Companies (Prospectus and Allotment of Securities) Amendment Rules, 2023

The Ministry of Corporate Affairs officially notified the Companies (Prospectus and Allotment of Securities) Amendment Rules, 2023 on 20 January 2023 to amend the Companies (Prospectus and Allotment of Securities) Amendment Rules, 2014 in pursuance of the powers granted under section 26, section 27(1), Section 28, section 29, section 31(2), section 39 (3) and (4), section 40(6), Section 42, section 469 of the Companies Act of 2013. It shall come into effect from 23 January 2023. The amendment omits Rule 12(6) of the Companies (Prospectus and Allotment of Securities) Amendment Rules, 2014, and substituted Form PAS-2, Form PAS-3 and Form PAS-6. Before delving into the amendments, let’s first understand what prospectus and allotment of securities are briefly.

What is a prospectus?

A prospectus is a document which is issued when a public company is seeking to raise capital by issuing securities to the public. This route of raising capital is called a public offer. As provided under the explanation to Section 23 of the Companies Act for 2013^[1], a public offer comprises of initial public offer or IPO, a further public offer or FPO of securities by company to the public or an offer for the sale of securities or OFS by an existing shareholder to the public why is showing a prospectus.

A prospectus is defined under Section 2(70) of the Companies Act of 2013, which states that any document which has been issued that is described as a prospectus includes a red herring prospectus as provided under section 32 of the Act, shelf prospectus provided under section 31 of the Act or any circular, notice, advertisement or any other documents which put forth companies intention to invite offers in public to purchase or subscribe securities of the body corporate.

Types of Prospectuses – Companies (Prospectus and Allotment of Securities) Amendment Rules, 2023

There are many types of prospectuses a company can issue, and they are as follows:

• Red Herring Prospectus: This prospectus is required to be filed by a company before the registrar of companies before making the offer. The prospectus contains basic information about the company, its operations, the reason for the offer, manner in which the funds shall be utilised, among other things. However, it does not include details like the price and the number of securities being offered by a company.

• Abridged Prospectus: It is considered a summary of the prospectus, which contains the information regarding the issue of securities in brief. In accordance with the mandate under section 33(1) of the Companies Act of 2013, the abridged prospectus is required to be included with the essential documents which are submitted during the purchase of securities which are issued by a company.

• Deemed Prospectus: As provided under section 25(1) of the Companies Act of 2013, the document shall be deemed to be a prospectus the company question agrees to offer or allot securities to the public in the document.

• Shelf Prospectus
  A shelf prospectus is issued by a bank or financial institution for a company when it is issuing more than one class of securities.

What are Securities?

As defined under Section 2 of the Securities Contracts Regulations Act of 1956, securities include:

• Shares, stocks, scrips, debentures, bonds, debentures, stock debentures or any other marketing of similar nature of an incorporated company or a body corporate.
• Derivative
• Units or any other instruments which have been issued under a collective investment scheme to the investors
• Security receipt as is defined under Section 2(zg) of the Securitization & Reconstruction of Financial Assets & Enforcement of Security Interest Act of 2002
• Units or any other similar instrument which have been issued to the investors under a mutual fund scheme; Security shall not include funny scripts or unit linked insurance policy or any additional investment which tends to provide combined benefit risk on the investment and on the life of the persons by such persons and which have been issued by an insurer.
• An instrument or certificate issued by an insurer to the investor, with the insurer being a particular purpose distinct entity with receivable or debt including a mortgage that has been assigned to the entity and also technology Inc the beneficial interest of the investor in the receivable or debt including mortgage debt
• Government securities
• Any other security which has been declared by the central government as security
• Interest or rights in a security

Amendments via Companies (Prospectus and Allotment of Securities) Amendment Rules, 2023

There are primarily two areas in which amendments have been effectively made. The first one pertains to the omission of Rule 12(6) from the Rules, and the other one includes amendments made to three forms, namely, PAS-2, PAS-3 and PAS-6. The amended forms have been provided in the annexure to the Companies (Prospectus and Allotment of Securities) Amendment Rules, 2023.

