Authored by Mirza Aslam Beg [Senior Partner] & Karan Kumar Agrawal, Mirza & Associates, Advocates & Attorneys
Introduction
On July 1, 2026, SEBI notified fresh amendments to the SEBI (Buy-Back of Securities) Regulations, 2026. To understand how these amendments affect companies and their shareholders, it is first necessary to understand the purpose of a buyback of securities. When a listed company decides to buy back its own shares, it is effectively conveying that its stock is undervalued, that surplus cash is better returned to shareholders than left idle, or that the promoters wish to consolidate their shareholding without further dilution. However, a buyback is never merely a financial decision. It lies at the intersection of company law and securities law. This dual nature is precisely why regulators scrutinize buybacks so closely.
Section 68 of the Companies Act, 2013 supplies the constitutional basis for a buyback, but for a listed company the real operating manual has long been the Securities and Exchange Board of India (Buy-Back of Securities) Regulations, 2018[i]. On July 1, 2026, SEBI notified fresh changes to this framework through the SEBI (Buy-Back of Securities) (Amendment) Regulations, 2026[ii], effective from August 1, 2026. This amendment does something unusual: it revives a route SEBI had shut down barely a year earlier, while converting a long-mandatory intermediary into an optional one, and shifting the responsibility that intermediary once carried onto the company itself. This article traces where the law stood before, what has now changed, how courts have shaped this area, and what listed companies need to put in place before the new regime takes effect.
The Statutory Foundation: Sections 68 to 70 of the Companies Act, 2013
Ordinarily, a company cannot purchase its own shares — share capital, once raised, must be maintained for the protection of creditors, and a company cannot become a member of itself. Section 68(1) carves out a controlled exception, permitting a buyback out of free reserves, the securities premium account, or the proceeds of a fresh issue of a different kind of security, subject to conditions[i]. A buyback cannot exceed 25% of the aggregate paid-up capital and free reserves in a financial year, or 10% if authorised only by board resolution without a special resolution. The post-buyback debt-to-equity ratio cannot exceed 2:1, and the buyback must be completed within one year of the authorising resolution.[ii] Section 69 requires a sum equal to the nominal value of shares bought back to be transferred to a Capital Redemption Reserve, cushioning the company’s capital base against erosion. Section 70 adds a cooling-off period: no fresh buyback offer may be made within one year of the closure of a preceding one, and a company in default of repaying deposits, redeeming debentures or preference shares, or paying dividends cannot buy back shares at all.[iii]
The Previous Position: Two Routes, and a Third That Disappeared
Before the 2026 Amendment, the 2018 Regulations gave a listed company three theoretical routes: a tender offer made proportionately to all shareholders, an open-market purchase through book-building, and an open-market purchase directly on the stock exchange. In practice, only two survived by 2025. SEBI had grown uneasy with the stock exchange route, under which shares were bought back gradually over months directly from the secondary market. This process seen as opaque compared to a tender offer, and one that left room for a company or its promoters to influence the stock price over an extended period without the scrutiny a structured, fixed-price tender offer attracts.[iv]
In the beginning of 2022-23, SEBI dismantled the route in stages: the maximum permissible buyback size was reduced progressively – first to 15%, then 10%, then 5% of paid-up capital and free reserves. while the maximum offer duration was compressed from a six-month window down to 66 working days, and later to 22 working days.[v] With effect from April 1, 2025, the route was abolished altogether, leaving companies with the tender offer and book-building mechanisms only.
Landmark Judicial Pronouncements: The Legal Backdrop Before the 2026 Amendment
Courts and tribunals have shaped this area well beyond the bare statutory text, though their observations mark out the legal position as it stood before the 2026 Amendment rather than any call for the specific changes the amendment goes on to make. Two threads run through this case law: how the buyback route relates to a company’s other options for returning capital, and how far SEBI’s own supervisory reach extends — both help explain why the 2026 Amendment could redraw responsibilities the way it has. The initial point is SEBI v. Sterlite Industries (India) Ltd[vi], where a Division Bench of the Bombay High Court held that the general prohibition on a company purchasing its own shares is not absolute. The buyback provision and the capital-reduction route under Sections 100 to 104 of the Companies Act, 1956 were held to operate as independent, self-contained exceptions to that prohibition. This reasoning established, well before the 2018 Regulations even existed, that a company is not necessarily confined to the buyback section alone when returning capital to shareholders — a settled position that the 2026 Amendment leaves untouched.
That question resurfaced in In re Capgemini India Private Limited[vii]. The company wished to purchase 30% of its paid-up capital, beyond the 25% ceiling then fixed under Section 77A of the 1956 Act, and proposed instead a court-sanctioned scheme of arrangement under Section 391 read with Sections 100 to 103. The Regional Director objected, arguing that any purchase of own shares had to be routed exclusively through Section 77A. The Bombay High Court disagreed, holding that a company retains the choice between the statutory buyback route and a court-sanctioned scheme of capital reduction, provided the scheme genuinely relates back to the capital-reduction framework rather than being used to circumvent the buyback ceiling. In assessing how closely a sanctioning court should scrutinise such a scheme, the Court drew on the Supreme Court’s guidance in Miheer H. Mafatlal v. Mafatlal Industries Ltd.[viii] on the limited nature of judicial review at the sanctioning stage. Like Sterlite, this ruling confirms the pre-amendment position on a company’s routes to returning capital rather than anticipating the 2026 changes; the buyback ceiling it discusses is a Companies Act question that the SEBI amendment does not touch.
