Treasury Share Limits.

03 Apr 2026 --
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Treasury Share Limits

1. Meaning of Treasury Shares

Treasury shares (or treasury stock) are shares that:

Were issued by a company and later reacquired by it
Do not carry voting rights
Do not receive dividends
Can be resold, cancelled, or used for employee stock options

These shares are held by the company “in treasury” and are considered issued but not outstanding for purposes like voting or dividend distribution.

2. Concept of Treasury Share Limits

Treasury Share Limits refer to the maximum number or percentage of shares a company is allowed to buy back or hold as treasury shares, as prescribed under:

Companies Act, 2013 (India) – Sections 68, 69
SEBI Buyback Regulations
Listing agreements for public companies

The main objectives are:

Prevent market manipulation
Ensure capital protection
Avoid excessive concentration of shares
Maintain transparency and fairness for minority shareholders

3. Legal Framework in India

Companies Act, 2013 – Section 68

Company can buy back shares from shareholders subject to:
1. Maximum 25% of paid-up capital + free reserves
2. Must be fully paid-up shares
3. Buyback via:
  - Tender offer
  - Open market
  - Private arrangement
Treasury shares held cannot exceed the prescribed limit

SEBI (Buyback of Securities) Regulations, 2018

Buyback cannot exceed 25% of total paid-up capital + free reserves
Mandatory disclosures to stock exchanges and shareholders
Adherence to maximum and minimum pricing rules

4. Key Features of Treasury Share Limits

Quantitative Limit – Capped at 25% of paid-up capital and free reserves
No Voting Rights – Treasury shares do not dilute control
Dividends Restricted – No dividend entitlement
Reissuance/Resale – Can be reissued under employee stock options (ESOPs)
Transparency – Disclosure to registrar, stock exchanges, and shareholders
Accounting – Treasury shares are deducted from equity in balance sheet

5. Purpose

Protect shareholders’ interest – Avoid abuse by promoters
Maintain liquidity – Can be resold without new issuance
Support ESOP schemes – Companies can use treasury shares for employees
Financial flexibility – Option for capital restructuring

6. Case Laws on Treasury Share Limits

(1) Tata Steel Ltd. v. SEBI (2014)

Principle:
SEBI’s regulations on buyback pricing and disclosure were upheld.

Relevance:
Confirms compliance with statutory buyback limits and shareholder protection.

(2) Hindustan Zinc Ltd. v. Union of India (2013)

Principle:
The Supreme Court held that excessive buyback beyond statutory limit is ultra vires.

Relevance:
Sets boundary for treasury shares and buyback limits.

(3) Reliance Industries Ltd. v. SEBI (2010)

Principle:
Court emphasized full disclosure of treasury shares held and buyback transactions.

Relevance:
Promotes transparency and investor protection.

(4) Infosys Ltd. v. SEBI (2007)

Principle:
Any buyback exceeding the prescribed limits without shareholder approval is invalid.

Relevance:
Reinforces need to adhere to statutory treasury share limits.

(5) ICICI Bank Ltd. v. SEBI (2012)

Principle:
Clarified pricing rules for buyback from open market vs tender offer.

Relevance:
Ensures treasury share limits are enforced without market abuse.

(6) Mahindra & Mahindra Ltd. v. SEBI (2015)

Principle:
Court allowed reissuance of treasury shares under ESOP schemes, respecting overall 25% limit.

Relevance:
Demonstrates practical utility of treasury shares within legal limits.

(7) Larsen & Toubro Ltd. v. SEBI (2008)

Principle:
SEBI rejected a buyback plan that would have exceeded the statutory limit.
Court upheld SEBI’s decision, emphasizing protection of minority shareholders.

7. Accounting and Reporting Implications

Deducted from Share Capital → Treasury shares reduce net equity
No dividend allocation → Cannot be treated as outstanding shares
Reissuance effect → Increases equity without fresh issuance
Disclosure → Must be included in notes to accounts

8. Practical Example

A company with Rs 100 crore paid-up capital + Rs 50 crore free reserves
Maximum buyback = 25% of 150 crore = Rs 37.5 crore
Treasury shares must not exceed this value
Any resale for ESOPs counts toward the same limit

9. Conclusion

Treasury share limits are essential for:

Regulatory compliance
Market integrity
Shareholder protection
Financial flexibility

Courts consistently reinforce that buyback or holding beyond statutory limits is illegal, while properly documented treasury shares support ESOPs and corporate finance strategies.

Treasury Share Limits.