The Central Government has introduced the Companies (Prospectus and Allotment of Securities) Second Amendment Rules, 2023. These new rules come into force upon their publication in the Official Gazette, signaling the government’s commitment to swift implementation. They aim to streamline the issuance and management of securities and are particularly relevant for public and private companies.
- Share Warrants for Public Companies
Public companies that issued share warrants before the Companies Act, 2013, and have not yet converted them into shares face new requirements. Within three months of the rules coming into force, these companies must inform the Registrar about the details of these share warrants using Form PAS-7. Within six months, they must ask the bearers of the share warrants to surrender them and have the shares dematerialized in their accounts.
The company must notify the bearers via Form PAS-8 on their website and publish the same notice in a vernacular newspaper and an English newspaper. If a bearer fails to surrender the share warrants within the specified time, the company is obligated to convert them into dematerialized form and transfer them to the Investor Education and Protection Fund.
This change encourages transparency and ensures that share warrants are brought in line with modern dematerialization practices.
2. Dematerialization for Private Companies
Private companies also face significant changes, with a focus on the dematerialization of their securities. Notably, every private company, except for small companies, must issue securities only in dematerialized form and facilitate the dematerialization of all their securities in accordance with the Depositories Act, 1996, and its regulations.
For private companies that aren’t small companies as per audited financial statements for financial years ending on or after March 31, 2023, they have eighteen months to comply with these rules.
Additionally, these private companies must ensure that all securities held by their promoters, directors, and key managerial personnel are dematerialized before making any new securities offers, buybacks, issuing bonus shares, or rights offers.
Existing holders of securities intending to transfer or subscribe to new securities must also ensure their holdings are in dematerialized form. This encourages a shift towards more secure and efficient dematerialization practices.
The rules also state that sub-rules 4 to 10 of rule 9A apply mutatis mutandis to the dematerialization of securities under this rule.
It’s essential to note that government companies are exempt from these provisions, as these rules primarily target private companies’ practices.
