At a brainstorming session on what buyback holds for corporates organised by HSBC Capital Markets, SEBI executive director (legal) Dharmishta Raval said that several of the contentious issues pertain to the Ordinance, to which changes could only be suggested by DCA, which had drafted it. She said that SEBI had taken up with DCA certain contentious issues on which clarification would be required. She went a step ahead and pointed out that SEBI in fact was not keen to frame the regulations for buy-back at all.

She added that the tax related ambiguities should be sorted out once the CBDT comes out with its circular clarifying certain taxation issues which wouldarise at the time of buy-back pertaining to treatment of capital gains and the classification of the income received by the shareholder.

Raval said that issues pertaining to the takeover code were being taken up by the Bhagwati committee, while those pertaining to FIIs and their level of holding would be dealt with by the Reserve Bank of India (RBI) and the Foreign Investment Promotion Board (FIPB).

She said that the SEBI regulations would be "simple" and would hinge on bringing in buy-back through a transparent mechanism to prevent cases of insider trading.

Noted solicitor Cyril Shroff described the Ordinance as a hastily prepared document which was often sloppy in respect to several of its clauses.

To begin with he challenged the constitutional validity of the Ordinance on the grounds that a Companies Bill which dealt with the same issue was already before the parliament and hence the Ordinance could not have been promulgated.

Commenting on the 2:1 debt to equity ratio necessary for a companypost-buy-back Shroff said that the debt to equity ratio varies from sector to sector and hence a fixed number could not be placed on this. "This effectively means that the government is of the view that a 2:1 debt equity ratio across all sectors of industry is the correct figure. This is not true as the right debt equity ratio varies from sector to sector", he said.

On the 24 month ban on a company to make an issue after buy-back he said that while a company may have bought back equity shares it would not be allowed to make an issue of any other security and this was an ambiguity.

Shroff said that the filing of a solvency certificate where the board of directors would on affidavit have to certify that a company is solvent would be an extremely onerous task. He also questioned the need for an escrow account when a company was going through such pains to prove that it was a solvent company.

Issues pertaining to stamp duty payable by an investor while tendering the shares, a clear definition of freereserves and allowing a company to borrow to buy-back shares were other issues on which the Ordinance was silent.

There was no clarification on the fees that a merchant banker could charge the company for managing his buy-back offer. It was also not clear whether the two year freeze on issuing fresh capital would cover a financial institution not being able to invoke its pledge of shares against a loan.

Shroff said that the Ordinance had used the words rules and regulations in an interchangeable manner which was not correct as both are outlined by totally different entities. He said that the term "investment company" had been removed from the Companies Act when section 372 was deleted but the Ordinance on buy-back makes a reference to this.