Company Law

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kumar pushparaj (Querist)
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06 February 2009 As per the provisions of section 77B of The Companies Act 1956 a Company cannot Buy-Back its Shares throught any subsidiary comapny including it's own subsidiaries.
Can anyone please explain me the logic behind this amended provisions as to why law has specifically prohibited the buyback through such mode?

Neha Singhi

Neha Singhi (Expert)
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06 February 2009 If you check up Section 42, a subsidiary company cannot hold shares of its holding company.
So in no case can a subsidiary buy the shares of its holding company. ** certain exceptions.
Your answer: If a subsidiary is allowed to buy shares of the holding company, it will not be hit by buyback provisions under the act. The law may be molded to suit the needs of evil mind, and if subsidiary starts buying they will no have to comply by provisions.
Further this may lead to unfair practices in market, of buying shares at cheap cost through subsidiaries and then when market is high issuing fresh shares at high prices.

kumar pushparaj

kumar pushparaj (Querist)
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07 February 2009 i know that any subsi cannot purchase shares of its holding.
But if we consider the provisions of section 77B it states that buy-back is not allowed even when any other subsi puchase shares of any XYZ c.?
Suppose:
A ltd . - Holding of B ltd.
B ltd. - Subsi. of A ltd.
C ltd. - Holding of D ltd.
D ltd. - Subsi. of C ltd.
Now my question is why cant A ltd . enroute its byback though D ltd. as well if it desires. I just want to know the logic?

Neha Singhi

Neha Singhi (Expert)
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20 February 2009 Sorry for being so late, did not follow up here.
Buyback-The repurchase of outstanding shares (repurchase) by a company in order to reduce the number of shares on the market.

Buyback provisions are hit when you are purchasing your own shares and not of any XYZ Company.

Subsidiary here(77B) is signifying own subsidiary or of any group company.
D Ltd. can buy A Ltd. shares but not buyback them.
Rgds
Neha
neha@nehasinghi.com

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