An overhaul of the Companies (Prospectus and Allotment of Securities) Rules, 2014
The Ministry of Corporate Affairs has introduced the Companies (Prospectus and Allotment of Securities) Second Amendment Rules, 2023 (“Amendment Rules”). These Amendment Rules aim to further refine regulations governing the issuance of prospectuses and allotment of securities. Notification No. G.S.R. 802(E) outlines key changes that public and private companies must adhere to, in order to ensure compliance with the new rules.
1. Companies (Prospectus and Allotment of Securities) Second Amendment Rules, 2023
The Amendment Rules come into force upon publication in the Official Gazette. The Amendment Rules introduce significant changes, including the renumbering of rule 9 and the addition of new sub-rules.
2. Transition for Public Companies with Share Warrants: A crucial amendment pertains to public companies that issued share warrants before the commencement of the Companies Act, 2013, but have not converted them into shares. Such companies must take the following steps:
i. Within three months of the Amendment Rules, 2023, public companies must inform the Registrar about the details of these share warrants using Form PAS-7.
ii. Within six months of the Amendment Rules, 2023, companies must request bearers of share warrants to surrender them. A notice (Form PAS-8) must be placed on the company’s website and published in newspapers in both vernacular and English languages.
iii. If any bearer fails to surrender the share warrants within the stipulated period, the company is required to convert them into dematerialized form and transfer them to the Investor Education and Protection Fund.
3. Dematerialization of Securities by Private Companies: The Amendment Rules introduce Rule 9B, which mandates that every private company, excluding small companies, must:
i. Issue securities only in dematerialized form.
ii. Facilitate dematerialization of all its securities in accordance with the provisions of the Depositories Act, 1996, within eighteen months of the closure of the financial year ending on or after 31st March 2023.
iii. Ensure dematerialization of securities held by promoters, directors, and key managerial personnel before making any offer for the issuance or buyback of securities, or the issue of bonus shares or rights offers.
iv. The provisions of Rule 9A, pertaining to disclosures, compliance, and penalties, are made applicable mutatis mutandis to the dematerialization of securities under Rule 9B. It’s essential to note that these rules do not apply to government companies.
4. Additional Forms: Pursuant to this Amendment Rules, two new forms, PAS-7, and PAS-8, have been added to the Annexure of the Companies (Prospectus and Allotment of Securities) Rules, 2014. PAS-7 collects details of pending share warrants, while PAS-8 form serves as a notice to bearers of share warrants, informing them of the requirement to surrender the relevant share warrants for conversion into shares in dematerialized form. This form is intended for companies to provide details of pending share warrants issued prior to the commencement of the Companies Act, 2013.
5. The contents of the form PAS-7 include:
Company Information like, name of the company, Corporate Identification Number (CIN), details of pending share warrants such as, date of approval of the Central Government, date of issue of share warrants, number of shares against which share warrants were issued, details of persons to whom share warrants were issued, including: name of the person, certificate number against which share warrants were issued, distinctive number of shares against which share warrant was issued, number of shares involved etc. The form shall also contain a declaration by an authorized representative (Director/Managing Director/Manager/Company Secretary/Chief Executive Officer/Chief Financial Officer) stating compliance with the Companies Act, 2013, and its rules. This includes a digital signature and the respective identification number. Additionally, a certificate by practicing professional, confirming compliance with the Companies Act, 2013. This includes a digital signature, category of professional, and membership or certificate of practice number.
The contents of the form PAS-8 include name of the company, notice content: A notice pursuant to rule 9(2)(b) of the Companies (Prospectus and Allotment of Securities) Rules, 2014, requiring bearers of share warrants to surrender them to the company for conversion into shares in dematerialized form. Action in case of non-surrender: If share warrants are not surrendered within the specified period, the company shall convert the share warrants into shares and transfer them to the Investor Education and Protection Fund under section 125 of the Companies Act, 2013.
6. Conclusion: These Amendment Rules have been introduced with an aim to enhance transparency, streamline processes, and align with the evolving corporate landscape. Companies affected by these changes are advised to diligently adhere to the stipulated timelines and procedures to ensure compliance with the amendments. In conclusion, companies are advised to promptly assess their current status in relation to share warrants and dematerialization of securities. Establishing an internal task force, engaging with regulatory authorities, and leveraging technology solutions for dematerialization will be critical for ensuring compliance within the specified timelines. Timely and meticulous adherence to these Amendment Rules will not only mitigate legal risks but also contribute to the overall transparency and efficiency of the securities market.
Author Bio
