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Interpretive letter under Securities and Exchange Board of India (Informal Guidance) Scheme, 2003 in respect of Buy Back of preference shares

Mar 29, 2004
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Informal Guidance

MANAGER

CORPORATION FINANCE DEPARTMENT

DIVISION OF CORPORATE RESTRUCTURING

Tel. (Board): 22850451-56, 22880962-70(Extn: 425)

Email: amitk@sebi.gov.in , Fax: 22829520

CFD/DCR/AK/IG/ 6137/2004

March 29, 2004

Sun Pharmaceutical Industries Ltd.,

SPARC, Akota Road,

Akota,

Baroda – 390 020.

Dear Sir,

 

Sub.:- Interpretive letter under Securities and Exchange Board of India (Informal Guidance) Scheme, 2003 in respect of Buy Back of preference shares.

 

This has reference to your letter dated 01/03/04, requesting for Informal Guidance under Securities and Exchange Board of India (Informal Guidance) Scheme, 2003.

The request is examined as under;

Sun Pharmaceuticals Industries Limited (the "Company"), registered under the Companies Act 1956, allotted 6% Cumulative Redeemable Preference Shares of Re.1/- each as bonus preference shares on 2nd November, 2002 which are presently listed at NSE, BSE and Vadodara Stock Exchange. Every equity shareholder of the Company was allotted four 6% Cumulative Redeemable Preference shares of Re.1/- each credited as fully paid-up by way of bonus shares for every one existing equity shares held by him as on the record date. The Company had allotted 1,87,177,232 Nos. 6% Cumulative Redeemable Preference Shares of Re.1/- each under the above-mentioned scheme. The issues raised by the company for clarification in the context of proposed buyback of these preference shares are;

     
  1. Whether Regulation 3 of the Securities and Exchange Board of India (Buy Back of securities) Regulations, 1998 (hereinafter referred to as "the said regulations") is applicable for buy-back of Preference Shares of the Company?

    2.  

  2. If the answer to above question is negative, than, whether the above mentioned buy-back of Preference Share will be governed by any other Act, Rules, Regulations, Guidelines, Circulars or other legal provisions administered by SEBI?

    3.  

  3. If the answer to above question is negative, whether the Company can buy back its Preference Shares based upon the Buyback Regulations applicable to Equity Shares?

    4.  

Section 77A of the Companies Act governs buy back of shares and other specified securities and inter alia provides that any buy back of any such securities listed on a recognized stock exchange shall be as per regulations framed by SEBI (i.e. the said regulations). Buy back of preference shares which are listed is also governed by this section and the said Regulations. It is clarified that the said regulations apply to all buy backs of listed securities which are governed by section 77A.

 

It is clarified that any redemption (as distinct from buy back) of such preference shares is governed by section 80(2) of the Companies Act and the Articles of the Company and that section 77A and the said regulations would not be applicable in such a case.

 

In view of above the following is stated in respect of the queries;

 

  • The said regulations are applicable to buy-back of the aforementioned Preference Shares of the Company.

    •  

  • In view of the above the other two issues do not survive for consideration.

 

This position is based on the representation made to the Department/ Division in your letter. Different facts or conditions might require a different result. This letter expresses the Departments/Division’s position on enforcement action only. It does not express decision of the Board on the questions presented. The guidance is based on the law existing as on 29th March, 2004.

 

Yours faithfully,

(AMIT KAPOOR)