A. Amendment of the Companies (Prospectus and Allotment of Securities) Rules, 2014
The Ministry of Corporate Affairs (“MCA”), has, vide its notification dated May 5, 2022, notified the Companies (Prospectus and Allotment of Securities) Amendment Rules, 2022 to amend the Companies (Prospectus and Allotment of Securities) Rules, 2014 (“PAS Rules”).
This amendment provides for insertion of the following proviso as the fourth proviso to Rule 14(1) of the PAS Rules: “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.”
Rule 14 of the PAS Rules provides for conditions to be fulfilled by a company for making an offer or invitation to subscribe to securities through private placement.
Corresponding to the addition of the fourth proviso to Rule 14(1), the amendment also provides for insertion of the following in Form PAS-4 (Private Placement Offer Letter):
“Tick whichever is not applicable:
B. Amendment of the Companies (Share Capital and Debenture) Rules, 2014
Similar to the above amendment, the MCA has also notified, vide its notification dated May 4, 2022, the Companies (Share Capital and Debentures) Amendment Rules, 2022 to amend the Companies (Share Capital and Debenture) Rules, 2014 (“SCD Rules”). This amendment provides for addition of the following declaration in Form No. SH-4 (Securities Transfer Form):
“Declaration:
Transferee is not required to obtain the Government approval under the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 prior to transfer of shares; or
Transferee is required to obtain the Government approval under the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 prior to transfer of shares and the same has been obtained and is enclosed herewith.”
These amendments appear to have been made pursuant to the Press Note 3 dated April 17, 2020 issued by the Department for Promotion of Industry and Internal Trade (“Press Note 3”) for amending the FDI Policy. In terms of Press Note 3, (i) all investments by entities incorporated in a “country which shares land border with India or where the beneficial owner of an investment into India is situated in or is a citizen of any such country” will require prior approval of the Government of India; and (ii) in the event of any transfer of ownership of any existing or future FDI in an entity in India, directly or indirectly, resulting in the beneficial ownership falling within the restriction/purview of (i) above, such change in beneficial ownership will also require prior government approval.
Press note 3 had been issued with the intent of curbing opportunistic takeovers/acquisitions of Indian companies during the COVID-19 pandemic.
Please find a copy of the PAS Rules, here and a copy of Press Note 3, here. Also, please find attached a copy of the SCD Rules amendment.
This update has been contributed by Smriti Tripathi (Senior Associate).
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