The ordinance has also allowed Infrastructure Development Finance Company (IDFC) to be declared as a financial institution.

In a press note here on Saturday, the government stated that the Companies Bill, 1997, now pending before parliament, will be taken up for consideration and passed.

The ordinance had been sent to president KRNarayanan for his assent on Wednesday afternoon after the cabinet cleared the amendments to the Act during a meeting on October 26.

An indication to an ordinance of buyback and other amendments to the Companies Act, 1956, was announced by prime minister Atal Behari Vajpayee in the course of his inaugural address at the annual session of the Federation of Indian Chambers of Commerce and Industry here on October 24. The ordinance was drafted by the Department of Company Affairs officials with law ministry bureaucrats and other concerned ministries late Tuesday evening.

Buyback of shares has been permitted with a number of riders. Companies have been allowed to buyback their share to the extent of 25 per cent of the paid up capital and free reserves. The buyback can be transacted out of the company's free reserves, securities premium account or proceeds of any earlier issue specifically made for buyback purpose. Significantly, the ordinance has barred companies which have defaulted in repayment of deposits,redemption of debentures or preference shares and in repayment to financial institutions from buying back its shares. Companies would be allowed to buyback shares only if its articles of association permits it to do so. A special resolution is also required to be passed in a general meeting to proceed with the buyback.

The buyback of shares will have to be completed within 12 months from the date of special resolution and the shares bought back will have to be "extinguished and physically destroyed" within seven days from the date of buyback.

In addition, the companies will not be allowed to make any further issue of shares within a period of 24 months from the day of completing buyback except by way of bonus issue and conversion of warrants/preference share/debentures.

The new regulations further requires the companies to give details such as necessity for buyback, class of securites to be purchases, amount to be invested for buyback and the time-frame for completion of the process in the notice of themeeting for passing a resolution on buyback.

On the inter-corporate deposits, companies now have the full freedom to make inter-corporate investments and loans to other body corporates without seeking prior approval of the central government.

Where the investment or loan exceeds 60 per cent of the companies paid-up share capital and free reserves, it will have to pass a special resolution specifying the limits, particulars of the body corporate in which the investment is proposed to be made or loans given, the purpose of the investment and sources of funding.

Sweat equity can be issued to directors or employees of companies once a special resolution has been passed at a general mee-ting. The issue of sweat equity would be subject to Securities and Exchange Board of India guidelines. These equities can be issued either at a discount or for consideration other than cash for know how or intellectual services provided.

The government is also proposing to constitute a national advisory committee onaccounting standards to advise it on formulation of accounting policies and accounting standards for adoption by companies.

An investor education and protection fund is also sought to be established to which amounts in unpaid dividend and unclaimed application money, unclaimed matured deposits, unclaimed debentures and interest accrued on these amounts shall be credited after a period of five years from the date these become due for payment.