Substitution of Section 42 is one of the key amendments proposed in Companies (Amendment) Act, 2017 (Amendment Act). While, the Amendment Act is being enforced in phases, stakeholders have been awaiting the draft rules in relation to private placement. MCA on 15.02.2018 issued draft Companies (Prospectus and Allotment of Securities) (Amendment) Rules, 2018 (Amendment Rules) which is open for public comments till 07.03.2018.
This article discusses the key amendments proposed in the rules.
The erstwhile rules mandated minimum investment of atleast twenty thousand rupees of face value of securities. Amendment Rules provides no such minimum amount. Accordingly, the exemption for NBFCs and HFCs has been deleted.
While the limit of 200 persons remains intact, the exemption extended to NBFCs and HFCs has been deleted. While, the reason for deletion is stated to be on account of doing away with the requirement of minimum investment size, inadvertently, the other exemption of not limiting to 200 persons if they are complying with regulations made by RBI or NHB in respect of offer or invitation to be issued on private placement basis, will also be deleted.
This needs to be restored.
The requirement to file PAS-4 and PAS-5 with ROC in e-Form GNL-2 has been done away with. Further, furnishing the same to SEBI is also not required as per Amendment Rules. This will surely provide ease procedural compliance.
Rules, 2014 mandated disclosing the basis or justification for the price (including premium, if any) at which the offer or invitation is being made.
Amendment Rules mandates disclosing several other details that formed part of ‘GENERAL INFORMATION’, ‘PARTICULARS OF OFFER’ and few of ‘DISCLOSURES WITH REGARD TO INTEREST OF DIRECTORS, LITIGATION ETC.’ in erstwhile PAS -4, in the explanatory statement. Further, the declaration by Director (para 5 of erstwhile PAS -4) is also proposed to be provided in explanatory statement.
The requirement shall not apply in case of issue of shares for conversion of loan. This was not provided in Rules, 2014.
Contents of PAS-4
Additional disclosures inserted (few appearing in Rule 13 of SHA Rules):
The Amendment Rules proposed will require some amendment especially in case of exemption done away for NBFCs and HFCs in relation to 200 persons. Further, contents of PAS-4 need to be revisited. If the disclosures required in case of a preferential offer are being included in PAS-4, this will also have to be disclosed in case of private placement of NCDs.
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