Rewriting the Buy-Back Framework: SEBI’s Proposal to Restore Open Market Buy-Backs
The Securities and Exchange Board of India (SEBI) has proposed a significant restructuring of the listed company buy-back regime through two consultation papers issued in 2026:
- the consultation paper dated April 02, 2026 on “Re-introduction of Open Market Buy-Back of Shares or Other Specified Securities through Stock Exchange”; and
- the consultation paper dated May 08, 2026 on “Review and Rationalization of SEBI (Buy-Back of Securities) Regulations, 2018”.
Taken together, the proposals do considerably more than restore a previously discontinued mechanism. The proposals indicate an evolving regulatory approach toward balancing operational flexibility, investor protection, and compliance efficiency within the buy-back framework.
At the centre of the reform package is SEBI’s proposal to reintroduce open market buy-backs through stock exchanges, a mechanism that had earlier been phased out through amendments to the SEBI (Buy-Back of Securities) Regulations, 2018 (Buy-Back Regulations), culminating in its discontinuation with effect from April 01, 2025. The proposed reintroduction suggests that SEBI considers the concerns underlying the earlier discontinuation can be addressed through revised safeguards and changes in the taxation framework. Instead, the regulator appears to take the view that the concerns which originally led to its withdrawal, particularly tax arbitrage and unequal shareholder participation, can now be addressed within the existing regulatory and tax framework.
The proposals therefore operate on two levels simultaneously. On one hand, they restore flexibility for listed companies seeking to undertake efficient capital return exercises. On the other, they substantially redistribute compliance responsibilities away from merchant bankers and toward issuers, stock exchanges, depositories, compliance officers, and secretarial auditors.
Legal Framework Governing Buy-Backs
The statutory framework governing buy-backs is contained in Section 68 of the Companies Act, 2013, which permits companies to purchase their own shares or specified securities subject to prescribed conditions and limitations. In the case of listed companies, Section 68(2)(f) further requires compliance with SEBI regulations.
Pursuant to this statutory mandate, SEBI framed the Buy-Back Regulations, which recognize multiple methods for undertaking buy-backs, including:
- tender offer;
- open market purchases through book-building; and
- open market purchases through the stock exchange mechanism.
Among these, the stock exchange route emerged as a commercially attractive option because it allowed companies to gradually repurchase shares from the market without undertaking a proportionate tender process. This provided companies with greater flexibility in responding to market conditions instead of committing upfront to a fixed-price acquisition structure.
Over time, however, SEBI became increasingly concerned that open market buy-backs were functioning less as genuine capital return exercises and more as market signalling mechanisms. Companies could announce substantial buy-back programmes, generate positive market sentiment, and yet ultimately execute only a limited portion of the proposed buy-back. SEBI viewed this as a market integrity concern.
Why SEBI Earlier Discontinued the Stock Exchange Route
SEBI’s earlier decision to phase out stock exchange buy-backs was primarily driven by two concerns: unequal shareholder participation and tax asymmetry.
Under the stock exchange mechanism, orders were matched on the basis of ordinary price-time priority. As a result, certain shareholders could successfully exit through the buy-back while similarly placed shareholders received no opportunity to participate. Unlike the tender offer route, there was no proportionate acceptance mechanism designed to ensure equitable participation among shareholders.
The second concern related to taxation. Under the earlier framework governed by Section 115QA of the Income Tax Act, buy-back tax was imposed at the company level, while shareholders participating in the buy-back were generally exempt from tax on such proceeds. Shareholders selling shares through ordinary market transactions did not receive similar treatment. SEBI considered this disparity structurally inequitable.
Accordingly, SEBI introduced a calibrated glide path that progressively reduced both the permissible size and duration of stock exchange buy-backs before ultimately discontinuing the mechanism with effect from April 01, 2025.
The regulatory preference thereafter shifted decisively toward the tender offer route, which SEBI considered easier to supervise from both a participation and investor protection perspective.
Tax Changes and the Shift in Regulatory Position
The present consultation papers make it clear that the proposed reintroduction of stock exchange buy-backs is closely linked to subsequent changes in the taxation framework.
