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buy back of shares

(Guest)

Hello :)

I will appreciate if i can get an answer to this question:

comment : "Buy back of shares does not amount to reduction of share capital".

in the module this has been mentioned as a case under section 77A where diminution of share capital is not to be treated as reduction of share capital.. but no explanatory note is given, can i have the reasons on this statement please??

Thanks in anticipation :) Good day :)

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Ankur Garg (Company Secretary and Compliance Officer) (114773 Points)
Replied 13 March 2010

The statement is correct that buy back of share does not amount to reduction of share capital.

Reduction of share capital means reduction of share capital which is a part of paid up capital of the company and that is why we have to follow the strict procedure of section 100-105.

In diminution of share capital diminution of unpaid capital is involved. Kindly check section 94(1)(e). See the clause (e) below:

cancel shares which, at the date of the passing of the resolution in that behalf, have not been taken or agreed to be taken by any person, and diminish the amount of its share capital by the amount of the shares so cancelled.

Revert if there is any doubt.

Regards

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(Guest)

Ok sir, i have got it :that means that because buy back of shares under section 77A is a Diminution of Capital , not being reduction of capital, hence it will not attract the procedure for reduction of capital as laid down in section 100 . This is because reduction of capital involves :

1)reduction of liability of members in respect of members in respect of unpaid or uncalled liability,

2)Extinguishment of liability of members in respect of uncalled or unpaid share capital.

3) Paying off paid up capital not required for the purposes of of the company

4)Writing off or cancellation of capital which has been lost or is under represented by the available assets.

On the other hand, Buy Back of shares under section 77A, all the shares or other specified securities for buy back should be fully paid up. [ Section 77A(2)(e)]

Is this answer fine sir?? Thanks a lot for sparing ur valuable time in solving my quiry :)

Ankur Garg (Company Secretary and Compliance Officer) (114773 Points)
Replied 13 March 2010

Buy back is also a kind of reduction of share capital which is paid up and not diminution of share capital. But usually we call it as buy back coz it is defined in law by that name and with different section 77A.

The purpose of Section 77A and 100 is same but they are two different routes and law treat them differently. The only case of diminution in law is section 94(1)(e) as mentioned above for cancellation of unpaid capital only and not paid up capital.

If you reduce paid up capital by any method (77A or 100) that would not be diminution of share capital.

Regards

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