Power of company to purchase its own shares

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Power of company to purchase its own shares

Unread postby Admin » Thu Sep 27, 2012 1:29 pm

Power of company to purchase its own shares.-

(1) Notwithstanding anything contained in this Ordinance or any other law for the time being in force or the memorandum and articles, a listed company may, subject to the provisions of this section and the rules framed by the Commission in this behalf, purchase its own shares (hereinafter in this section referred to as "purchase").

(2) The purchase shall be authorized by a special resolution which shall indicate the maximum number of shares to be purchased; the maximum price at which the shares may be purchased; and the period within which the purchase is to be made.

(3) The notice of the meeting in which the special resolution authorizing the purchase of shares is proposed to be moved, shall be accompanied by an explanatory statement containing all material facts including the following:--

(a) justification for the purchase.

(b) source of funding;

(c) effect on the financial position of the company; and

(d) nature and extent of the interest, if any, of every director, whether directly or indirectly.

(4) The purchase shall always be in cash and shall be out of the distributable profits.

(5) Where shares are purchased by a company on premium, the account of premium shall he charged to Share Premium Account of the company or in the absence of any balance therein, to the distributable profits of the company.

(6) Where purchase is made at a price lower than the nominal value of shares, the difference shall be credited to the reserve created under sub-section (10).

(7) The company shall have such debt equity and current ratios as may be prescribed.

(8) The majority of the directors including the chief executive, shall at a meeting make a declaration of solvency verified by an affidavit to the effect that they have made a full inquiry into the affairs of the company, and that after having done so, they have formed the opinion that the company shall continue to operate as a going concern and that it is capable of meeting its liabilities on time during the period upto the end of the immediately succeeding financial year.

(9) The purchase shall be made through a tender system and the mode of tender shall be decided by the company in general meeting through a special resolution.

(10) The shares purchased under this section shall not be resold and shall be cancelled forthwith. The amount of the company's paid up share capital shall be diminished by the nominal value of such shares accordingly. The amount, by which the company's paid up share capital is thereby diminished on cancellation of the shares purchased shall, after accounting for the credit, if any, pursuant to sub-section (6) of this section, be transferred from the distributable profits to an account to be called "Capital Re- purchase Reserve Account".

(11) The provisions this Ordinance relating to the reduction of a company's share capital apply as if the Capital Re-purchase Reserve Account were paid-up share capital of the company, except that the reserve account may be applied by the company in paying up its unissued shares to be allotted to members of the company as fully paid bonus shares.

(12) Where a company has purchased its own shares under this section, it shall maintain a register of shares so purchased and enter therein the following particulars, namely :-

(i) numbers of shares purchased;

(ii) consideration paid for the shares purchased;

(iii) mode of purchase; and

(iv) the date of cancellation of such shares.

(13) A return about the purchase of shares under this section containing such particulars relating to purchase as may be prescribed, alongwith the declaration of solvency made under sub-section (8), shall be filed with the Commission and the registrar within thirty days of the purchase.

(14) If a company makes default in compliance with the provisions of this section, the company shall be liable to a fine which may extend to one million rupees and any officer of the company who is knowingly and wilfully in default shall also be punishable with imprisonment for a term which may extend to six months, or with fine which may extend to one million rupees, or with both.
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