When a company is not cash-rich such a move could also increase its debts and depress future earnings.
In other markets share buybacks are usually offered to all shareholders as a way of giving liquidity without diluting their stakes in the investee firm.
But a buy-back of a specific shareholder and cancellation of such shares can increase the relative holdings of other shareholders.
Such a transaction, especially if financed with debt, will have features of a leveraged buyout or management buyout.
DIMO said in a stock exchange filing that the board of directors had made the decision following a request from shareholders at its annual general meeting on June 20.
Key shareholder Hayleys were originally due to sell its 3,397,611 shares at 160 rupees to a group of DIMO shareholders made up of the Pandithage, Algama and Peiris families.The DIMO said A R Pandithage had consented to nominate DIMO to purchase the shares under an agreement entered into with Hayleys and himself.