A company should not buy-back its securities if default subsists in repayment of deposits or interest payable thereon, or in redemption of debentures or preference shares or repayment of any term loan or interest payable thereon to any financial institution or bank. [Section 77B(1)(c)].
Deposits for this purpose include deposits under Section 58A read with Rule 2(b) of the Companies (Acceptance of Deposits) Rules, 1975.
Buy-back should not be made if a company has defaulted in relation to preparation and filing of its annual return. [Section 77B(2)].
However, such a company may buy-back its securities after the default has been rectified.
Buy-back should not be made in the event of any default in relation to payment of dividend to any equity or preference shareholder. [Section 77B(2)].
Where a dividend has been declared by a company but has not been paid in accordance with the provisions of the Act, the company may buy-back its securities only after payment of dividend and interest thereon as per the provisions of the Act.
Buy-back should not be made in the event of default in preparation of the annual accounts. [Section 77B(2)].
Where the report of the statutory auditors of the company contains a qualification that annual accounts are not prepared as per the accounting standards or otherwise are not in accordance with the provisions of Section 211, the company cannot proceed to buy-back its securities.
However, compounding of the aforementioned defaults or subsequent curing of the default may qualify as an enabling provision for buy-back.
Buy-back should not be made by a company :
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through any subsidiary company including its own subsidiary companies;
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through any investment company or group of investment companies. [Section 77B(1)(a) and (b)].
