What is worse, they add, is that there is little or nothing in the much-touted norms which would please small investors or lift the capital markets from their current depressed state.

On Tuesday evening, Sebi chairman D R Mehta had claimed that the new guidelines, to be published in the official gazette in the next few days, are "liberal" while ensuring that the rights of minority shareholders are protected.

"The new Sebi guidelines pertaining to buyback of shares have been obviously drafted in a tearing hurry as a resultof which there are glaring loopholes and gaping grey areas," says corporate lawyer Shardul S. Shroff.

The government was apparently under pressure to issue the new guidelines on share buyback following Prime Minister Atal Behari Vajpayee's announcement to this effect on October 24 at a function organised by the Federation of Indian Chambers of Commerce and Industry (Ficci).

On October 31, President K R Narayanan promulgated an ordinance which, among other things, permitted companies to buy back their own shares subject to "prudential" guidelines issued by the Sebi.

Shroff, who is also a member of the Sebi-appointed committee on corporate takeovers, argues that the new norms could create more problems than they solve on account of various reasons. According to him, the maintenance of a post-buyback debt-equity ratio of 2:1 is not merely uniform but too restrictive and thus fails to differentiate among companies in different industry segments.

"Should a fertiliser company or a steel plant be treated ona par with, say, a computer software firm for purposes of share buyback?" asks Shroff.

Capital markets expert L C Gupta argues that small investors were never keen on share buyback because the move would only assist promoters in consolidating their controlling stakes in companies to ward off potential predators. "The authorities appear to have failed to recognise the real reasons why stockmarkets are currently depressed and why small investors continue to shy away from the bourses," he says. One crucial reason why stockmarkets are bearish at present is the absence of good corporate governance, adds Gupta, who is a former member of Sebi. "The new Sebi guidelines do not address such issues as could have lifted investor sentiments," he argues.

While elaborate rules have been laid down to check possible rigging of share prices by promoters, and Sebi chairman Mehta has claimed that the various mandatory disclosures would render the buyback process transparent and hence beneficial to minority shareholders, notall are impressed with the guidelines.

"The problems arise from what has been left unsaid or vaguely stated," says Shroff. "For instance, while a company's directors would have to declare that the company would remain solvent after a share buyback and a due diligence certificate would have to be obtained from a merchant banker, the guidelines do not specify what would happen to the directors if their declaration is later proved false."

Another thorny issue which is yet to be resolved is what happens if the investment ceilings applicable to holdings of foreign institutional investors (FIIs) in Indian companies are exceeded on account of share buyback.

The rate at which beneficiaries of a share buyback would be taxed has also not been clarified by the authorities. Should the gains accruing to shareholders on account of buyback be treated as akin to dividends and taxed at the same rate of 10 per cent? If the buyback is undertaken through a "Dutch auction" and gains are not uniform for differentshareholders, how should such incomes be taxed? Delhi Stock Exchange (DSE) president Deepak Chaudhary says that the decision to allow share buyback is a "progressive first step towards imparting greater flexibility to corporate managements to restructure their finances."

Nevertheless, Chaudhary concedes that the new guidelines may not enthuse corporates because of the condition that the extent of buyback cannot exceed 25 per cent of a company's net worth, that is, equity capital plus free reserves.

The added stipulation that a company cannot undertake a fresh issue of securities (except through a bonus issue or conversion of warrants or preference shares or debentures) for a period of two years from the date of completion of the share buyback process is also considered "too restrictive" by the DSE president.

Sebi has stated that buyback through negotiated deals, spot transactions or private arrangements are prohibited. The watchdog body has further restricted companies whose shares are not listed onstock exchanges from undertaking buyback. Promoters are disallowed from participating in share buyback undertaken through stock exchanges. Moreover, the issue of pricing of shares to be bought back has been left entirely to the discretion of the company's promoters and shareholders.

There is also the restriction that companies which have defaulted on repayment of deposits, redemption of debentures or preference shares or repayment of term loans from banks and financial institutions, would not be allowed to buy back its own shares. "Some of these restrictions are welcome," says Gupta, "but I am still sceptical about whether these would help promote good corporate governance." Shroff adds that the fact that a company's creditors would now not have to be given notice before undertaking a share buyback which would decrease the company's equity capital base, may lead to litigation.

He feels that even after some of the grey areas are clarified over a period of time, "barely two dozen" companies out of the200-odd corporates which have expressed intentions of undertaking share buyback would go through with the process. SEBI Chairman Mehta has said that over 50 professionals -- chartered accountants, stock exchange officials, merchant bankers, share registrars, corporate lawyers and company secretaries -- were consulted before finalising the buyback regulations. Lawyers like Shroff, however, contend that the discussions held over five days were inadequate. "The issues are extremely complex and quite a few of them are yet to be resolved," he says.