The MCA (Ministry of Corporate Affairs) issued a notification on 27th October 2023 introducing amendments to the Companies (Prospectus and Allotment of Securities) Rules, 2014. The amendments aim to streamline public and private companies‘ issuance and management of securities.
Government Notification G.S.R. 802(E).—In the exercise of the authority given by section 29 read with section 469 of the Companies Act, 2013 (18 of 2013), the Central Government hereby introduces the subsequent regulations to amend the Companies (Prospectus and Allotment of Securities) Rules, 2014, as follows:
1. Short Title and Commencement
(A) These regulations shall be known as the Companies (Prospectus and Allotment of Securities) Second Amendment Rules, 2023.
(B) They shall come into effect on the date of publication in the Official Gazette.
2. In the Companies (Prospectus and Allotment of Securities) Rules, 2014
(hereinafter referred to as the aforementioned rules), rule 9 will be renumbered as sub-rule (1) of the same, and subsequent to sub-rule
(A) as so renumbered, the subsequent sub-rules will be added, as follows:
(B) Under the amended rules, public companies that have issued share warrants before the commencement of the Companies Act, 2013, and have not converted them into shares, are required to take prompt action.
Within three months of the new rules commencement, the Companies (Prospectus and Allotment of Securities) Second Amendment Rules, 2023, companies must inform the Registrar about the details of such share warrants using Form PAS-7.
Additionally, within six months, the company must request the holders of the share warrants to surrender them and have the shares dematerialized in their accounts. To ensure compliance, the company must publish a notice in Form PAS-8 on its website and in local and English newspapers widely circulated in the state where the company is registered.
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(C) If any holder of share warrants fails to surrender them within the specified period mentioned in sub-rule (2), the company shall convert those share warrants into dematerialized form and transfer them to the Investor Education and Protection Fund established under section 125 of the Act.
3. In Another Significant Amendment, the New Rules Introduce Rule 9b, Which Pertains to the Issuance of Securities in Dematerialized Form by Private Companies.
- All private companies, except small companies, must issue securities only in dematerialized form and facilitate the dematerialization of all their securities. This requirement aligns with the provisions of the Depositories Act, 1996 (22 of 1996), and the regulations made under it.
- Private companies excluding small companies, as determined by their audited financial statements for the financial year ending on or after 31st March 2023, have eighteen months from the closure of that financial year to comply with this rule.
- Every private company mentioned in sub-rule (2) that makes an offer for the issuance of securities, buyback of securities, or issuance of bonus shares or rights offer after the date it is required to comply with this rule shall ensure that the entire holding of securities of its promoters, directors, and key managerial personnel has been dematerialized under the provisions of the Depositories Act, 1996 (22 of 1996) and the regulations made under it before making such an offer.
- The holders of securities in private companies specified in sub-rule (2) intending to transfer such securities on or after the date when the company is required to comply with this rule shall dematerialize such securities before the transfer. Anyone who purchases securities of the relevant private company, whether through private placement, bonus shares, or rights offer, after the company is obligated to comply with this rule, must ensure that all their securities are held in dematerialized form before making the subscription.
- The provisions of sub-rules (4) to (10) of rule 9A shall apply, with the necessary changes, to the dematerialization of securities under this rule.
- The provisions of this rule shall not be applicable to government companies.
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4. In the Annexure to the aforementioned rules, the following Forms shall be added after Form (PAS-6), which are as follows:
Note:- The amended rules were primarily published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i), through number G.S.R. 251(E), on 31st March 2014, and recently the amendment was made issuing notification G.S.R. 37(E), on 20th January 2023.
Conclusion
These amendments reflect the government’s commitment to continually update and refine the rules governing the issuance and allotment of securities by companies. By staying up-to-date with these regulations, companies can ensure compliance and contribute to a transparent and well-regulated corporate sector in India.
