This is because the shares are transferred in the name of the company before they are extinguished and hence, would be eligible for payment of stamp duty. The Sebi guidelines or the ordinance has not suggested anything to the contrary and hence the buyer, which is the company, would need to pay a stamp duty charge on the purchases made by it.

In the case of demat shares, however, there is no stamp duty charge payable. Stamp duty for equity instruments in demat shares was exempted in the Depositories Act of 1996.

This means that if a company buys back its shares in the demat form it would not have to pay a stamp duty. One Sebi official confirmed that payment of stamp duty charge is an area where the SebiRegulations on buy-back are not applicable. ``It appears that corporates would pay stamp duty charges as per the current norms, i,e., 50 basis points on every buy transaction. If no clarification is issued on this subject, then we would have a situation where corporates would be paying up stamp duty on shares bought back by them in physical form,'' according to a Sebi official.

This virtually means that a company would be keen to buy-back its shares in demat form to save the extra cost. Moreover, with a large number of companies seeing significant amount of their shares dematerialised and with demat trading to be made mandatory in several scrips from next year, a large number of shares would be offered under buy-back in the demat form. In any case, all the top companies who are expected to buy-back shares are already in the demat mode and have seen high levels of their equity dematerialised.

It may be recalled that the National Securities Depository Ltd chief C B Bhave had suggested Sebi that it shouldencourage buy-back only in demat form as this would lead to a secure audit trail which would check fraud, apart from simplifying the procedures. Sebi, however, chose not to make buy-back through demat route mandatory. It now appears that other factors might well lead to corporates deciding to buy-back shares only in demat form.

``Given the ease and safety with which corporates would be able to conclude the buy-back exercise through the depository it would make sense for them to buy back only demat shares. This would be a more economical way of doing it as well,'' said Bhave. Noted solicitor, Cyril Shroff said that stamp duty charge is a grey area as there is no mention of the same in the either the guidelines or the ordinance. This could make buy-back through physical form more expensive for companies compared to the demat form.