1. Omission of Rule 12(6) of Companies (Prospectus and Allotment of Securities) Amendment Rules, 2014
   Rule 12(6) of Companies (Prospectus and Allotment of Securities) Amendment Rules, 2014 is titled “Return of Allotment”. It essentially states that once a company with a share capital has made any allotment of securities, such company shall be required to file a return of allotment with the Registrar under Form PAS-3 before the expiry of 30 days from the date on which the allotment was made. Such return of allotment must be filed along with the prescribed fees as provided under the Companies (registration officers and fees) Rules of 2014.
   The erstwhile Rule 12(6) of the Companies (Prospectus and Allotment of Securities) Amendment Rules, 2014, stated that in situations where bonus shares are issued, a copy of the resolution authorising the issue of such shares, which has been passed in the general meeting should also be attached along with Form PAS-3.
   The omission of Rule 12(6) has the effect of nullifying the above mentioned mandate. This means that when a company that has made an allotment of securities is filing the return of allotment with the registrar under Form PAS-3, it shall not be required to attach the copy of the resolution authorising the issue of such shares, which has been passed in the general meeting.
2. Amended Form PAS-2, Form PAS-3 and Form PAS-6
   The Companies (Prospectus and Allotment of Securities) Amendment Rules, 2023 has also amended Form PAS-2, PAS-3 and PAS-6. The amended version of the forms has been attached to the annexure of the amendment rules.

What is Form PAS-2? – Companies (Prospectus and Allotment of Securities) Amendment Rules, 2023

This form is titled “Information Memorandum”. It is governed by Section 31(2) of the Companies Act of 2013 and Rule 10 of the Companies (Prospectus and Allotment of Securities) Rules, 2014. Form PAS-2 is used by companies that are required to file the shelf prospectus. The information memorandum consists of information in relation to the securities which shall be offered by the company. This is often used by those companies that are making a second or subsequent offer of securities to the public. The information memorandum helps such companies in saving the cost of preparing the prospectus every single time it makes an offer. It contains updated information in relation to changes that took place during the period between the first or the previous offer of security and the upcoming offer of security. The details pertaining to the following:

1. new charges that have been created by the company
2. changes in the financial situation of the company
3. any other changes that may be prescribed

Form PAS-2 is required to be filed before the expiry of 30 days before the issue of the second or subsequent offer of securities made through the shelf prospectus. The form is required to be digitally signed by a person authorised by the board of directors and shall be certified either by a company secretary in practice/a cost accountant in practice, or a chartered accountant and practice.

Details required to be provided in amended Form PAS-2

The below mentioned details are required to be filled in Form PAS-2:

1. Further information pertaining to the particulars of the company, like the corporate identification number or CIN, name of the company, registered office address of the company, and email ID of the company.
2. Details regarding the shelf prospectus, which all include reference details, the date on which it was filed with the registrar, the date of issue and the period of validity in months.
3. Details regarding the securities being offered, which shall include the type of security, total number of securities offered, number of securities already allotted before the present offer, number of securities being offered under the present offer, face value, issue price and premium of each security.
4. Details regarding the charge are created like the number of charges, the date on which the charge was made, the purpose for which it was created, the amount for which it was created, the period of charge in months, details of the property or asset on which the charge has been created, name of the holder of charge and terms and conditions of the charge.
5. Change in the company’s financial position, both pre allotment and post allotment of securities. This shall include details of the equity share capital, preference share capital, secured and unsecured debts, reserves and surplus.
6. Changes in the share capital
7. Any change in accounting policies
8. Any change in the risk factor as mentioned in the shelf prospectus and the information memorandum filed with the previous offer
9. Economic changes which may affect income
10. Any material changes in the activities of the company that can affect the profit or loss of the company
11. Changes in the annual turnover of the company of every industry segment where the issuer operates
12. Any legal proceeding initiated buyer against the company
13. Any claim made by a person against the company
14. Any financial or technological market related policy changes regarding the business environment of the company which may adversely affect the business operations
15. Any change which may affect an investor’s investment decision
16. Details of the proposed objects along with the current offering and financial information, project plans, the time period to meet the objects and any other relevant detail.

What is Form PAS-3? – Companies (Prospectus and Allotment of Securities) Amendment Rules, 2023

This form is titled “return of allotment”. The law applicable to it are Section 39(4) and Section 42(9) of the Companies Act of 2013, along with Rule 12 and Rule 14 of the Companies (Prospectus and Allotment of Securities) Rules, 2014. As stated above, Form PAS-3 is filed to comply with the mandate that when a company with a share capital makes any allotment of securities, it shall be required to file a return of allotment with the Registrar under Form PAS-3 before the expiry of 30 days from the date on which the allotment was made. If shares are through private placement and the return shall be filed before the expiry of 15 days from the date on which the allotment was made. Such return of allotment must be filed along with the prescribed fees as provided under the Companies (registration officers and fees) Rules of 2014. The form is required to be digitally signed by a person authorised by the board of directors and shall be certified either by a company secretary in practice/a cost accountant in practice, or a chartered accountant and practice.

