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CS Executive · Capital Market and Securities Laws · Buy-Back of Securities

Orchid Foods Ltd completed a buy-back of its equity shares on 10 March. On 20 June of the same year, it plans a rights issue of fresh equity shares. Which statement is correct under the Companies Act, 2013?

The rights issue is barred. After completing a buy-back, a company cannot make a further issue of the same kind of shares, including a rights allotment, for six months, except by bonus issue or to discharge subsisting obligations. 20 June falls within six months of 10 March.

  1. AThe rights issue is barred, as a further issue of the same kind of shares is not allowed within six months of buy-back completion, except bonus issue or discharge of subsisting obligationsCorrect
  2. BThe rights issue is allowed, as the bar is only on public issues
  3. CThe rights issue is barred for one year after completion of the buy-back
  4. DThe rights issue is allowed if the Board resolves so by majority

Explanation

Section 68(8) bars a further issue of the same kind of shares, including allotment under section 62(1)(a) (rights), within six months of completing a buy-back. Exceptions are only a bonus issue or discharge of subsisting obligations such as conversion of warrants or stock options. From 10 March to 20 June is under six months, so it is barred. The one-year period applies to gap between buy-back offers.

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