Extinguishment certificate

A company that buys back its own shares cannot simply hold them in a vault. The whole point of a buyback is to shrink the company's share capital. So the bought-back shares are destroyed — extinguished — and somebody has to certify that this actually happened.

What the certificate says, and who signs it, depends on the buyback route:

• Tender offer. The share certificates representing the bought-back shares are destroyed, and a certificate to that effect is signed by the Registrar of the issue, the secretarial auditor and the directors of the company, and submitted to SEBI.
• Stock exchange route. The shares bought back are extinguished, and a certificate to that effect is given to SEBI and the stock exchange. Information on shares bought back must also be given to the stock exchange, and uploaded on the company's website, daily.
• Book building route. The certificates for accepted bids are destroyed, and shares tendered in electronic form are extinguished.

Across all three routes, extinguishing the shares is what actually reduces the company's paid-up share capital — the buyback is not complete, in accounting terms, until this certification step happens.

Devgarh Steels Ltd completes a tender-offer buyback of 50 lakh shares at Rs 340, a total outlay of Rs 170 crore. Once the buyback closes and payment is made to shareholders within the prescribed 5 working days, the company:

1. Physically destroys the 50 lakh share certificates tendered and accepted.
2. Obtains a certificate confirming the destruction, signed by the Registrar of the issue, the secretarial auditor and the company's directors.
3. Submits this extinguishment certificate to SEBI.

The company's issued and paid-up capital falls by the face value of the 50 lakh shares extinguished — say, from Rs 12 crore to Rs 11.50 crore at a face value of Rs 10 — and this is the accounting event the extinguishment certificate documents.

Chapter 7, section 7.7 (Buy Back of Securities), across the tender offer, stock exchange and book building sub-sections. Expect a question on who signs the certificate for a tender-offer buyback (Registrar of the issue, secretarial auditor, directors) versus who it is given to under the other two routes (SEBI and the stock exchange).

• Only the tender-offer route names three specific signatories (Registrar of the issue, secretarial auditor, directors) — the stock exchange and book-building routes are described only as producing "a certificate to that effect", without naming signatories.
• Extinguishment is what reduces share capital — the buyback payment alone does not; the shares must actually be destroyed or extinguished for the capital reduction to register.
• Daily disclosure to the stock exchange applies specifically to the stock-exchange buyback route, not to a tender offer.