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The Securities and Exchange Board of India (“SEBI”) has introduced significant changes to the regulatory framework governing buy-backs of securities. Through the SEBI (Buy-Back of Securities) (Amendment) Regulations, 2026, notified on 6 July 2026, SEBI has revised the framework for buy-backs, including the re-introduction of the open-market buy-back route through stock exchanges. SEBI has also subsequently operationalised the framework for freezing promoter and promoter-group holdings at the ISIN level during a buy-back through a circular dated 21 July 2026.
These changes have come into force from 1 August 2026. They are relevant not only from a securities-law compliance perspective but also for listed companies, promoters and shareholders that are involved in corporate actions, promoter transfers, encumbrances and liquidity planning.
1. Re-introduction of Open-Market Buy-Backs
One of the key changes is the availability of buy-backs through the open market using the stock exchange mechanism. This provides listed companies with an additional route to undertake a buy-back, alongside the tender-offer route, under which the open-market mechanism includes both the stock exchange route and the book-building process, subject to the applicable conditions under the amended framework.
The open-market route is particularly significant because it allows a company to purchase its own securities through market transactions rather than relying solely on a proportionate tender process involving existing shareholders.
From a transaction-planning perspective, companies considering a buy-back will therefore need to assess at the outset which route is commercially and legally appropriate, as the procedural requirements and restrictions applicable to each route may differ.
2. The 15% Threshold for Open-Market Buy-Backs
A key limitation introduced for open-market buy-backs is that, with effect from 1 August 2026, the amount of the buy-back through the stock exchange must be less than 15% of the paid-up capital and free reserves of the company.
Importantly, this threshold is not calculated as 15% of the number of outstanding shares. It is a monetary threshold determined with reference to the company’s paid-up capital and free reserves.
The provision further requires the relevant financial position to be considered on the basis of both standalone and consolidated financial statements. This is particularly important for companies having subsidiaries, as the consolidated position may affect the amount available for an open-market buy-back.
3. Freezing of Promoter and Promoter-Group Holdings
Another significant change concerns promoter and promoter-group holdings. Under the amended framework, shares or other specified securities held by the promoter, promoter group and their associates are subject to an ISIN-level freeze from the date of passing of the resolution by the board of directors or the special resolution, as the case may be (i.e., the approval of the buy-back), until the closing of the offer, subject to specified exceptions.
SEBI issued a circular dated 21 July 2026 to operationalise this mechanism and directed the depositories to put in place the necessary operational framework and systems.
In practical terms, the freeze is intended to restrict dealings in the relevant promoter holdings during the buy-back period. This is important because promoters may otherwise seek to transfer, encumber or otherwise deal with their securities while a buy-back is underway.
The freeze, however, is not an absolute prohibition on every transaction involving promoter securities. The framework specifically permits, among other things, tendering of securities in a buy-back undertaken through the tender-offer route and invocation of certain encumbrances created before commencement of the buy-back period.
4. Why the ISIN-Level Freeze Matters
The reference to an “ISIN-level” freeze is significant from an implementation perspective. An ISIN is the unique identification number assigned to a particular security. By applying the restriction at the ISIN level, the framework seeks to ensure that the restriction is implemented systematically across the promoter and promoter-group holdings in the relevant security, rather than being dependent only on individual demat accounts.
This has practical implications where promoters have multiple holding structures or where transactions involving promoter securities are contemplated around the time of a proposed buy-back.
5. Impact on Promoters and Transaction Documentation
The amendments may also have implications for existing contractual arrangements involving promoter shares. Transaction documents such as shareholders’ agreements, investment agreements and financing documents may contain provisions permitting promoters to, among other things:
- transfer shares to affiliates;
- undertake inter-se transfers;
- create or release encumbrances, including pledges of shares; or
- otherwise deal with their securities.
While such contractual rights may continue to exist, their exercise will necessarily remain subject to applicable securities laws and regulatory restrictions.
6. Merchant Banker and Procedural Considerations
Another important change is that the appointment of a merchant banker for a buy-back has now been made discretionary for the company.