Details required to be provided in amended Form PAS-3

The below mentioned details are required to be filled in Form PAS-3

1. Details pertaining to the particulars of the company, like the corporate identification number or CIN, name of the company, registered office address of the company, and email ID of the company.
2. Number of allotments
3. Type of security: whether its equity share, debentures or preference shares
4. Details regarding the type of allotment: whether it’s through public issue, right issue, bonus issue, conversion of debentures, conversion of loans, conversion of preference shares, preferential allotment or private placement as applicable
5. Mode of allotment of securities
6. Date of allotment of securities
7. Details of the board resolution passed, including the date, mode of resolution and the number of votes foreign against the resolution
8. Details of the shareholder’s resolution
9. particulars of security allotted for cash like the class of security, number of securities, terms and conditions
10. Particulars of security which has been allotted for consideration other than cash
11. Details of consideration
12. Whether an agreement was entered and executed to allot securities for consideration other than cash details like the date of the agreement, parties to the agreement and brief particulars of the agreement
13. Whether an evaluation report has been obtained for the registered value for valuation of assets which were issued in lieu of shares that have been allotted for consideration other than cash. Key information regarding the valuation report.
14. Particulars of the private placement, if applicable
15. Particulars of bonus shares which have been issued
16. In case of conversion, attributes of securities that have been allotted
17. Details regarding the conversion
18. Whether an agreement was entered and executed to allot securities in case of conversion
19. The post allotment capital structure with specific details regarding the equity share capital, preference share capital, unclassified shares, debts including debentures, secured loans

Attachments required to be provided in amended Form PAS-3

The below mentioned attachments are required to be submitted along with Form PAS-3:

1. List of allottees
2. Valuation report from the registered valuer
3. Copy of the contract where securities have been allotted, what details of the contract reduced into writing
4. Any optional attachment

What is Form PAS-6?

This form is titled “reconciliation of share capital audit report (half yearly)”. The law governing Form PAS-6 is Rule 9A(8) of the Companies (Prospectus and Allotment of Securities) Rules, 2014. This form is required to be submitted to the registrar of companies by an unlisted public company issuing securities in dematerialised form. It is filled primarily with the objective of reporting any changes in the share capital of companies and other details every half year. It shall be certified either by a company secretary in practice or a cost accountant in practice or a chartered accountant and practice. The form is required to be digitally signed by a person authorised by the board of directors.

Details required to be provided in amended Form PAS-6

The below mentioned details are required to be filled in Form PAS-6:

1. Details pertaining to the particulars of the company, like the corporate identification number or CIN, name of the company, registered office address of the company, and email ID of the company.
2. Filing details like the period of filing
3. Number of classes of securities or shares
4. Details of the shares in accordance with the class and type of security, class of shares, number of shares held in dematerialised form and physical form, the reason for holding shares in physical form, details of any change in the share capital during the half year.
5. Details of shares held by directors, promoters, and key managerial personnel.
6. The register of members has been updated
7. With details regarding demat requests.
8. Whether a common agency has been appointed to share registry work

Conclusion

The Ministry of Corporate Affairs officially notified the Companies (Prospectus and Allotment of Securities) Amendment Rules, 2023, on 20 January 2023 to amend the Companies (Prospectus and Allotment of Securities) Amendment Rules, 2014. It shall come into effect from 23 January 2023. The amendment omits Rule 12(6) of the Companies (Prospectus and Allotment of Securities) Amendment Rules, 2014 and substituted Form PAS-2, Form PAS-3 and Form PAS-6.

The omission of Rule 12(6) has the effect that when a company that has made an allotment of securities is filing the return of allotment with the registrar under Form PAS-3, it shall not be required to attach the copy of the resolution, authorising the issue of such shares, which has been passed in the general meeting. Form PAS-2 is used by companies that are required to file the shelf prospectus and is often used by those companies that are making a second or subsequent offer of securities to the public. Form PAS-3 is filed to comply with the mandate that when a company with a share capital makes any allotment of securities, it shall be required to file a return of allotment with the Registrar under Form PAS-3 before the expiry of 30 days from the date on which the allotment was made. Form PAS-6 is required to be submitted with the registrar of companies by an unlisted public company issuing securities in the dematerialised form to report any changes in the share capital of companies and other details every half year.

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