India revamping share buyback process

Sebi has decided to phase out the process of buy back through the stock exchange route

By H. P. Ranina

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The Bombay Stock Exchange. To reduce the market risks, a new category of brokers has been announced by Sebi. -  File photo
The Bombay Stock Exchange. To reduce the market risks, a new category of brokers has been announced by Sebi. - File photo

Published: Sat 7 Jan 2023, 4:32 PM

Question: A few Indian companies have recently made buy back offers to its shareholders. I have received such offers but I find that the process is quite tedious and it takes time for receiving the money. Shouldn’t the authorities look into this and ensure that shareholders receive the money expeditiously? Measures also need to be taken to protect investors in general.

ANSWER: The market regulator, Securities & Exchange Board of India (Sebi), has now decided to revamp the buy back process and make it more investor friendly. Under the new dispensation, Sebi has decided to phase out the process of buy back through the stock exchange route and move to a method where shares are directly offered adopting the tender offer route. Under the new process, companies will be permitted to increase the buyback price upto a day before the record date. These changes will create a level playing field for investors and promoters. To reduce the market risks, a new category of brokers has been announced by Sebi. Such qualified stock brokers (QSBs) will be required to comply with enhanced risk mitigating measures. A new platform is to be introduced for enabling investments in direct plans of mutual funds. Only recognised financial advisers and brokers will be allowed to operate on this platform. The performance of stock exchanges, depositories and clearing corporations will be evaluated by an independent authority every three years to ensure that all statutory guidelines are adhered to.


Question: Banks in India have been speeding up the recovery of non-performing assets in order to clean up their balance sheets. However, the Insolvency & Bankruptcy Code has not produced the desired results. Is it because of the backlog of cases in the National Company Law Tribunal?

ANSWER: It is true that the NCLT has been clogged with pending cases and the situation will improve after additional Benches of the Tribunal are set up in different parts of India. The Reserve Bank of India in its report published recently has stated that the Insolvency and Bankruptcy Code (IBC) has helped banks to recover close to 201 per cent of the liquidation value of assets upto September 2022. The process of recovering NPAs through debt recovery tribunals and the Securities Enforcement Law, SARFAESI, continues to remain effective. Attempts are also being made by the Reserve Bank of India to encourage the pre-packaged process. Under this process, two-thirds of the creditors have to agree to a resolution plan and once this is done they would approach the Insolvency Court for its implementation. This plan has worked effectively for micro, small and medium enterprises. It has therefore been recommended by the RBI that this model of recovery should be extended to larger companies as well.


Question: There have been reports of some Indian manufacturing companies exporting medicines like cough syrups which are below standards as per WHO guidelines. Are steps being taken to meet this challenge of adverse publicity which is likely to damage the pharmaceutical industry in India?

ANSWER: The Government has prepared an action plan for nationwide inspection of drug manufacturing units which are identified to be manufacturing products which are not of standard quality. Joint inspections by the Central Drugs Standard Control Organisation and the State Drug Control Administration are being carried out. A special committee has been constituted to monitor the process of inspection, reporting and subsequent action. The Indian authorities have been in touch with the World Health Organisation which has agreed to provide the relevant information based on its own findings. This is awaited before further action is taken. However, inspections are being carried out vigorously in Himachal Pradesh, Uttar Pradesh and other States to check the records and quality control measures adopted by the drug manufacturing units.

H. P. Ranina is a practising lawyer specialising in tax and exchange management laws of India.



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