Companies (Prospectus and Allotment of Securities) Amendment Rules, 2022

The Ministry of Corporate Affairs (MCA) vide notification dated 5th May 2022 has issued the Companies (Prospectus and Allotment of Securities) Amendment Rules, 2022 to further amend the Companies (Prospectus and Allotment of Securities) Rules, 2014. This amendment is reflecting the changes in the foreign direct investment regime. Companies will now have to ensure that they have government approval under the Foreign Exchange Management rules before offering securities to any entity from a country that shares a land border with India.

Synopsis of Companies (Prospectus and Allotment of Securities) Amendment Rules, 2022

According to the Companies (Prospectus and Allotment of Securities) Amendment Rules, 2022, The body corporate need to obtain government approval under the FEMA (Non-debt Instruments) Rules, 2019 to offer any securities to a body corporate incorporated in or a national of a country which shares a land border with India. In case companies have offered securities to such entities, they must give a declaration that approval has been given for the transaction and should attach the approval letter along with the private placement offer cum application letter. Click here to get the Official Notification of MCA

Importance of Companies (Prospectus and Allotment of Securities) Amendment Rules, 2022

In 2020, the government had placed all FDI from border countries under the approval route to curb opportunistic takeovers during the pandemic. These new Amendment Rules, 2022 were largely aimed at preventing Chinese investors from taking control of Indian companies.

Amendment in Private Placement Rules – Insertion of the new proviso in Rule 14 (1)

Companies (Prospectus and Allotment of Securities) Amendment Rules, 2022 has inserted a new proviso Rule 14, in sub-rule (1) “Provided also that no offer or invitation of any securities under this rule shall be made to a body corporate incorporated in, or a national of, a country which shares a land border with India, unless such body corporate or the national, as the case may be, have obtained Government approval under the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 and attached the same with the private placement offer cum application letter” From reading the above provisions, it is evident that for allotment of Shares or Securities under Private Placement Rules, to a body corporate incorporated in, or a national of a country which shares a land border with India (i.e. China, Bhutan, Nepal, Pakistan, Bangladesh, and Myanmar), such body corporate or the national must obtain prior Government approval under the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 and attach the same with Form PAS-4 (the private placement offer cum application letter).

Amendment in Form PAS-4 - The Private Placement Offer cum Application Letter

The Companies (Prospectus and Allotment of Securities) Amendment Rules, 2022 has inserted below Checkbox(s) in Form PAS-4:

The applicant is not required to obtain Government approval under the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 prior to subscription of shares:
The applicant is required to obtain Government approval under the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 prior to subscription of shares, and the same has been obtained and is enclosed herewith

Private Placement

Private placement by companies means offering its securities or inviting to subscribe its securities for a select group of persons other than by way of a public issue through a private placement offer letter.

A company making a private placement cannot offer its securities through any public advertisements or utilize any marketing, media, or distribution agents or channels to inform the public about such an offer.
If the offer is advertised or marketed, it will be considered a public offer and not a private placement by the company.

Governing Law - Private Placement

All private placement offer letters are to be accompanied by the details of the applicant in written/electronic form under Rule 14 of the Companies (Prospectus and Allotment of Securities) Rules, 2014.
Offers letters/Invitation for the subscription of securities on private placement is issued under Section 42 of Companies Act, 2013

For more details on Private Placement, click here

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Frequently Asked Questions

Common questions about Companies Amendment Rules 2022.

The Companies (Prospectus and Allotment of Securities) Amendment Rules, 2022 are a set of rules issued by the Ministry of Corporate Affairs (MCA) to amend the Companies (Prospectus and Allotment of Securities) Rules, 2014. These amendments reflect changes in the foreign direct investment regime, specifically regarding companies offering securities to entities from countries that share a land border with India.

The Companies (Prospectus and Allotment of Securities) Amendment Rules, 2022 were introduced to prevent opportunistic takeovers of Indian companies by Chinese investors during the pandemic. In 2020, the government placed all FDI from border countries under the approval route, and these new rules aim to reinforce that measure in the context of securities offerings.

Under the Companies (Prospectus and Allotment of Securities) Amendment Rules, 2022, companies must obtain government approval under the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 before offering any securities to a body corporate incorporated in or a national of a country that shares a land border with India.

The countries that share a land border with India and are covered under these amendment rules are China, Bhutan, Nepal, Pakistan, Bangladesh, and Myanmar.

If companies have already offered securities to entities from countries that share a land border with India, they must provide a declaration that approval has been obtained for the transaction. They must also attach the approval letter along with the private placement offer cum application letter (Form PAS-4).

The Companies (Prospectus and Allotment of Securities) Amendment Rules, 2022 have introduced a new proviso in Rule 14(1) of the existing rules. This proviso requires companies to obtain government approval under the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 and attach it with the private placement offer cum application letter (Form PAS-4) if they are offering securities to entities from border countries.

The Companies (Prospectus and Allotment of Securities) Amendment Rules, 2022 have inserted new checkboxes in Form PAS-4. These checkboxes allow the applicant to indicate whether they are required to obtain government approval under the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 prior to subscribing to shares, and if so, whether the approval has been obtained and is enclosed.

Private placement is the process by which companies offer their securities or invite subscriptions for their securities to a select group of persons, rather than through a public issue. The Companies (Prospectus and Allotment of Securities) Amendment Rules, 2022 specifically address the requirements for private placements involving entities from border countries.

In India, private placements are governed by Section 42 of the Companies Act, 2013 and Rule 14 of the Companies (Prospectus and Allotment of Securities) Rules, 2014, as amended by the Companies (Prospectus and Allotment of Securities) Amendment Rules, 2022.

The Companies (Prospectus and Allotment of Securities) Amendment Rules, 2022 introduce new requirements specific to private placements involving entities from countries that share a land border with India. Any existing FAQs or guidelines related to private placements should be updated or supplemented to reflect these additional requirements and the need for government approval in such cases.