Can Buybacks be withdrawn under SEBI (Buyback of Securities) Regulations 2018 and Companies (Share Capital and Debenture) Rules 2014?

Union budget of 2019 has proposed to levy 20% buyback tax on all buybacks of securities. This tax would be levied on all buybacks including those buybacks which are open as on 5^th July 2019.

So we are left with a question as to can a company withdraw its buyback once it is announced or opened?  For this purpose let us peruse the provisions of relevant regulations/acts:

Ø  SEBI (Buyback of Securities) Regulations 2018(“Buyback regulations”): Listed companies making buybacks of securities are governed by provisions of Buyback Regulations. Regulation 24(i)(d) of Buyback regulations governs the provisions relating to withdrawal of buyback.

Ø  Regulation 24(i)(d) of Buyback regulations reads as follows:

“the company shall not withdraw the offer to Buyback after the draft letter of offer is filed with Board or public announcement of the offer to Buyback is made”.

It means that once the draft letter of offer is filed with SEBI or once public announcement is made buyback offer cannot be withdrawn under Buyback regulations.

Ø  Companies Act and rules made thereunder: Similar provisions also exists for unlisted public companies and private companies under Rule 17(10)(d) of Companies (Share Capital and Debentures) Rules 2014 which reads as follows:

“the company shall not withdraw the offer once it has announced the offer to the shareholders”

So unlisted public companies and private companies also cannot withdraw the buyback offer once it has announced it to shareholders

 

Ø  So both under Companies Act and Buyback Regulations it is not possible to withdraw the Buyback once it is announced.

In the context of Union Budget 2019 proposing to levy Buyback Tax at 20% it will be impossible for companies who have already announced the Buybacks to withdraw the same.