The Finance Bill, 2024 shifted the incidence of taxation from the company to shareholders by treating buy-back proceeds as deemed dividend in the hands of shareholders. Thereafter, the Income Tax Act, 2025 as amended by the Finance Act, 2026 brought buy-back proceeds within the “Capital Gains” framework.
SEBI now expressly acknowledges that the earlier tax-induced inequity has substantially diminished because shareholders participating in buy-backs are now taxed in a manner comparable to ordinary market transactions. In effect, the stock exchange route no longer creates the same asymmetrical tax outcomes that originally justified its discontinuation.
Simultaneously, the Finance Act, 2026 introduced an additional tax burden specifically for promoter shareholders participating in buy-backs. This appears intended to prevent promoters from using buy-backs as preferential extraction mechanisms while preserving buy-backs as legitimate capital allocation tools for public shareholders.
Reintroduction of Open Market Buy-Backs Through Stock Exchanges
SEBI now proposes to formally restore open market buy-backs through the stock exchange mechanism as an additional route under the Buy-Back Regulations.
Importantly, the proposal does not seek to revive the earlier framework in its original form. SEBI proposes to reintroduce the mechanism alongside tighter execution timelines and revised compliance safeguards.
I. Completion Timeline Restricted to 66 Working Days
The Primary Market Advisory Committee (PMAC) recommended restoring the earlier six-month completion timeline for open market buy-backs. SEBI, however, has proposed a shorter outer limit of 66 working days.
SEBI’s reasoning is commercially practical. A buy-back that remains open for an extended period may lose relevance as market conditions, valuations, and investor sentiment evolve. A prolonged buy-back window also creates continuing uncertainty for shareholders and complicates monitoring of the corporate action.
SEBI has simultaneously retained the existing requirement that at least 40% of the proposed buy-back size must be utilized during the first half of the offer period. This is intended to ensure meaningful execution rather than merely symbolic buy-back announcements.
The practical implications for treasury and finance teams are significant. Companies will need tighter liquidity planning and faster execution strategies because the revised framework leaves substantially less flexibility to defer purchases in anticipation of more favourable market conditions.
II. Removal of Separate Buy-Back Trading Window
SEBI has also proposed removing the requirement for a separate trading window for stock exchange buy-backs.
Historically, the separate window served a tax-related purpose by identifying investors participating in the buy-back for differential tax treatment. Following the revised taxation framework, SEBI has taken the view that the segregation mechanism is no longer necessary.
Under the proposal, buy-back transactions would take place through the ordinary trading mechanism itself. SEBI has also proposed removing the requirement to display the company’s identity as purchaser on the electronic trading screen.
This would make buy-backs operationally closer to ordinary market transactions. The proposed framework is likely to reduce execution costs and procedural complexity while improving transactional efficiency.
At the same time, companies may need to strengthen internal monitoring systems and trade surveillance processes because buy-back execution would become less visibly segregated from ordinary market activity.
III. Mandatory Electronic Intimation to Shareholders
SEBI has proposed mandatory electronic intimation to shareholders regarding the buy-back offer within one working day from the public announcement.
SEBI has proposed mandatory electronic intimation to shareholders to facilitate timely dissemination of information regarding the buy-back offer. The regulator appears to recognize that exchange-based dissemination alone may not sufficiently ensure shareholder awareness, particularly in the context of retail participation.
This creates immediate operational implications for listed companies. Registrar coordination, shareholder database management, and disclosure workflows will need to function within compressed timelines. Delays or deficiencies in shareholder communication may increasingly attract regulatory scrutiny.
IV. Freezing of Promoter Holdings at ISIN Level
SEBI has further proposed freezing promoter and promoter-group holdings at the ISIN level during the buy-back period.
The existing framework already restricts promoter dealings during the buy-back period. The proposed amendment goes a step further by operationalizing the restriction directly through depository systems instead of relying solely on behavioural compliance.
The proposal would operationalize the restriction through depository-level mechanisms. The proposal may result in a more system-driven implementation of promoter restrictions during the buy-back period. Companies contemplating buy-backs may therefore need to review depository instruction processes and promoter holding workflows well in advance of the buy-back opening date.
