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