Re-introduction of Open Market Buy-Back and Operationalisation of ISIN-Level Freeze Mechanism under the Buy-Back Regulations

The Securities and Exchange Board of India (SEBI) issued a consultation paper dated April 2, 2026 (Consultation Paper 1, which can be viewed by clicking on this link) proposing the re-introduction of open market buy-back through the stock exchange, followed by a second consultation paper dated May 8, 2026 (Consultation Paper 2, which can be viewed by clicking on this link) proposing a broader rationalisation of the SEBI (Buy-Back of Securities) Regulations, 2018 (Buy-Back Regulations). Subsequently, at its 214th Board Meeting held on June 19, 2026 (Board Meeting, the press release for which can be viewed by clicking on this link), SEBI approved the re-introduction of open market buy-back through the stock exchange with effect from August 1, 2026.

Pursuant to the Board Meeting, SEBI notified the SEBI (Buy-Back of Securities) (Amendment) Regulations, 2026 (Amendment Regulations, which can be viewed by clicking on this link) on July 6, 2026, amending the Buy-Back Regulations inter alia to re-introduce the stock exchange route and mandate the International Securities Identification Number (ISIN) level freezing of the holdings of the promoter and promoter group during buy-back periods. For ISIN-level freezing, SEBI has also issued a circular dated July 21, 2026 (Circular, which can be viewed by clicking on this link), operationalising the said requirement.

The key aspects approved in the Board Meeting and of the Amendment Regulations are discussed below:

1. Background: Discontinuation and Changed Circumstances 

Open market buy-back through the stock exchange was discontinued with effect from April 1, 2025. The discontinuation was inter alia driven by the erstwhile taxation framework, under which buy-back tax was payable by the company, while shareholders remained exempt, resulting in differential tax outcomes for different shareholders as the tax exemption was available only to shareholders whose sell orders were matched with the company’s buy orders under the open-market mechanism. However, the taxation framework has since undergone a fundamental change. Pursuant to the Finance Act, 2026, buy-back proceeds are now taxable as capital gains in the hands of shareholders with effect from April 1, 2026.

2. Key Changes under the Amendment Regulations (Effective August 1, 2026)

The key features of the re-introduced framework, as implemented by the Amendment Regulations, are set out below:

3. Freezing of Promoter Holdings: ISIN-Level Freeze Mechanism

The Amendment Regulations have also inserted a new Regulation 24(i)(ea) into the Buy-Back Regulations, mandating that the shares or securities held by the promoter and promoter group (including associates) shall remain frozen at the ISIN level from the date of passing of the board resolution or special resolution (as applicable) approving the buy-back until the closure of the buy-back offer. The following exceptions have been carved out from the mandatory freeze requirement: (a) tendering of shares by the promoter and promoter group in a buy-back undertaken through the tender offer route; and (b) invocation of encumbrances created prior to the commencement of the buy-back period, provided that the freeze shall continue to apply to the shares that are invoked or released pursuant to such pre-existing encumbrances.

To operationalise the aforesaid framework, the Circular further directs the Depositories to put in place a comprehensive framework before August 1, 2026, including: (a) the format for issuance of instructions by listed companies for effecting the freeze; (b) the operational modalities for implementing the ISIN-level freeze; (c) the operational modalities for tendering of shares in a buy-back through the tender offer route; and (d) the operational modalities for invocation or release of encumbrances created prior to the commencement of the buy-back period.

Overall, the re-introduction of open market buy-back through the stock exchange, as implemented through the Amendment Regulations, reflects SEBI’s calibrated regulatory approach. Having earlier discontinued the mechanism due to concerns relating to shareholder equity and the erstwhile taxation framework, SEBI has now re-introduced it following changes to the tax regime, while simultaneously incorporating several operational safeguards, including mandatory compliance with minimum public shareholding requirements, minimum utilisation thresholds, and particularly the ISIN-level freeze mechanism – which seeks to ensure that promoter and promoter group holdings remain intact throughout the buy-back period, thereby preventing any potential circumvention or manipulation of the buy-back framework.