On the securities-law side, the Securities Appellate Tribunal’s ruling concerning D-Link (India) Ltd.[ix] is instructive on the outer limits of SEBI’s supervisory jurisdiction, and speaks more directly to what the 2026 Amendment goes on to do. SEBI had proceeded against the company after its shareholders’ buyback resolution lapsed unexercised, alleging it was engineered merely to mislead investors. The Tribunal was unpersuaded, observing that SEBI’s role as a market regulator is to keep the securities market safe for investors and not to judge whether pursuing or abandoning a buyback served shareholders better than some alternative use of funds. The ruling is a reminder that the commercial wisdom of a buyback is a matter for the board; SEBI’s writ runs to process, disclosure, and fairness, not the underlying business choice. That limited conception of SEBI’s own role is worth keeping in mind when reading the 2026 Amendment’s most consequential change: making the Merchant Banker optional and redistributing its functions to the company’s own officers. If SEBI’s oversight was always confined to process rather than commercial substance, that helps explain why SEBI is now comfortable letting those process checks be discharged by in-house Secretarial and Statutory Auditors instead of an external intermediary — though whether internal officers bring the same independence to that check remains to be seen in practice.
The 2026 Amendment: What Has Changed
Against this backdrop, the 2026 Amendment introduces the following five key coordinated changes:
- Reinstatement of the stock exchange route: The amended Regulation 17 partially revives the route shut since April 2025. A buyback through the stock exchange must now open within four working days of the public announcement and close within 66 working days of opening[i]. This is narrower than the original six-month window but more workable than the 22-day window that existed just before the route was withdrawn, and should appeal to mid-sized companies for whom a full tender offer is disproportionately costly.
- Direct shareholder intimation: A new clause (ba) in Regulation 16(iv), mirrored in Regulation 22A(v) for the book-building route, requires the company to send an electronic intimation to every person who was a shareholder as on the date of the public announcement, within one working day of that announcement[ii]. Previously, shareholders learnt of a buyback largely through stock exchange filings and newspaper notices; the burden now shifts to the company to reach out directly.
- Promoter freeze during the buyback window: A new clause (ea) in Regulation 24 freezes, at the depository (ISIN) level, all promoter, promoter-group, and associate shares in respect of which the buyback is undertaken, from the date of the board or special resolution until the offer closes[iii]. Promoters may still tender shares into a tender offer, but cannot otherwise sell, transfer, or deal with those shares — and even invocation of a pre-existing pledge remains subject to the freeze continuing thereafter.
- Mandatory escrow: Regulation 20(ii) replaces “may” with “shall” for the open-market route, converting a discretionary choice of escrow form into a mandatory one, while Regulation 20(iv) now requires any bank guarantee furnished as escrow to remain valid for thirty working days beyond the close of the buyback period[iv].
- Optional Merchant Banker — the most consequential change- The new Regulation 24A makes appointing a Merchant Banker entirely a matter of the company’s choice[v]. Where a company proceeds without one, its functions are redistributed: the company assumes filing responsibility and the obligation to ensure funds are available; the Secretarial Auditor issues the due diligence certificate a Merchant Banker previously certified; the Statutory Auditor takes over escrow oversight; and the Compliance Officer certifies extinguishment of the bought-back securities. For nearly three decades, the Merchant Banker functioned as an independent, SEBI-accountable check standing outside the company. That check is now optional, and the responsibility it once carried moves onto the company’s own officers and auditors.
Practical Implications of the Amendment
For boards and CFOs, the threshold question before every buyback is no longer simply “tender offer, book-building, or stock exchange”. it now also includes “Merchant Banker, or not.” That decision should turn on internal compliance capacity and transaction complexity, not cost savings alone. Practising Company Secretaries issuing the due diligence certificate, and Statutory Auditors taking on escrow oversight, are assuming functions with genuine regulatory exposure that cannot be treated as a formality. Promoter groups with pledged or frequently transferred holdings should audit their encumbrance position before a buyback resolution is tabled, since the ISIN-level freeze operates automatically once triggered. Registrars and Share Transfer Agents will need shareholder contact data current well in advance, given the one-working-day intimation deadline, and companies weighing the revived stock exchange route should factor in the load of daily disclosures over a 66-working-day window.
Conclusion
The SEBI (Buy Back of Securities) (Amendment) Regulations, 2026 introduce several important changes that every listed company should understand before undertaking a buyback. The stock exchange route, which was discontinued in April 2025, has now been restored with a defined timeline requiring the buyback to open within four working days of the public announcement and close within sixty six working days. The amendment also requires companies to send electronic intimation to all eligible shareholders within one working day of the public announcement, makes the escrow mechanism mandatory for open market buybacks, freezes promoter and promoter group holdings during the buyback period, and allows companies to decide whether or not to appoint a Merchant Banker.
This research shows that the amendment is aimed at making the buyback process more flexible while ensuring that investor protection is not compromised. Although companies now have greater flexibility, particularly with the optional appointment of a Merchant Banker and the return of the stock exchange route, they also carry greater responsibility for ensuring full compliance with the regulatory framework. The duties that were earlier performed by the Merchant Banker are now shared among the company, the Compliance Officer, the Company Secretary and the Statutory Auditor. Overall, the new legislation offers listed companies a more practical and flexible framework for carrying out buybacks while placing greater emphasis on transparency, timely disclosures and internal corporate governance. Companies that understand these changes and strengthen their compliance systems will be better placed to conduct buybacks efficiently and in accordance with SEBI’s regulatory expectations.