under Section 3 of the relevant Act.
(d). Buyback Period
Buyback period means the time duration relating to a company’s buyback process.
It starts from:
The date of the Board of Directors’ resolution, or
The date of declaration of results of the postal ballot (special resolution),
Whichever is applicable for authorizing the buyback.
It ends on: The date when payment is made to shareholders who have accepted the buyback offer.
(e). Control
The definition of control is the same as provided in SEBI (SAST) Regulations , 2011 in clause 2(e).
In accordance with 2(e) of SEBI (SAST) Regulations , 2011 , Control means:
Control includes:
The right to appoint a majority of the directors.
The power to control management decisions.
The power to influence or determine policy decisions.
Such control may be exercised by a single person, or multiple persons acting individually or in concert.
Control may be exercised directly, or indirectly..
Control can arise through:
Shareholding.
Management rights.
Shareholders’ agreements.
Voting agreements.
Any other manner.
It is provided that:
A director of the target company is not automatically in control.
An officer of the target company is also not automatically in control.
So, merely holding the position of director or officer is not sufficient.
There must be additional rights or powers (such as special voting rights, agreements, or majority board control) to establish control.
(f). Company
Company refers to a company as defined under the Companies Act, 2013.
It must be a company whose shares or other specified securities are listed on a stock exchange.
It includes a company which Buys, or Intends to buy its own shares or other specified securities.
Such buyback must be carried out in accordance with these regulations.
(g). Companies Act
Companies Act means the Companies Act, 2013.
(ga). Frequently Traded Shares
The definition of Frequently Traded shares is the same as provided in SEBI (SAST) Regulations , 2011 in clause 2(j).
In accordance with 2(j) of SEBI (SAST) Regulations , 2011 , Frequently Traded Shares means:
Frequently traded shares
Frequently traded shares are shares that are actively bought and sold in the market.
These shares are not rarely or occasionally traded.
SEBI uses the concept of frequently traded shares to check how liquid a company’s shares are.
If a company’s shares are traded often then their market price is considered reliable.
SEBI may use such market prices for calculations.
If shares are not frequently traded, SEBI applies different valuation methods.
(h). Insider
The definition of Insider is the same as provided in SEBI (Issue of Capital and Disclosure Requirements) Regulations , 2015 in clause 2(1)(i)(g).
In accordance with 2(1)(i)(g) of SEBI (Issue of Capital and Disclosure Requirements) Regulations , 2015 , Insider means:
(i). Merchant Banker
The definition of Merchant Banker is the same as provided in SEBI (Merchant Bankers) Regulations , 1992 in clause 2(cb).
In accordance with 2(cb) of SEBI (Merchant Bankers) Regulations , 2011:
A merchant banker is a person or entity involved in the business of issue management.
Issue management means managing or assisting in the process of issuing securities such as shares, debentures, or other financial instruments.
A merchant banker may help in making arrangements for:
Selling securities.
Buying securities.
Subscribing to securities.
A merchant banker may also act as:
A manager to the issue.
A consultant.
An adviser.
The merchant banker may additionally provide corporate advisory services connected to the issue of securities.
(j). [Omitted]
(k). Promoter
Promoter has the same meaning as defined under the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009.
No separate or different definition is created under these regulations.
According to Section 2(oo) of the SEBI ICDR Regulations:
A promoter includes a person who is officially identified as a promoter in company-related documents.
(i).
A person will be treated as a promoter if:
Their name appears as a promoter in the draft offer document or offer document; or
The issuer identifies them as a promoter in the annual return filed under Section 92 of the Companies Act, 2013.
Therefore, even formal disclosure by the company can make a person a promoter.
(ii).
A promoter also includes a person who has control over the affairs of the issuer.
Such control may be:
Direct control; or
Indirect control.
The control may exist because the person is:
A shareholder;
A director; or
Exercising influence in any other manner.
So , a person need not always be officially designated as a promoter.
If they actually control the company’s affairs, they can still be treated as a promoter.
(iii).
A person can also be treated as a promoter if the board of directors of the issuer usually acts according to that person’s:
Advice;
Directions; or
Instructions.
The board of directors are usually “accustomed to act” or the board regularly follows that person’s guidance or influence.
Therefore, even if a person is not officially named as a promoter, they may still be considered a promoter if they effectively influence how the board functions.
Exception:
A person will not become a promoter merely because they give professional advice in the ordinary course of their profession.
This protects professionals such as:
Lawyers.
Chartered accountants.
Merchant bankers.
Consultants.
Other professional advisers.
If these professionals are only performing their professional role, they are not treated as promoters.
Exception:
The following entities will not automatically become promoters merely because they hold 20% or more of the issuer’s equity share capital:
Financial institutions.
Scheduled commercial banks.
Foreign portfolio investors (other than individuals, corporate bodies, and family offices).
Mutual funds.
Venture capital funds.
Alternative investment funds.
Foreign venture capital investors.
Insurance companies registered with IRDAI.
Any other category specified by SEBI.
So , mere shareholding of 20% or more does not automatically make these entities promoters.
Such entities will be treated as promoters only if they satisfy other promoter-related conditions under the regulations.