However, if a company chooses not to appoint a merchant banker, the responsibilities that would otherwise have been undertaken by the merchant banker will still need to be undertaken by the persons specified under the amended framework. Specifically, under the newly inserted Regulation 24A, the obligations are redistributed as follows: the company itself assumes responsibility for filing offer documents and ensuring their accuracy; the secretarial auditor undertakes the due diligence certification function; the statutory auditor oversees and operates the escrow account; stock exchanges provide certifications relating to sell order adequacy and VWAP; and the compliance officer is responsible for extinguishment oversight and final compliance certification, among other functions. Accordingly, the change does not eliminate the compliance requirements associated with a buy-back; rather, it gives companies greater flexibility in deciding whether to engage a merchant banker, while ensuring that the relevant responsibilities continue to be discharged.
7. Revised Cooling-Off Period Between Successive Buy-Backs
A further change introduced by the 2026 amendment, which is not without practical significance, is the modification to the restriction on successive buy-backs. Prior to the amendment, a company was prohibited from making any offer of buy-back within a period of one year from the date of expiry of the buy-back period of the preceding offer. The 2026 amendment has replaced this fixed one-year restriction with a reference to 'such period as may be prescribed under the Companies Act, 2013, from the date of closure of the preceding offer of buy-back.' This change effectively aligns the SEBI framework with the Companies Act requirements on successive buy-backs. Companies planning repeated buy-back programmes should accordingly verify the period prescribed under the Companies Act for the time being, as this will govern the minimum interval between successive offers.
8. Key Legal Considerations for Companies Planning Buy-Backs
The amendments have several practical implications for listed companies and their shareholders when planning buy-backs. From a transaction-structuring perspective, companies should first identify the proposed buy-back route and assess the regulatory conditions applicable to that route, including the revised limits and procedural requirements.
In particular, where an open-market buy-back is proposed, the permissible buy-back size will need to be assessed against the applicable threshold based on the company’s paid-up capital and free reserves, taking into account both its standalone and consolidated financial statements.
The introduction of the ISIN-level freeze on promoter and promoter-group holdings also has implications for transactions involving promoter securities. Any proposed transfer, pledge, creation or enforcement of an encumbrance, or other dealing in promoter securities during the relevant period should be reviewed against the applicable restrictions and exceptions. This becomes particularly relevant where promoter liquidity or restructuring transactions are being contemplated alongside a proposed buy-back.
Companies should also review existing contractual arrangements governing promoter and shareholder rights, including shareholders’ agreements, investment agreements, financing documents and promoter undertakings. Contractual rights relating to transfer, encumbrance, liquidity or other dealings in securities may need to be considered in conjunction with the regulatory restrictions applicable during the buy-back process.
The discretion now available in relation to the appointment of a merchant banker also introduces an additional structuring consideration for companies. Where a company proposes to dispense with a merchant banker, the relevant responsibilities ordinarily undertaken by the merchant banker will nevertheless need to be appropriately discharged in accordance with the amended framework.
Accordingly, the legal review of a buy-back should extend beyond the question of whether the company has the requisite corporate approvals and satisfies the applicable quantitative limits. Companies should also consider the interaction between the buy-back, the company’s constitutional and contractual arrangements, promoter shareholding, existing encumbrances and any concurrent corporate or financing transactions.
Conclusion
The 2026 amendments mark a significant change in the legal framework governing buy-backs, particularly through the re-introduction of the open-market route, the introduction of a specific threshold for such buy-backs, the discretionary appointment of merchant bankers and the framework for freezing promoter and promoter-group holdings at the ISIN level.
For companies, the significance of these changes lies in their interaction with existing shareholder and financing arrangements. A buy-back may have consequences not only for the company’s capital structure and shareholders but also for contractual rights relating to the transfer, encumbrance and liquidity of securities.
Accordingly, buy-back transactions should be approached as a regulatory and transactional exercise, requiring the proposed corporate action to be assessed alongside the company’s existing contractual arrangements and any concurrent transactions involving its shareholders or promoters. Early identification of these issues can help ensure that the proposed buy-back is structured in a manner that is consistent with both the amended SEBI framework and the parties’ existing contractual obligations.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
