Procedure plan for buyback of shares under companies act 1956

As per the Scheme, the Petitioner Company is proposing to purchase not more than 2,21, Equity Shares of the Company either in physical form or dematerialised form of Rs. There is no compulsory purchase; an option is given to the equity shareholders under the Scheme.

The manner and procedure of purchasing the equity shares are provided in the Scheme. According to the Regional Director if the Scheme is sanctioned it will amount to an evasion of income tax and outflow of foreign exchange to the tune of Rs.

According to the Regional Director the company is evading its liability to pay tax. The contention raised by the Petitioner is that the Regional Director has no locus-standee in respect of tax matters, particularly when the Income Tax Authorities have not raised any objection.

The Regional Director has the requisite locus stand to raise all objections in respect of a scheme including objections pertaining to taxation laws. He can do so even if the Income Tax Authorities do not raise any objection.

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So the objection of the Petitioner with regard to the locus-standee of the Regional Director is untenable and deserves to be rejected. It is not mandatory for a company to buy back its shares only by following the procedure prescribed by Section 77A. In any event, the Petitioner has stated that the issues relating to Income-tax that may arise out of the Scheme may be left open to be dealt with and decided by the Income Tax Authorities in accordance with the law.

The statement is accepted. Consequently, nothing survives in the objections of the Regional Director.

The Scheme of Arrangement as proposed is sanctioned with a clarification that the issues relating to Income Tax that may arise out of the Scheme are left open to be dealt with and decided by the Income Tax Authorities in accordance with law.

The argument of the Regional Director that foreign exchange amounting to Rs. The legislative intention behind the introduction of Section 77A is to provide an alternative method by which a company may buy back up to 25 percent of its total paid-up equity capital in any financial year.

Prior to the introduction of section 77A, the only manner in which a company could buy back its shares was by following the procedure set out under sections to and section which required the calling of separate meetings of each class of shareholders and creditors as well as if required by the court the drawing up of a list of creditors of the company and obtaining their consent to the scheme for reduction.

The company cannot be compelled to follow only the method that results in payment of income tax.

Article on Buy Back of Securities by Private Limited Companies and Unlisted Companies | R & A Associates

It is well settled that an assessee can always manage his affairs in a manner so as to avoid payment of tax. The Company is entitled to buy back its own shares by means of a scheme under Section read with Sections — of the Act, the scheme cannot be said to be a colourable device to evade income tax.

It is a legally permissible procedure which the Petitioner is entitled to follow to buy back its share. This provision has an impact on the law. However, at present Section has not come into force and hence same need not be considered. Mergers and Acquisitions Divestment Advisory Services Joint Ventures Financial Re-engineering Mergers and acquisitions have become an essential and integral part of corporate strategy and will gain more significance as competition intensifies and companies move up the growth curve.

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Objection raised by Regional Director RD According to the Regional Director the company is evading its liability to pay tax. Mergers and Acquisitions Divestment Advisory Services Joint Ventures Financial Re-engineering.

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