The proposal nevertheless preserves promoter participation in tender offer buy-backs, subject to the revised tax implications introduced under the Finance Act, 2026.
V. Alignment with Minimum Public Shareholding Requirements
SEBI has also proposed expressly prohibiting buy-backs that may result in a breach of Minimum Public Shareholding (“MPS”) requirements.
Although MPS obligations already exist under the SCRR and LODR framework, the Buy-Back Regulations themselves did not expressly integrate those requirements. SEBI now proposes to close that regulatory gap directly within the buy-back framework.
The implications are particularly relevant for companies operating close to promoter shareholding thresholds. Pre-buy-back modelling exercises will become more important because companies will need to assess not only the proposed buy-back size, but also its impact on post-extinguishment promoter holdings and continuing public float levels.
This analysis may need to be completed before the board even considers approving the buy-back proposal.
VI. Alignment with Companies Act on Interval Between Buy-Backs
SEBI has further proposed aligning the interval between two buy-backs with the Companies Act framework instead of retaining a standalone SEBI requirement.
At present, Regulation 4(vii) prescribes a one-year gap between buy-backs. Under the proposed framework, the interval requirement would dynamically follow the position under the Companies Act applicable to unlisted companies.
The proposal appears intended to reduce fragmentation between company law and securities regulation. This is significant because buy-back compliance increasingly involves overlapping considerations under corporate law, tax law, and securities regulation. Parallel frameworks with differing timelines often create avoidable interpretational complexity.
For legal and compliance teams, greater harmonization should reduce the need for parallel regulatory analysis whenever amendments are introduced under company law.
VII. Dispensing with Mandatory Merchant Banker Appointment
Perhaps the most significant proposal is SEBI’s reconsideration of the mandatory requirement to appoint merchant bankers for buy-backs.
Historically, merchant bankers functioned as compliance intermediaries responsible for disclosures, escrow oversight, filings, procedural compliance, and due diligence certification.
SEBI now proposes redistributing these responsibilities among issuers, stock exchanges, secretarial auditors, and compliance officers. For instance:
- due diligence certification would shift to secretarial auditors;
- escrow oversight would move to stock exchanges;
- extinguishment verification would be undertaken by compliance officers; and
- filings would be made directly by companies.
The proposed framework would reduce intermediary costs and simplify execution for companies undertaking buy-backs. However, it also shifts regulatory responsibility inward.
Compliance officers and secretarial auditors may consequently face increased scrutiny because functions previously handled through merchant bankers would now sit within issuer-controlled systems. Companies may therefore need stronger internal compliance documentation, more robust approval processes, and clearer audit trails before undertaking buy-back transactions.
The Broader Regulatory Shift
SEBI is not proposing to dilute the substantive safeguards governing buy-backs. Escrow requirements, disclosure obligations, promoter restrictions, extinguishment norms, and utilization thresholds continue to remain in place. What is changing is the structure through which compliance is supervised and enforced.
The regulator increasingly appears willing to:
- rely on market infrastructure and depository systems instead of intermediary-led supervision;
- embed compliance mechanisms directly into operational systems;
- place greater accountability on issuers themselves; and
- treat buy-backs as legitimate capital management tools rather than presumptively problematic transactions.
Conclusion
SEBI’s 2026 consultation papers collectively represent a significant recalibration of India’s buy-back framework. The proposed reintroduction of stock exchange buy-backs reverses a major regulatory withdrawal that took effect only a year earlier. However, the reintroduction is not unconditional. It is accompanied by a revised compliance architecture built upon a fundamentally altered taxation framework and increased reliance on issuer-side accountability.
If implemented, the reforms are likely to make buy-backs operationally faster, commercially more flexible, and less intermediary-driven. At the same time, they will increase the importance of internal governance systems, depository coordination, treasury planning, and compliance execution.
The traditional intermediary-heavy model is gradually giving way to an framework with increased reliance on system-based controls and market infrastructure mechanisms in certain areas of buy-back compliance. That may ultimately prove to be the most consequential aspect of SEBI’s proposed reforms.
Since both papers are consultation papers issued for public comments, the proposals discussed below remain subject to stakeholder feedback, SEBI deliberation, and eventual regulatory amendments, if any.
