Companies Seek Clarification on Buyback of Physical Shares

Various listed companies don’t have clarity on the acceptance status of shares held in physical form for buyback and seek clarification from the Securities and Exchange Board of India (SEBI). 

The National Stock Exchange (NSE) asked companies to accept only dematerialised shares for buyback in a circular it issued last month. This has led various listed companies to include a similar clause in their document for buyback offer. 

SEBI prohibited investors from transferring shares in physical form, with effect from April 1, 2019. This prohibition will affect thousands of investors holding physical shares. As per market sources, the total value of physical shares exceed Rs 50,000 crore. 

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This issue has a huge impact as the physical shareholder are not allowed to participate in the de-listing process, and they cannot exit until they convert their shares into demat. It’s not fair to force physical shareholders to convert their physical shares into demat. 

In the fag end of 2018, the market watchdog introduced a new law which bars investors from holding and transferring physical shares. This law was restrained in March 2019 and allows investors to hold physical shares but can be transferred only in demat form.

Buybacks are not categorised as ‘transfer’ in SEBI’s listing obligations and disclosure requirements (LODR) norms and hence restrictions cannot be enforced on buybacks. 

SEBI must step in immediately to clarify regulations and restore the basic right of a retail shareholder. The market regulator restricted the transfer of physical shares to improve transparency.