Buyback would be done from the open market through the Stock Exchanges, at a price not exceeding Rs 335 per share, up to an aggregate amount not exceeding Rs 5,725 crore.
Cairn India shares today closed at Rs 324 apiece, down 2.09 per cent on the BSE.
"The indicative maximum number of equity shares of Rs 10 each that can be bought back would be 170,895,522, resulting in the reduction of equity capital by approximately 8.9 per cent," the statement said.
The buyback, Cairn said, comes on the backdrop of strong cash flows generated by the company. The company is currently producing over 213,000 barrels of oil and oil equivalent gas per day and is on track to meet year-end target of over 225,000 barrels from all producing assets.
"This proposal is a shareholder reward mechanism through decrease in the equity share capital and a consequent increase in the earnings per share of the company.
"The company believes that the buyback will improve shareholder returns while maintaining the current dividend payout ratio as per the approved policy," the statement said.
Cairn said it will be seeking approval of the shareholders by way of a special resolution to be passed through postal ballot.
Vedanta Group holds 112.27 crore shares out of a total of 191.05 crore outstanding shares of Cairn India. Cairn UK Holdings Ltd has 19.61 crore shares while Life Insurance Corp (LIC) has 16.77 crore (8.78 per cent) shares.
ICICI Prudential hold 1.08 per cent shares while foreign institutional investors (FIIs) have 15.14 per cent holding. Financial institutions and Bank have 8.7 per cent.
Cairn produces a quarter of India's crude oil production.