(l). Registrar
A registrar means a registrar to an issue.
A registrar to an issue is an entity that handles administrative and record-related work connected with the issue of securities.
The registrar’s functions generally include:
Processing applications from investors;
Maintaining records of applicants;
Finalising allotment details;
Handling refunds;
Coordinating with depositories and stock exchanges.
The definition also includes a share transfer agent.
A share transfer agent is an entity that manages matters relating to transfer and transmission of securities and maintenance of shareholder records.
However, such registrar or share transfer agent must be registered under Section 12 of the SEBI Act.
(la). Secretarial Auditor
A secretarial auditor is an auditor recognised under Secretarial Standard–1 issued by the Institute of Company Secretaries of India (ICSI).
The definition also clarifies who can act as a secretarial auditor.
A secretarial auditor can be:
A Company Secretary in Practice; or
A firm of Company Secretaries in Practice.
Such person or firm must be appointed according to the provisions of the Companies Act.
The purpose of the appointment is to conduct the secretarial audit of the company.
A secretarial audit involves examination of the company’s compliance with:
Company law requirements.
SEBI regulations.
Secretarial standards.
Other applicable corporate laws and procedures.
The secretarial auditor checks whether the company has properly followed legal and procedural compliances.
(m). Securities
Securities’ mean securities as defined in Section 2(h) of SCRA , 1956.
In accordance with Section 2(h) of the SCRA , 1956:
The term Securities includes various types of financial instruments.
It includes the following:
(i).
It includes shares, scrips, stocks, bonds.
It also includes debentures, debenture stock, or other marketable securities of a similar nature.
Provided that the above marketable securities are issued by any incorporated company, pooled investment vehicle, or other body corporate.
(ia).
It includes derivatives.
(ib).
It includes units or any other instruments issued to investors under a collective investment scheme.
(ic).
It includes security receipts as defined under clause (zg) of section 2 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.
(id).
It includes units or any other instruments issued to investors under any mutual fund scheme.
Explanation: (ITA)
In order to not cause doubts or any confusion:
The explanation clarifies that certain instruments are not included within the meaning of “securities”.
It declares that unit linked insurance policies (ULIPs) or similar instruments are excluded.
It also excludes any instrument that provides a combined benefit of life risk and investment.
Such instruments must be issued by an insurer as defined under section 2(9) of the Insurance Act, 1938.
Further, the term “securities” includes the following:
(ida).
It includes units or any other instruments issued by any pooled investment vehicle.
(ie).
Any certificate or instrument (by whatever name called) that is issued to an investor.
It is issued by an issuer that is a special purpose distinct entity (SPV).
The entity holds debt or receivables, including mortgage debt.
Such debt or receivables are assigned to that entity.
The instrument acknowledges the investor’s beneficial interest in that debt or receivable.
This includes beneficial interest in mortgage debt, where applicable.
(ii).
It includes Government securities.
(iia).
It includes any other instruments declared by the Central Government to be securities.
(iii).
It includes rights or interests in securities.
(n). Small Shareholder
Small shareholder refers to a shareholder of a company.
It includes a shareholder who holds Shares, or Other specified securities of the company.
The classification depends on the market value of such holdings.
The market value is calculated:
Based on the closing price of the shares/securities.
On the Recognised Stock Exchange where highest trading volume of such securities is recorded.
As on the record date.
The key threshold condition is the total market value of such holdings must not exceed ₹2,00,000.
(n). Specified Securities - (n-mentioned as n again in the Act.)
Specified securities refers to certain types of securities covered under these regulations.
It includes employees’ stock options (ESOPs).
It also includes any other securities that may be notified by the Central Government from time to time.
So , the scope of “specified securities” is not fixed.
It can expand based on future notifications issued by the Government of India.
(o). Statutory Auditor
Statutory auditor refers to an auditor of a company.
Such auditor must be appointed under Section 139 of the Companies Act, 2013.
(p). Stock Exchange
Stock exchange refers to a stock exchange.
It must be one that has been granted recognition.
Such recognition must be given under Section 4 of the Securities Contracts (Regulation) Act, 1956.
(q). Tender Offer
Tender offer refers to a method of buy-back by a company.
It involves an offer made by the company to buy back its own securities.
The securities may include Shares, or Other specified securities
The offer is made through a letter of offer.
This letter is sent to the existing holders of such securities.
The holders then have the option to tender (offer) their securities back to the company.
(r). Unpublished Price Sensitive Information (UPSI)
“Unpublished Price Sensitive Information” (UPSI) has the same meaning as given under the SEBI (Prohibition of Insider Trading) Regulations, 2015.
UPSI refers to information relating to a company or its securities that:
Is not generally available to the public; and
Is likely to materially affect the price of the company’s securities if made public.
The information is called:
“Unpublished” because it is not publicly known.
“Price sensitive” because it can influence the market price of securities.
If such information becomes public, investors may make different investment decisions based on it.
Therefore, SEBI treats UPSI very seriously to prevent insider trading and unfair advantage.
// The detailed explanation of UPSI will be provided in the breakdown of SEBI (Prohibition of Insider Trading) Regulations, 2015.
(s). Working Day
It means any working day of the Board.
